According to the latest Intimate with Self-Managed Superannuation research report from Russell Investments, less than half of retired trustees indicated they had changed, or were planning to change, their asset allocation in retirement.1
This is despite the investment objectives being considerably different as SMSFs move from the accumulation phase into the pension phase.
One ongoing concern is that some SMSF trustees may simply be moving an existing portfolio from growth assets to defensive assets, such as cash and term deposits, without fully understanding the implications.
With more people living longer in retirement, most investment portfolios need a portion of growth assets, such as dividend-paying equities, to generate sufficient income for the trustees to live the type of retirement lifestyle they have planned.2
SMSFs have traditionally held a high percentage of their portfolio in cash and term deposits and 2012 was no exception.3 According to the Russell report, trustees allocated 33.9 per cent of their SMSF investments to cash and term deposits in 2012, compared to 25.6 per cent in 2011.
While trustees may be de-risking their portfolio by investing in cash, the impact of inflation means they may also run the risk of running out of money in retirement earlier than anticipated.
With the help of a financial adviser, SMSF trustees can get a clearer picture of what the appropriate investment strategy for their fund may be in the lead up to and in the retirement phase, without giving up their control.
Confirmation of SMSFs’ desire for control of their superannuation and investment decisions was evident in the Russell report; however SMSFs’ lack of portfolio diversification may mean trustees’ research is failing to identify opportunities for accessing all of the available asset classes.
With a growing number of SMSF trustees approaching retirement, 64 per cent of trustees said they were at least reasonably confident they were on track to achieve their retirement goals. However, this means about 36 per cent of trustees may fall short.4
Making the most of your SMSF means regularly reviewing your investment strategy in line with your lifestyle goals. As these goals change over time, it’s important to work with your financial adviser to make the appropriate changes to your investment strategy. Doing this early is the best way to ensure your retirement goals are met.
1 ‘Intimate with Self-Managed Superannuation’, Russell Investments, 2013, viewed 26 March 2013, http://www.russell.com/AU/_pdfs/market-reports/spaa/R_EVE_SPAA_Report_V1FF_WEB_1301.pdf
2 Wealth Professional, 2013, viewed 23 March 2013, http://www.wealthprofessional.com.au/article/smsf-clients-need-more-growth-assets-173239.aspx
3 Australian Tax Office, 2013, viewed 23 March 2013, http://www.ato.gov.au/superfunds/content.aspx?menuid=49150&doc=/content/00332225.htm&page=8&H8
4 ‘Intimate with Self-Managed Superannuation’, Russell Investments, 2013, viewed 26 March 2013, http://www.russell.com/AU/_pdfs/market-reports/spaa/R_EVE_SPAA_Report_V1FF_WEB_1301.pdf