My mother’s fortnightly pension was around $360 p.f but with the recent changes to the government asset tests it is now $260 p.f. She owns her home and is worried about the lost pension and have to live off the funds in the bank. She has about $400k in the account and we would like to ask if there are other options for someone who is quite conservative to get a better return?

Hi Tami,
This is the challenge facing many retirees in today's market. Money in the bank just doesn't anything worthwhile. Utilising online savers and term deposits would get her about 3% but it is probably worth talking to a good financial planner who could explain annuities to her and give her some more options.
Try Endorphin Wealth in the city or Arrive Accountants and Advisers in Richmond for a free meeting to just see what is available?
Best of luck
Scott

Your mum has lost $50 per week from her pension, equal to $2,600 per year.
Ignoring any interest she may earn on the $400k she has in the bank, if she merely draws on the capital from the $400,000 at $2,600 p.a., she would have sufficient money to last 153 years before it runs out.
I appreciate that this does not allow for inflation, but then again, she would get pension increases as the $400,000 reduces.
I have this same debate with my in-laws.
I tell them to live life to the full, spend your money as you wish and don't worry about it running out as it won't.

Hi Tami,
your mothers best bet is a financial planner who isnt going to try to shove something down her neck that she neither wants nor understands. And that is the problem for her: finding one that she is going to trust enough to take the advice, and who has the time and ability to explain what her options are in English that she can understand. There is unfortunately no shortage of operators out there who dazzle their clients with jargon but cannot explain what is going on to people who may have little or no experience in finance.

You also need to get comfortable with the idea that at some point your mother is going to be paying for the service, either by way of an up front fee, or via commissions paid to the adviser by the funds receiving the investment cash; or both. And whilst the old saying "you get what you pay for" is true, you need to shop around, ask questions and challenge the planner to ensure you are getting the best possible bang for your buck. Ask them:
1: what are their qualifications.
2: find out what their experience is.


There are a lot of things that she does need to consider in addition to her age pension.....and it would be absolutely worth her while to get a plan together that encompasses her long term goals as well as maximising what she can access via Centrelink today. Good luck with it, I am sure there are plenty of financial planning types on this platform who are more than capable of providing a great service.
regards
Brendan

Hi Tami,

Yes there are options to make sure your mum is getting all the age pension she can.

Once that’s tackled it’s important to look at the income returns your mum is getting. As you’ll know money in the bank gets you next to nothing. Again there are options to increase this without taking on too much risk.

I’d be happy to help if you wanted to reach out. I’m in Melbourne and don’t live too far from Coburg.

Regards
James

Hi Tami,

Yes, the recent changes have meant retirees are getting less age pension and are required to draw upon their capital more.

One of the biggest risks to retirees is inflation and longevity. Overtime, things get more and more expensive and retirees live much longer so it is important to have a diversified portfolio that includes investment in some 'risk' assets that is expected to produce returns over and above inflation over the long term. A retiree even at 70 years old could have 20+ years of investing and inflation in front of them.

Another important thing to remember is that there is no free lunch when it comes to investing. There is no such thing as higher return without higher risk. If you are being sold something that is a higher return without more risk, then run because it doesn't exist. But risk shouldn't be seen as a scary thing. When I talk about increasing investment risk to my clients, their portfolio's are so diversified, it doesn't mean increased risk of losing all your money, it is just the increased risk that you might experience a negative return in any given year. Having a negative return one year every now and then doesn't matter, history has shown time and time again, that you are rewarded for taking risk over the long term. I would much prefer to have 5 years of a 10% return, then 1 year of -10% return, than having just 6 straight years of a 2% return.

One option that you may want to consider is a split. Something along the lines of 50% of the capital to be invested in an annuity. An annuity can provide a guaranteed lifetime, index adjusted income, as well as Centrelink benefits as the asset assessment reduces overtime. which would give her a guaranteed income of the annuity as well as increased age pension for life. The downside to the annuity is that you are effectively locking in your money for a long time at a very low rate of return (3-4%) which I why you could consider having the other have invested in a diversified portfolio including growth assets.

A lot of this would depend on your mothers age and health etc, so it is probably very important you seek advice. Having all her money in cash at the bank though, particularly if she is relatively young and healthy, is probably not a great plan.

Cheers

Glenn