How to get more joy from retirement
After a lifetime of working, retirement is the time to enjoy yourself. How will you spend it?
Balance
Having a super account means you're an investor, and that involves taking on investment risk.
Investing in super carries various levels of risk, depending on the investment options you choose. All investment options experience ‘volatility’, which means the value of investments will rise and fall with market conditions.
Some investment options are more volatile than others. It is important to choose an investment option that you are comfortable with, and that suits your expected minimum investment timeframe.
Your attitude to risk, or your ‘risk profile’, may change over time with your life circumstances and financial situation.
Investing in higher risk options requires you to be comfortable experiencing relatively higher volatility and to recognise that your investments may rise or fall in value significantly at any point in time.
Types of investments
Investments are generally divided into two different types: growth and defensive.
Growth investments can carry more risk and include assets like shares and private equity. By investing in growth assets, you might see more ups and downs in your super balance in the short term, but you might also see it grow higher overall in the long term.
Defensive investments, such as cash, bonds and term deposits, generally carry lower risk. These types of investments might suit short-term investors because they tend to fluctuate less, but they are also generally expected to achieve lower returns.
To reiterate, ASIC has said:
“A higher growth option will have higher risk and experience more volatile returns over the short term. But it will usually achieve higher returns over the long term. A conservative option will offer lower risk but lower returns over the long term.”
ASIC 2022
Why age matters
Taking on risk can be uncomfortable. Research shows that a person’s comfort level when it comes to taking on investment risk has been proven to grow with age and income level.* It’s also been shown women may find investment risk more difficult to take on than men.^
We all know that superannuation is a long-term investment. You likely opened your first super account when you started your very first job.
If you're investing for the long term, you may have more time to recover from any falls in the markets. If you’re investing over the short term, it may be beneficial to invest in assets that are expected to fluctuate less in value.
Time is one of the most powerful factors you have when it comes to super investment decision-making. Let’s look at two very different hypothetical member scenarios.
*Gallery, Newtown & Palm 2011, Clark-Murphy & Gerrans 2004.
^ Wilkins 2014, Lemaster & Strough 2014.
Mariah
Mariah is 25, a HESTA member, and has been working full time for a year. She is invested in the default HESTA MySuper option – Balanced Growth. Mariah has an investment time horizon of 40+ years before she retires, with plenty of time to weather market dips. If Mariah wanted to embrace more risk while she’s younger, a suitable option may be HESTA’s High Growth.
This example is provided for illustration purposes only.
Andrew
HESTA member Andrew is 64 and is getting ready to retire. He is also invested in the Balanced Growth default option and is now planning his retirement investment strategy. If Andrew needed a lump sum, he may choose to invest some or all of his balance in a lower risk option. However, it’s important to remember that even in retirement, he may still have an investment timeframe of decades, with people living longer# after retirement. He could choose to default into HESTA’s Income Stream Ready-Made Strategy, which includes a mix of Balanced Growth and Conservative retirement options and gradually draws down funds from the higher risk option over time.
# Australian Institute of Health and Welfare 2024.
This example is provided for illustration purposes only.
What level of risk is right for you?
Deciding what level of risk is right for you is a very personal decision. That's why we've developed the risk profiler to help you figure out your risk tolerance.
if you need more help, we're here for you
Make a time to speak to one of our friendly super advisers at no extra cost. It's all part of the service for HESTA members.
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