People nearing retirement need to rethink their investment strategies in light of the still changing circumstances being driven by the COVID-19 pandemic, according to a new analysis issued by AMP Limited.
The analysis, undertaken by AMP’s chief investment officer, Lakshman Anantakrishnan has pointed to the underlying economic dynamics, and argued that adjustments need to be made for what are far from normal times where superannuation and retirement are concerned.
“Due to quantitative easing, asset prices are likely to continue to go up – which is what we’ve been seeing in the share market – despite the negative economic outlook. This will probably continue over the short-term, but in the long-term it creates a new risk in the system. Instead of concerns about the level of household debt or corporate debt there are likely to be concerns about the level of government debt,” Anantakrishnan’s analysis said.
“So, the long-term outlook is a bit riskier, as the reality of the underlying economic situation could kick in at some point if financial markets lose their confidence in the central banks. Total long-term returns are probably going to be lower than they’ve been in recent cycles.
“A lot of people have had their super in a growth option, which is usually fine over the longer term, but in or nearing retirement the focus should be on how to achieve a stable income stream rather than the accumulation of capital.”
“For those nearing retirement, a substantial capital loss now could have a big impact on lifestyles. It’s extremely important to understand risks and the impact these could have on retirement outcomes. These things should be considered if someone is thinking about deferring retirement until their super levels have been restored,” Anantakrishnan said.
“For those already retired, expected spending should be re-visited as budgets will need to be reassessed for the next five to 10 years. Because financial market conditions have changed, investment strategies should also be reviewed to understand the changes to expected returns and income, as well as the changes in the level of risk being faced, and whether there is comfort in carrying this risk.
“As always, and particularly due the vulnerability of finances at this time of life, it always makes sense to speak to a super fund or financial adviser before making any changes to superannuation or investments.”