Investing for retirement

Investing for retirement can mean different things to different people. It is crucial to invest your money to be able to fund the retirement you desire. Different retirement investment options are available, and often, a combination of these may be best. While many people think of retirement as living off their savings, having an ongoing investment strategy not only has numerous benefits but also provides a sense of security for your future.

Planning for retirement

There is no denying that entering retirement can be a life-changing process that can take some getting used to. For many, it can spark financial worries and the need to have enough money to live comfortably. It can be challenging to know exactly how much money you will need to fund your retirement, and this is where retirement investing can be beneficial.

Benefits of continuing to invest during retirement

The right combination of investments can provide you with an ongoing income to support your lifestyle and to help fund your expenses. When considering a retirement investment strategy, a diversified mix of assets will help to limit the impact of inflation and market volatility.

This is important because:

Your savings need to account for inflation and rise in the cost of goods and services. What your money is worth today will be less than what it is worth tomorrow. You don’t know how long your retirement years will last, so you must ensure your savings account for this.

Inflation

It is important to consider inflation when managing your retirement savings. Inflation looks at the cost of goods and services and how they increase over time. Staying invested during retirement can help your money keep pace with inflation and ensure it lasts as long as needed.

Cash returns

Cash investments can be riskier as they are more likely to be outpaced by inflation. Your super savings may not keep up with cost increases as interest rates fluctuate.

Historically speaking, people who continue to invest during retirement are in a better position than those who choose only defensive assets or continually change their investment strategy.

Understanding Asset Correlation

Asset correlation is a crucial concept when investing for retirement. It examines how different investments perform against one another and is often used to manage portfolio risk. For example, investing in a combination of assets such as shares and credit investments can help mitigate the level of risk across your investment portfolio and account for market fluctuations across individual assets. This means that if one investment performs poorly, another may perform well, helping to balance out your overall portfolio performance.

How to choose the right investments for retirement savings

To help manage financial risks throughout retirement and the rise in living expenses, it is essential to ensure your income comes from a variety of sources. Considering the following can be beneficial when establishing the right retirement investment plan.

• Does your mix of retirement investments cater to market downturns?
• Does your income come from a variety of different sources?
• Do you have both low and medium risk investments as part of your retirement investment portfolio?
• Is the income you generate payable for life?
• What is your investment time frame?
• How dependent are you on your super savings?
• What are your retirement lifestyle goals and ongoing expenses?

Understanding your risk tolerance

When considering different investment options, it is crucial that you first work out your risk tolerance. Risk tolerance refers to your level of comfort with a decline in the value of your investments. Understanding and managing your risk tolerance can empower you to make informed investment decisions that align with your financial goals and capacity to recover from a financial loss.

Retirement investment options

When investing for retirement, you should consider both stable investments and those that generate an income. Some common retirement investment options are:

• Mortgage and bond funds
• Term deposits and high-interest savings accounts
• Managed credit funds
• Property
• Higher dividend shares, such as bank shares or mining companies

Every investment carries its level of risk vs reward. It needs to be considered as part of your overall retirement investment strategy, considering your financial situation, risk tolerance and future goals.

Managed credit funds

Managed credit funds comprise a pool of assets such as car loans, trade loans, business loans, personal loans and real estate and finance products. A managed credit fund will provide a regular income source in interest repayments with the option to reinvest. Most credit funds have a floating rate of return, which protects investors during periods of rising interest rates as the return moves in line with the underlying rate, e.g., the RBA cash rate. Generally, credit funds have a lower correlation to other income generating assets, such as shares, which aids in portfolio diversification and helps to safeguard against market fluctuations.

Remara’s Private Credit Income Fund is an ideal option as part of a retirement investment plan. Offering a regular monthly income stream through monthly distributions and quarterly withdrawals, with a since inception return of 12.31% p.a. (post fees). It is open to retail and wholesale investors and suits those with a medium risk profile. For a minimum investment of $10,000, our private credit income fund can improve portfolio diversification and reduce the correlation to conventional fixed-income assets.

ASX Shares

Investing in shares involves buying a share of ownership within a company and receiving potential returns through capital appreciation and dividend income. As a company’s profits increase, stock prices can rise, allowing investors to sell their shares for a higher value than originally purchased. Historically speaking, although share returns are higher than returns associated with bonds, they are a higher-risk investment option.

In terms of retirement investing, one problem with shares is the volatility in the underlying share price and the fluctuations in share value year to year. Australian shares tend to pay higher dividends than international shares, with Australian bank shares a popular choice for a high dividend-paying share option. If you are considering investing in shares as part of your retirement investments, it is a good idea to diversify your share portfolio to include a mix of asset classes and industries with varying levels of perceived risk. This allows the potential for greater returns from those with a higher risk profile while adding the security of lower risk investments to offset any losses.

Term deposits

Generating income through term deposits has become a popular low risk retirement investment method in recent years. A term deposit is a lump sum invested for a fixed period that generates interest at a pre-determined fixed rate. A term deposit is a minimal risk investment that can help to balance out other higher risk investments. One downside to a term deposit is that your money is locked away for a set period, and if you need to access it before the term ends, you will pay a fee to do so.

If you want the benefits of a term deposit with a shorter lock-in period, the Remara Term Account – Cash Management Fund is an ideal option for a low risk investment, backed by Investment Grade assets. Like a term deposit, investors can invest their money for 6 to 12 months within a stable high-interest investment account. Investors can choose between a fixed or variable interest rate depending on their risk profile. The fixed rate offers peace of mind, while the variable rate can fluctuate in line with RBA movements.

High interest savings and cash management accounts

High interest savings or cash management accounts can be a popular choice for retirees looking for a product that offers minimal risk to their initial capital while also providing a decent rate of return and daily access to their money. This style of account can also play a vital role in portfolio diversification or as a place to hold money while you are between higher yielding investments.

Remara’s At Call Account – Cash Management Fund pays a variable interest rate of 5.35% p.a.¹, regardless of the account balance or how many investments or withdrawals are made. Interest is calculated daily based on your account balance and is reinvested into your account. You can make as many monthly withdrawals as you need to cover unforeseen expenses, making it an excellent choice for retirees wanting the security of an enhanced cash product.

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Property and Property Funds

Property investment is another option that can be incorporated into your retirement investment plan. Significant costs, including stamp duty, maintenance, and agency fees, must be considered when making property investments. However, property investments offer benefits such as income from rent, capital gains over time, and tax incentives.

Managed funds or real estate investment trust funds are other ways to invest in property indirectly. These will provide exposure to property assets for a lower overall cost.

Take a step toward a comfortable retirement

We are often told that we should be planning for our future retirement, especially as we hit our early 40s. Thinking about your retirement in advance can be overwhelming, but being prepared will pay dividends. Determining the best investments for your retirement, whether you are future planning or already in the retirement stage of life, can be daunting, with so many options to consider.

If you would like more information on your retirement investment options and to learn more about our range of credit and cash management funds, contact our team today.