Allocating my superannuation between conservative and growth? October 12th, 2023
I have two separate account-based pensions (ABP) through a major industry super fund. I make monthly withdrawals at the legal minimum of 5 percent from the June account balance. My ABPs are divided into a 60% conservative and 40% growth allocation.
Currently, my super fund withdraws the monthly pension payments from the most conservative fund within each of the two pensions. I’m wondering if this is the optimal approach, as it may gradually shift the overall pension holdings towards a greater emphasis on growth assets over time. Would it be more advisable to withdraw the monthly pension payments proportionally across the investment allocations of each ABP to maintain a balanced 60% conservative and 40% growth weighting overall?
Can I get my question answered?
While you are on the right track, some tweaking may be in order. You might start by looking to simplify things by combining the two ABPs into one. You can do this by converting both back to accumulation phase (briefly) and then starting a new ABP with the combined total. The only reason not to do this would be if the either of the ABPs were commenced prior to January 2015 and you were in receipt of Centrelink income payments at that time.
In that case, some more favourable income test rules might apply which would be lost if you combine the two. While you have selected two diversified investment options, it is important to consider the overall exposure to the underlying asset classes of shares, property, bonds and cash.
With that in mind, you might find your overall exposure to shares is higher than you thought. In any event, ongoing review and adjustments should be done on at least an annual basis. Ideally, you would allocate around 10 percent or two years worth of expected payments to the cash option and all monthly payments should come from there.
This protects the money you know you will be withdrawing from any market fluctuations that might occur. At your reviews, you would look to see if any gains have been made in the other more volatile diversified options and then simply sweep those profits to replenish the cash component. If the diversified investment options have declined, then you would simply wait until the next review as you should have your regular monthly payments already provided for in the cash option.
This approach and the reasons behind it are explained in Netplan Sessions 2 and 3.
The next level or a more sophisticated approach, would see you dispense with the diversified investment options and “dial-up” the investment allocations within your fund(s). For example, a balanced-conservative approach might see something like 10 percent allocated to International Shares, 20 percent Australian Shares, 10 percent property, 50 percent to fixed income securities and 10 percent to cash.
If you adopt this approach, you should review the portfolio each six months or so in conjunction with the latest Netplan investment guidance we provide as and when required.