The surprising truth about your retirement income


Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

Generally you expect to accrue superannuation savings through contributions and investment returns while you're working. Then, spend that money in retirement, right?

The truth is, even though you'll probably stop working one day, your super won't.

It seems reasonable to assume that most of the investment earnings on your retirement nest egg are accumulated during the time you spend in the workforce. But did you know that your money keeps working for you after you retire? In fact, projections show that for the average Australian, approximately 66%* of their eventual retirement benefit will come from investment returns earned on their super investment after they stop working. Surprising, isn't it?

The projection* below illustrates where the source of retirement income is likely to come from over the whole life of a retirement investment.


*Projection assumptions: 9% contributions from age 21, 4% pa wage increases, with no career breaks, 7.5% pa net investment return pre-retirement, 6.5% pa net investment return post-retirement from age 67 retirement drawdown 60% of pre-retirement salary thereafter increased in line with inflation of 2.6% pa.
Source: Securing Retirement Incomes, Mercer 2009

The fact that investment returns have such a large impact on retirement income is great news, particularly for people who may have been expecting to rely on the Age Pension for support in retirement. If you are in this group, it might be worthwhile giving your super another look. Because most investment returns are earned after retirement, you may find that it is not too late to implement an investment strategy appropriately aligned to your full investment time horizon.

Time is on your side

Your investment "time horizon" is the length of time you anticipate your money will spend in the market. Remember the surprising truth about your super: your investment time horizon is longer than just the period you're in the workforce! By taking a whole-of-life view to your time horizon, you are more likely to make choices that serve you long term, so that your benefit keeps working for you, even while you're drawing an income from it.

An investment horizon should include your years in retirement as there is potentially still time for compound interest to be working for you- your money earns interest on interest already earned. From a whole of life point of view, having an appropriate investment strategy in place may mean more time for compound interest to be working in your favour.

This 'whole-of-life' approach also gives your retirement savings the opportunity to ride out the highs and lows of the market, even once you retire. A longer time horizon may provide more certainty in gaining higher returns though exposure to growth investments. This is because predicability of returns becomes more certain the longer the investment timeframe.

Does your investment choice reflect your current position?

Taking a "whole of life" view of your retirement income (as opposed to a "whole of working life" view) means taking account of where you are any point in your investment time horizon. Many people don't make an active investment choice for their super and simply accept the default investment option offered by their super fund. However, the default investment option may not take into account your personal investment needs, and may not accurately reflect your risk profile. You may want to consider actively making an investment choice- and adjusting it over time, as your circumstances change, if that's appropriate- to make sure your money is working to your advantage over the long term.

More information

A financial planner can assist you with this, and can help you decide which of your super fund's investment options are suitable for you now and over the course of your investing life.


This information has been prepared by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of what action to take. "MERCER" is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2012 Mercer LLC. All rights reserved.


SA Metropolitan Fire Service Superannuation Pty Ltd ACN 068 821 750 as Trustee for the SA Metropolitan Fire Service Superannuation Scheme ABN 99 439 309 855.

This website is provided by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. The Trustee pays a fee for the provision of this service, however this fee is not conditional on you using this service or acting on the information or advice provided through this service.