Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Pension phase focus – Protecting your purchasing power
We are not all thrill seekers – and nor should we be. For many retirees, security is a key factor when it comes to investing super monies, as is the need to maintain purchasing power to deal with the impact of inflation and rising prices.
Annuities (term or lifetime) issued by life insurance companies such as Challenger or CommInsure are a popular investment option. Purchased with an upfront payment (which can be from your SMSF), they are straightforward investments offering a regular, reliable payment of income and capital, usually indexed for inflation, and sometimes payable for life. One well-known life insurance company describes the payment as “guaranteed”.
The downside for this “certainty”, “security” and “guarantee” is a low, effective investment return.
An alternative to life insurance annuities is the Waratah Annuity Bond, issued by the NSW Government. Here is our road test.
Waratah annuity bonds
The ‘NSW Waratah Annuity Bond’ is a NSW Government Guaranteed annuity style bond that pays a CPI indexed monthly cash flow for 9 years. For every $100 invested, it pays $1 per month, plus an adjustment for inflation. Over the nine years, this is 108 monthly payments of $1, plus an adjustment for inflation. If inflation averages 3% over the period and $100,000 is invested, the payment starts at just over $1,000 for the first month, and finishes at approximately $1,304 in month 108.