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the new school of super podcast series

Episode 35

Thinking about retirement – tips and strategies to get your super sorted

January 2021

Don't miss National Education Manager Joshua van Gestel and Head of Advice and Retirement Anne Fuchs. They wrap up 2020's impact on Sunsuper's investment performance, outline upcoming super legislation changes, and provide tips and strategies to help you get your retirement plans on track in 2021.

Hello, and thanks for tuning in. Welcome to the New School of Super, Sunsuper's podcast and webinar series about all things investment markets, money matters and making sure that you achieve your retirement dreams. My name is Anne Fuchs and I head up Advice and Retirement at Sunsuper, and we help our members plan for their best possible retirement through great quality financial advice. With me today is Josh van Gestel, our National Education Manager, who is kind of Brian's partner in crime in Sydney. We've gone from partners in crime of two to partners in crime of three. It's wonderful to have you here, Josh.

Thanks, Anne. It is wonderful. I'm actually back in the office—this is one of my first times back in here, actually—and it is wonderful to see your face after so long.

Yes, it's fun to have you on New School of Super all the time now. We're going to be talking about retirement today because it's on a lot of people's minds. But, before we do that, we need to do the general advice warning, which I'm going to throw to you for.

Absolutely. Thanks, Anne. This is just a reminder that what Anne and I are covering today is of a general advice nature only. We encourage you to actually reach out to us or your own financial adviser, if you'd like to receive some personal advice and guidance in regard to your situation. Please reach out to us on 131184 or by visiting our website at sunsuper.com.au for a copy of our product disclosure statement. Back to you, Anne, after that little reminder.

Beautiful. Brian and I, in the previous episode of New School of Super, were stepping back in time but talking very much around investment markets and performance. I wonder if you would come along with me, stepping back in time and thinking about what your personal reflections are about, I guess, us as people—

Yes.

and what we've learnt over the last year and also, in particular, what we've learnt about what retirement actually means to our members now and what's changed.

Absolutely. I think a lot of people over the last 12 months have had their plans really change. Maybe they have pushed back retirement or brought it forward and maybe they still don't know what they're doing; I've seen that with a lot of our members. Even personally, I've had my plans change dramatically. Probably the biggest thing for me is that, although I love being out and seeing our members face to face, over the last 12 months I just haven't travelled and have been locked here in Sydney. So for me, personally—I do use this reflection as well for many of our members

it has forced me to actually slow down in the way I work, and also the way I think I am in life has slowed down. My reflection on the last 12 months and perhaps my encouragement for some of our listeners or those watching is to think about what they've gained from the last 12 months and what they can actually do with that moving forward. But, Anne, that isn't to play down the significant impact that the last 12 months has had in other areas, not only on me but also obviously on our members. I think maybe you would be the best one to hear from about what, day to day, your team is hearing from our members and what they are actually saying to us.

You're spot on. Certainly there's a level of gratitude just about the simple things in life, such as their family being healthy and well and safe and having money in the bank. Going to the latter—you can sort of play along with me a bit here—maybe I could play the voice of members who are calling us—

Yes.

and, on their behalf, pose to you those questions that we continue to get asked. If I step back to March last year, it was, 'Should I move to cash?' Now the question has moved to, 'Well, what if there's another big market correction; what does all of this market volatility mean to someone who wants to retire in the foreseeable future?'

Yes, that's a great reflection, Anne. I think about the retirement income seminar or webinar that we did late last year where we had people asking us: 'Is it right for me to now move back out of cash?' My reflection firstly would be—maybe this is something that you and Brian picked up on in your discussion as well—about where we've come over the last 12 months, in that we've had this incredible volatility and this incredible impact; but today, as for where people are, if they had done nothing, they would probably be in the same position or slightly better off with their balance than they were 12 months ago. So probably my reflection there is that often we make our decisions based on what markets are doing today or what our sentiment is that they'll do over the next week or month, and it's very hard for us to hold on for the long haul. So, thinking about what markets have done over the last 12 months and that some people may have moved to cash and some people may have withdrawn balances when they needed to—and we accept that—those decisions will have a long­term impact. So, if I'm thinking about people now who might still be a bit nervous, my first reaction would be, 'Give us a call; help us to discuss that nervousness with you and give you some assurance in making sure that you are in the right investment choice for you.' But the other thing is to really think about what risk you are willing to take and what time frames you have. It could be that, as for the volatility that we've experienced over the last 12 months, which we may continue to experience, you can better accept and understand that as part of the journey that you've got going into your retirement. But my first and last point on that would actually be that you should speak to us in order to make sure that you're invested in what is the right way for you. I think that goes a long way to making you more comfortable, as we will see volatility, whether as part of COVID or another future crisis.

You touched on it, Josh: money makes people very emotional. What has happened over the last 12 months is that the volatility has elicited the emotion of fear for many people because, no matter whether someone is retiring with $80,000 or $800,000, we've all worked really hard—

Yes.

and that is a precious nest egg that most people don't pay any attention to, until such time as you can see the end of your working life in front of you. So naturally that emotion of fear kicks in, causing a reaction in wanting to do something to protect that nest egg. I think that is very wise counsel.

That's very true, Anne. I think, as well, a lot of people have been impacted over the last 12 months and perhaps not just on their balances but also emotionally, where mentally they feel that they're just not prepared for retirement or that they're being forced into retirement unprepared. I think the other thing to consider though is that people may have really changed their plans over the last 12 months. They may be feeling that they have to work for longer now than they perhaps intended to, or maybe they've gone through a redundancy or job or career change that is really affecting the way that they're thinking. I don't want to sound like a broken record on this but, again, I think it's important for those people who do feel that they're in a bit of uncertainty or in a holding pattern about what they need to do, what they need to think about or what they want to do with their retirement to reach out to us; give us a call. They should speak to their own adviser, if they've got one, and just check back in on those plans that they may have had and see whether they're still right or need adjustment. But, again, it's all about just getting that comfort and certainty.

You're spot on again because, at the end of the day, there's no right answer. Everyone's personal circumstances are different. You might be tired; your job might involve you standing on your feet all day, or you might be caring for family. Everyone's situation is different, which is why having that conversation is so important. We are seeing some members calling us, Josh, asking for your thoughts. They're recipients of JobKeeper. Also, with the federal budgets, they're hearing a lot of noise about superannuation and it's getting a lot of press in the media. Then there is the future budget that is coming in May.

Yes.

I guess it's a really big question that I'm throwing at you, but what role or impact could the government's policy have in terms of members thinking about and deciding on what is the right time for them to retire?

There is a lot going on in terms of policy settings at the moment. I think, if you play it out, we've seen ourselves moving down this path, with reviews and other reports and things that have been occurring over the last few terms of government. With what we can see at the moment and coming up though, I would actually suggest that you almost break it down to 'What's going to affect me over a long term'—particularly for people who may be younger—and 'What policy changes and announcements are being made that might affect my retirement if it's more immediate?' Perhaps I can just unpack what I mean there. We know that the government is grappling at the moment with increases to the superannuation guarantee. Forgetting the politics and all the rest of it, they are going to have to make a decision sometime between now and the next budget in May about what they're going to do with the superannuation guarantee. But, if you're really close to retirement, the impact of that is going to be minimal; okay? So there is legislation and policy playing out that I'd put in that bucket: it's only going to affect you if you've got a long time in play until retirement. I think then in the other situation we've got people who may be early in retirement or getting close to making that decision. We are going to see JobKeeper end shortly and we may have people who've been holding out for that in making plans to then retire. I'd suggest that it is probably never a smart move to hinge your retirement plans on legislation or policy, because that's always going to move. Again, I would probably encourage those people to think more broadly about their retirement plans and options and maybe reach out to us on that. But there are other things that you need to consider. We've got the potential—and, Anne, maybe we'll talk about this in a moment—maybe to see an increase in some of those contribution caps later this year, and that might give a bit of flexibility with contributions. We've also got things like the government having provided assistance previously by reducing the amount of income that you have to take from retirement accounts, and we're going to see that finish on 1 July. So, again, there are immediate policy settings that I think are coming into play and maybe they should be thought about in discussion. But there are these longer term policies around the super guarantee and other things; I think they are taking up a lot of air play and making a lot of noise, but maybe their impact for those closer to retirement isn't so big.

It's interesting, Josh. It's almost like the tale of two cities or the tale of two different types of members: those who have been fortunate or luckily enough to keep their job and who, because they haven't been able to go anywhere or do anything, have extra or surplus cash and they want to get that money into super; and then, conversely, those who are desperately worried about job security and the like—

Yes.

and are terrified. I guess that you've covered both of those scenarios there.

My next-door neighbour, for example—I hope he's not going to be watching this—took a redundancy very late last year. That redundancy wasn't expected or planned for, but he's actually looking at going back to study this year and has brought forward his retirement by a couple of years. But I reflect on that, even that he and his wife have spent much of the last couple of months in their caravan. That's something that at the start of the pandemic, at the start of 2020, they wouldn't have seen occurring. So I agree with you that, for many, there has been opportunity although there also has been uncertainty. That's why I think, again, all of these things are going to affect people individually, both in terms of their finances and where they are mentally and emotionally and also just where they are in terms of their career and decisions that they want to make. So again I encourage: get that counsel; speak to someone, whether it's your own adviser or us at Sunsuper, just to see what the implications are. Also, it doesn't all have to be pessimistic. There could be a really good outcome from this, a positive outcome, and perhaps you weren't aware that was going to be there.

One of the changes last year was that members who were in retirement and drawing an income could draw down less; obviously, a lot of our members were calling, saying, 'Well, I don't really need the income at the moment because I'm not going anywhere, and I don't really want to draw down the income because I don't want to lock in a loss while markets are down.' Do you have any, I guess, words of wisdom for members who are thinking about what is the right income level to draw down at a time like this? I know it's again 'crystal ball' and a very general question, but it is one that we get asked often.

Yes. Just reflecting on that point firstly, that reduction in the minimum withdrawal amounts that you have to take as income, that's actually due to end on 1 July this year. That means that anyone who's receiving an income will have to go back to receiving that normal minimum amount of income. But what I'd say, Anne—this is just a reflection from not only working at Sunsuper for nearly 10 years but also working in the industry for much longer than my look probably suggests—is that I think a lot of people are very fixated on drawing the minimum. I think a lot of people are very fixated on taking the least amount they can from their super to cope with such things as they've experienced over the last 12 months in trying to maximise their balance. My thinking would be: don't always go right for the minimum; speak to an adviser and get some guidance on what amount of income you actually need. That's where the discussion should start. It shouldn't start with a piece of legislation that says, 'You must withdraw at least X-amount.' The reason why I say that, especially if we reflect on the last 12 months, is that, as you've said, a lot of people have saved a lot more money than they perhaps were going to spend. We've seen balances perhaps recover more than people expected or anticipated. Does that give them some freedom and flexibility with income, once we see that some confidence does return?

You've said 'what income you need', and I sort of think 'or what income you deserve'. Many of our members probably live much more frugally than they need to because they see their superannuation as an estate planning tool to hand on.

Yes.

I totally understand where that comes from. But, certainly, superannuation was created to draw an income from, as opposed to being an asset to hand down to the next generation, and you've worked really hard. So making sure that you enjoy it is important because, as my grandmother used to wisely say, 'You don't go to the bank on the way to the cemetery or the crematorium; you can't take it with you.' Josh, do you have any final reflection around retirement and things for our members just to take stock of, before we finish up this episode?

Absolutely. If I do just want to crystal-ball, some potential things will come into play this year. We've talked about the super guarantee discussion, but we're also possibly going to see an indexation in the contributions cap, which is how much money people can add in to their super. At the moment they can put in, pre-tax, $25,000 a year. There is the potential—maybe next time we do a podcast, Anne, we'll know by that point—for that to increase to $27,500; that just gives people a bit more room to make additional contributions to super. Also, after-tax contributions—currently, they can make $100,000 a year in after-tax contributions—may increase; depending on indexation, potentially that amount could increase to $110,000 a year or $330,000 over three years. That's a bit of a 'watch this space' and is not locked in yet, but that could just provide some real opportunity to those who are getting closer to retirement. The other thing I would probably say is on a more personal note. I've had conversations right throughout this crisis with not only our members but also my own family, including my mother-in-law and my own parents, about taking some comfort in checking in on where your super is. I think a lot of people talk about what they think is happening, where their balance might be or where they might be invested. I think it is really important, Anne, that people do engage with their super fund: if you've got an app, download it; if you've got access to your information online, make sure that you view it; and, if you've got the ability to speak to people at your super fund, call them. I think it's important that people dispel some of the rumours or some of the assumptions they have regarding their savings and actually engage with it and then talk to us about what they can do with it. So know what position you are really in, know how you're invested and engage with it and then have a discussion about what you can best do with that.

That's a beautiful way to finish off, Josh: very wise words. On that note, I'll look forward to, maybe the next time that we catch up, our knowing a little bit more about what might be happening on the legislative front; hopefully, the market won't have been too volatile over that period of time. Thanks for joining us today, Josh.

Thank you, Anne, and it is wonderful to see you again.

Thank you to our viewers and listeners. Again, as Josh has said, we have our app and our website sunsuper.com.au and you can call us on 131184. Thank you very much for joining us, and we look forward to your joining us again soon.

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