Ideas for my mum's retirement instead of shares please

Hi all

I realise noone can give specific financial advice and I will preface this by saying that the replies in the thread will be used for general education and ideas to explore deeper only and noone is going to go out and immediately jump into any suggestions without researching further first. All input welcome and appreciated though.

I'm after some advice for my mum please. She is early 60s and works a few days a week, owns her home but in one of those villages so doesn't own the land as such and has to pay the fees, but for her it is a lifestyle choice and allows her to live somewhere she likes and is secure and close to friends & family, and it's a nice place.

Mum has received financial advice from a financial advisor her sister uses, and has some cash reserve but the majority of her retirement savings in super is now in shares. Last year her stress levels were through the roof through the Covid dips, and now is fortunate that with the current market prices the loss in value has bounced back. However this is mum's first time into shares really and I don't think the daily fluctuations or stress are really worth it for her and perhaps now with the money back and not having to lock in any losses, I feel it might be a good opportunity to explore the idea of her selling out of shares and putting the money somewhere else instead given her age. I am not sure of how much there is but I think it's around 150k.

Given interest rates are super low and you would be lucky to make 1%, are there any better places to put the money in anyone here's opinion, or is she better off riding the wave and hoping that these current market prices aren't highly overinflated and speculative given there is still an accelerating pandemic which is my concern and just keeping it in shares and all the stress that also goes with that?

All replies appreciated thank you.

Comments

  • +3

    Given that your Mom is in her 60's , she should have diversified her super allocation. She should be around 40% allocated to equities. Reduced risk of crash but lower rate of return.

  • As ever, it all depends on (1) the investment objectives, and (2) the risk tolerance.

    Without understanding the above it is difficult to look to specific options. One option that may be worth considering is a bond fund. Without recommendation, (i.e. this is just one of many funds out there, I don't have a full spread of knowledge on what's out there), you could look at something such as this. This will be less volatile than equities or property.

    The issue you need to be aware of though is that there is an inverse relationship between the value of a bond and interest rates. Beyond the underlying credit risk, you need to be aware that as interest rates rise (whenever that may be), bond prices will fall.

  • Thank you both!

  • Have a look at unlisted property trusts such as those run by Charter Hall https://www.charterhall.com.au/investments/funds/direct-indu...
    Generally pay 6-7% income yield (paid monthly/3 monthly depending on fund), and usually some capital gain as well, as the properties are revalued twice a year. Long leases and high levels of occupancy. Downside is that you have to tie the money up for up to 5 years, and there's always the risk of depreciation of property values. Pretty stress free as even at the height of Covid the values remained the same as investors were not able to just panic and dump their "shares". I'd probably avoid retail and office trusts atm though.

    • +3

      Don't go unlisted

      Reuters

      • An explanation might be useful.

        • Property takes time to sell.

          If everyone tries to redeem they can't sell property fast enough therefore funds will get frozen as their small cash buffer is used up.

          Listed property trusts people sell the shares long as there is a willing buyer, the trust doesn't have to sell property to meet redemptions.

          • +1

            @netjock: Individual shareholders will buy and sell listed trust shares at prices removed from the NAV causing just as much volatility as any other sector of the sharemarket. Remember mum is trying to avoid the volatility of shares. Unlisted trust unit prices basically never moved during 2020.

            • @Rescue 26: Depends on whether you like volatility or getting frozen.

              If you need to spend the money or can't sleep at night about something you won't be selling then go cash.

              Lets not pretend that unlisted property doesn't have any volatility when frozen basically means it is worth $0. If the trusts were giving 50% off rents or only collecting 75% based on cashflow the units are worth less it is just they don't publish it as NAV doesn't mean it isn't true. If everyone bails and OP's mother is last to get out she ends up holding the last of the units which is against probably the worst illiquid asset remaining.

              • @netjock: Nobody can "bail" as the units are illiquid. Redemption offered every 5 years in the trust I linked. Of course they are not without risk but a lot less exciting than listed REITs.

                • @Rescue 26:

                  Redemption offered every 5 years

                  That is like comparing share market to term deposits. Not even the same playing field. If you are going to get 6 - 7% and lock in for 5 years then you could just be investing in listed REITs and get the same if you put it in and don't look for 5 years.

                  • @netjock: I never suggested it was the same playing field. It was you who brought up listed REITS thereby inviting the comparison. The whole point of the OP's post was to ask for options outside the share market.

  • +2

    I think it depends if she needs more money, or if the money she has already is enough. She could just put it into a low-risk index fund, I think that's much better than individual stocks, most investors lose money, especially those who don't put an insane amount of research into the market. If the money is enough for her to live on for the rest of her life, I'd just leave it in a high interest savings account and be stress free. What if the market crashed again? If she lost 20-30%, is that worth the risk of gaining 20-30% over three or four years? There's really no certainty with the market, a lot of people are saying it will crash, a lot of people are saying it won't.

  • +2

    Something like Vanguard's Diversified Conservative ETF VDCO might be worth a look.

    You buy it like shares via your share broker, but it's a diversified fund that's mostly "defensive" assets (cash/bonds), with 30% shares for a bit of growth. Risk is much lower than 100% shares.

    • +10

      100% cash is insanity.

      • -1

        Well, ideally a defensive hedge would include more diversity including miners/commodities/precious metals/maybe a bit of BTC(?) as well as cash, but my super fund doesn't provide options like that.

        Like most super funds, the allocation options are a bit limited. The options are mainly cash, bonds, property and shares, so my defensive options are disappointingly limited (I considered allocating something to bonds, but don't know much about them, and my superfund appears to invest in a mixture of government and private sector bonds, the latter of which I am a bit more weary about)

        I wish I had the intellect and motivation to set-up a SMSF, but I'm lazy and wouldn't know where to start. Maybe there is a super fund out there with more specific investment options?

        • +3

          If your super fund doesn't offer that mix then go to one that does.

          There are plenty of super funds offering direct share investment now.

          I'm with Aware Super (who don't offer many options) and they have 5 premix choices and 7 targeted choices. If you look at QSuper or HostPlus, etc they have dozens of options

    • +3

      I believe that the barefoot investor suggests to keep around 2-5 years worth of super in a cash fund and that way you can ride any adverse waves caused by the stock market whilst still leaving the balance to 'grow' over the long term.

      • It's not quite that. You'd have to read the book to get the gist of the strategy. It's worth it, even if you don't follow all of the "program".

        • What is missing about the statement Harveyworld made?

          • @deme: You really want me to pull the book out and find it when you could borrow from the library and read the whole thing?

            suggests to keep around 2-5 years worth of super in a cash fund

            The above statement can be misread in many ways. Cash fund implies within superannuation or possibly a managed fund with a cash focus.

            Barefoot Investor is a program. You need to follow the steps. You can deviate a bit but you shouldn't just choose the bits you like.
            EG: Hostplus Indexed Balanced Fund or something with similar $78pa administration and 0.04% investment fee.

    • +2

      If you plan to withdraw all of your funds when you retire then ok but putting all of your Super funds into cash is a crazy suggestion you will never have enough to live on. Worst advice ever.

      • Do not take this advice.

        Do not take out all your money our of super when you retire. After you retire all the income from super is tax free.

        • I agree, I never suggested this.

        • Profit from account earnings are only tax free if you move from accumulation to pension phase

  • +2
  • +2

    I would be very surprised if your Mum is 100% shares.

    You need to know her actual asset mix and who it is invested with.

    There is no point going full cash as it will earn almost no income. You want a mix of conservative assets that aren't very volatile.

    Look at either the conservative growth or balanced growth options. For income she will need to move money to an income stream. With so little super she will also need to tailor it so that she receive maximum pension and other benefits.

    I'm 59.
    My current asset mix is considered "High Risk".

    Australian Shares 33%
    International shares 49%
    Fixed Interest 4%
    Cash 4%
    And the remainder in "alternative assets" (property, private equity, credit income) .

    Later this year or next I'll be pulling that back to something like:
    Australian Shares 20%
    International shares 30%
    Fixed Interest 20%
    Cash 10%
    And the remainder in "alternative assets" (property, private equity, credit income) .

    • Problem I see is whether you have a big enough pot that will allow you to live off the income.

      Say $1m portfolio and 4% returns could get you $40k. Over cycle between $30k - $60k.

      OPs mother has a problem which is a small pot which won't generate a high income safely. Even if you go for high risk investment at 10% returns it is only $15k pa which is not that much.

  • I'm nowhere near retirement, so I infer the knowledge from the barefoot investor and suggest her to build "up three to five years of ‘Retirement Mojo’ — a cash buffer of living expenses" and "keep the rest of [her] nest egg in growth assets (within [her] super fund)", such as "cash and fixed-interest investment option" to "keep [her] nest egg ahead of inflation"

    https://www.barefootinvestor.com/articles/qna/how-to-prepare...

    Who doesn't love free professional and general financial advice ;)

  • Ideas for my mum's retirement instead of shares please

    bond?
    cripto
    managed fund
    term deposit
    property.

    seriously, you havent thought of those?

  • At her age should be leaving around 75% in a superranuation cash account.
    If the shares halved over night its definitely not worth the risk.

    • Which shares have halved overnight? Mesoblast is probably the most volatile I can think of. Flight centre took a few days to tank.

      • It's more if there's a stock market crash 2.0 on the cards, which the warning bells are signalling in terms of over valued stocks.
        Nothing worse than entering retirement and having to draw on liquidity that isn't there/waiting for it to recover over the course of 5 years.

        • +3

          Don't worry. It will be a flash crash. Basically from 2008/9, COVID19 we know the government bails out only 2 asset classes. Shares and property. One way or another they will.

          They never fix the real problem: not enough jobs because all the money is locked up in inflated property prices. I do enjoy on a $1m loan you pay $400k of interest (2.5%) and principle of $1m over 30 years. Economy is getting killed by how much of this equity people have created in property. This is dead money. If property was $300k and an extra $140k (deposit) was available to spend on services the real economy would be booming.

          • +2

            @netjock: Couldn't agree more.
            As much as a correction is needed the government has fixed the system and it'll just go about its merry inflated way.

            And yeah the houses need a crash to come back to reality.

            • +1

              @Drakesy:

              it'll just go about its merry inflated way

              Problem is at some point both parties will be cornered and basically it will be just short of a revolt. People living now might be the last generation who can afford investment properties because just paying off your own home is an achievement.

              The kicker would be when the government is broke and they can't afford to pay the age pension and you realised not raising the super guarantee means you have a lot less than you need to retire. You are sitting on at least $1.5m of equity (own home) which doesn't generate an income stream (unless you want to rent a room out on Airbnb but not everyone can / willing to) and there is no option except some kind of reverse mortgage type scheme to get by.

              Biggest con is this idea of freezing super contributions (you get at least 4% tax advantage) so you could buy your own home (and pay it off with after tax money).

              For many Australians the only option maybe to sell out and move to a low cost country, the future equivalent of current Thailand.

              • -1

                @netjock: Yep that's the real downside when government terms are so short. They focus on covering themselves for the short term to the detriment of the future generations just to stay office.

                Pretty sad really they they don't even bother to implement future thinking and the dire ramifications this will have. It seems long as those 55+ and aren't having anxiety attacks then they'll continued to be voted in. It's a shame that those most impacted, that being the younger generations effectively have the least say due to our rapidly aging population.

                but yeah thats my two cents.

                • -1

                  @Drakesy:

                  Yep that's the real downside when government terms are so short. They focus on covering themselves for the short term to the detriment of the future generations just to stay office.

                  Think it isn't to do with short. Everyone is planning for their retirement or old age. I think common sense is in short supply. The bank of mum and dad giving money away to help young put together a deposit. These people know it is going to end up being a ticking time bomb.

                  It is a bit like Chinese one child policy causing children to abandon their parents or if children die their parents end up destitute. Look at Japan, they don't have a one child policy but low fertility and pressure mean a lot of old people are being abandoned. Elderly financial abuse is rising in this country too.

                  Having flashy things invite thieves. I am afraid it is going to be a big shock to people where we might just end up.

  • Thanks so much everyone for all your helpful answers (and on behalf of mum when I pass this all along). Really appreciate it!

  • Should point out that many super balanced funds are ahead of their pre-covid level.

  • +2

    I think the biggest risk in retirement is running out of money, rather than market fluctuations.

    Do you know what her expenses per year is?

    Example - let’s say she uses $15k a year, that $150k is only going to last 10 years if it’s all in case. Then at age 70 she’ll need to rely on another income source e.g. pension.

    However if invested at 7% per year that extends slightly to 13 years (with 3% inflation).

    Have a play with this calculator, ultimately, really need to be working that cash to have a chance to not run out of cash before she kicks the can.

    https://www.noelwhittaker.com.au/resources/calculators/retir...

  • +1

    As others have said, read the Barefoot Investor book. You should read the entire book, however specifically the Don Bradman retirement strategy for those with low super balances.

    Basically, your mum will need to claim the pension and using that strategy she can top up her income by drawing on her super which will last longer because she isn’t solely relying on super to live on.

  • The cash rate just about say it all for savers. A return of above 5% is going to have to involve an element of risk, whether investing via a share portfolio, ETF's or managed funds or directly in property.

    No easy way around it to get a solid return with low to no risks.

  • Lots of good advice mixed into above. Basically requires that your mum bites the bullet and starts to adapt and learn if she is going to be comfortable with the risks and opportunities that her retirement savings represent.
    She is in her 60s, not her 90s. She grew up through the 70s and got through that didn’t she?
    Her most important and valuable investment at the moment has to be in herself, and as her son you need to be encouraging and supporting her in this process, learning lots yourself.
    I’m about the same age and we all [email protected] ourselves in March last year!!! 😁 A great learning experience that has many of us much more educated about money management.

    Spending time and effort with your mum and helping her get financial savvy will give her time with you (maybe more important to her than money), and keep her from being one of those cases on TV that got screwed over by some ‘investment scheme’ @rseholes.
    Many of us retirees have done very well in the last 12 months. There is not a simple single recipe for this except do some learning.

  • Unless your family has some genetic issue, she can expect to live another 25-30 years, of which the last 20-25 years will be assisted by the aged pension (from age 67). You can do the math on how well her current part-time work, then the pension, will cover her costs of living. Personally, as general advice, I’d say … have a few months ‘cost of living’ in the bank, in case her work stops, she has an emergency, etc, and the rest in a mass-market balanced option with one of the big industry super funds. She’s old enough to have seen her super roller-coaster through the GFC and Covid, and to understand that there’ll be more of it in her lifetime. And, if it helps, just as property has a baseline support due to people needing a roof over their head, Aust shares have something similar due to compulsory super sucking in a % of everyone’s wages.

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