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If you think all the hard work of creating a retirement income is over once you retire, unfortunately you’re mistaken. There are still lots of decisions to make.
A key one is how to invest your hard-earned super savings. Most super funds offer a range of super pension products, so you have lots of choices when it comes to investment options.
To help you navigate the maze, SuperGuide has created a simple guide to the main investment options.
Why choosing the right investment option for your super pension matters
Selecting the right investment option when you start a super pension or income stream is an important decision.
Your selection can affect how much retirement income you have available to withdraw each year and how long your savings last. Research has shown that 60 cents in every dollar of retirement income comes from the investment earnings you make in retirement. (For more information, read SuperGuide article How the 10/30/60 Rule can help achieve your retirement plans).
Before starting your super pension, you need to carefully consider which investment option best suits your personal circumstances and retirement goals.
Your super fund’s Investment Choice Guide will provide useful information about the different options, or consider consulting an independent licenced financial adviser.
What investment options are offered for super pensions?
Super funds generally offer three types of investment option if you take out a super pension with them:
- Pre-mixed option
- Choose your own or DIY investment mix option
- Direct investments
1. Pre-mixed option
Pre-mixed investment options are invested in a diversified combination of investment assets such as shares, property, infrastructure, fixed interest and cash. Some super funds offer up to 350 different choices when it comes to asset mixes.
Pre-mixed investment options for super pensions are usually categorised by the amount of growth assets (broadly shares and property) they contain:
| Option type | Level of growth assets % | What they invest in |
|---|---|---|
| All growth | 100 | Growth-style assets only (usually shares and property) |
| High growth | 81–100 | Mainly growth assets with small amounts of cash and fixed interest |
| Growth | 61–80 | High allocation to growth-style assets with an emphasis on long-term growth |
| Balanced growth | 41–60 | Higher allocations to fixed interest and cash than shares and property |
| Conservative growth | 21–40 | Mainly fixed interest and cash with lower allocation to growth assets |
Source: Chant West and author’s description of investment options.
Some super funds also offer age-based or ‘life stage’ investment options to their pension members as pre-mixed investment choices.
A life stage investment option is based on the concept that as you get older your investment mix should have less growth assets as you have less time to recover from any investment market declines.
To help achieve this, life stage investment options automatically shift their investment mix to slowly reduce the level of growth assets and increase the amount of defensive assets (broadly cash and fixed interest).
For more on investment options, read SuperGuide articles:
- Super investing: What is your risk profile?
- Super investing: Should you change your investment option?
- Super investing: How to change your investment option
- Super investing: How to choose a responsible investment option
- Super investing: What are listed and unlisted investments?
- Super investing: Are you investing in infrastructure?
- Annual super fund performance Reckoner: Annual returns for 5 investment categories
2. Choose your own or DIY investment mix option
With these investment options, retirees can create their own mix of different asset classes to suit their personal circumstances. The options generally use a managed investment fund based on a single asset class.
This means you can create your own tailored investment portfolio to match your goals or complement investments you hold outside the super system.
| Investment option | What they invest in |
|---|---|
| Australian shares | Companies listed on the Australian Securities Exchange |
| International shares | Companies listed on global share markets |
| Global property | Australian and overseas property |
| Global fixed interest | Australian and international bonds and loans |
| Cash | Short-term market securities and short-term bonds |
3. Direct investments
These investment options usually offer a selection of direct investments to choose from, including direct shares, exchange traded funds (ETFs), term deposits and listed investment companies (LICs).
For more on the performance of different asset classes, read SuperGuide articles:
- Asset sector performance: Returns over 1 to 15 financial years (to June 2019)
- Asset sector performance: Returns over 1 to 15 calendar years (to December 2019).
What happens if you don’t choose an investment option?
Not everyone wants to choose how the money in their super pension is invested.
If you don’t select an investment option when you start your super pension, your super fund will normally invest your account balance into a default option (usually a Balanced or Conservative Growth investment option).
Some super funds automatically switch you into a more conservative investment option with less growth assets as you get older.