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Ask Paul: How can I make my compensation payout last till pension age?

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Dear Paul,

I have money coming to me from a compensation claim - it's estimated to be $900,000.

I am 58, single, own my home and car, and have $65,000 in super, and I have no debt.

ask paul clitheroe how to invest compensation payout

I won't be able to go back to work due to my injuries. All medical costs for now and the future are covered by the insurance company. 

What is the best place for me to put the money to earn an income till I reach 67, and then incorporate the age pension into my living cost?

I like to keep things simple and was thinking of bank investment, but they're not offering that much at the moment.

Because I can't go back to work, this will have to last for a while. - Jim

Jim, $900,000 that is critical for your standard of living for decades is way too complex for me to answer in a few words.

There is so much information an adviser would need to guide you accurately.

Key things are your health and any impact that this may have on your life expectancy, work that may be needed on your home now or in the future to assist you, any dependants and estate planning issues, your annual spending budget, your attitude to risk and a whole lot more!

A good place to start would be your super fund. It is likely to have a member advice service. Or you could go to the Financial Planning Association and look at its adviser referral service. Either way, you need a good, professional adviser. Make sure you understand their fees and ongoing service.

What they should be able to do for you, once they understand your complete situation and future needs, is to map a plan for the future. This will include an investment strategy.

I am really concerned about a "simple" plan leaving all your funds in a bank account. After inflation and tax, this seems like a pretty certain way to have little left in the long term. An adviser will discuss much better options with you, while keeping things simple.

I suspect topping up your super is likely to be a key part of this. Good, low-cost super funds have delivered returns way above a bank account over the long term. The adviser will also assist with a potential aged pension in the years to come.

You have a serious need for professional advice, so start by calling your super fund. Don't hesitate to get a second opinion. This money is absolutely essential to you and its effective management is really important.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Comments
Paul Eardley
December 8, 2022 7.04am

Nice guy but once again no cold hard facts just generic lingo.

Ta Paul.

Paul Clitheroe
Verified
December 13, 2022 3.52pm

Fair comment Paul. But in this case, Jim has a $900,000 compensation payment at age 58. What I know about Jim, is the 11 lines above. What I do see with absolute clarity is he needs detailed, personal advice, that is why I steer him to his super fund member advice service or to a professional advisor. This money has to last him a lifetime, it is critical that all aspects of his situation, spending needs, attitude to risk, dependents and a whole host of detailed, personal information are taken into account.

Then it gets complicated. Jim really does need cold hard facts. But as I do not have the detailed information an advisor would need about Jim, I simply can't supply these facts, which products to invest in and so on. Our regulator ASIC defines this in detail, it is all about 'specific advice", to provide this a licensed advisor must complete the detailed "duty of care" to their client. This is quite a process. An advisor would typically charge around $3000 to cover their professional time costs to move to a Statement of Advice for the client.

Appreciate this all sounds like mumbo jumbo, but our legislation and intent of our regulator makes sense. People should not receive specific advice about investing their money, unless their complete situation is understood. So I can only give Jim general information steering him down the right path.

You'll notice this quite a bit in my answers. I can only give information and broad guidance to questions such as Jim's. Others, which do not involve securities I can provide a lot more, questions such as estate planning, property, mortgages and a whole raft of other areas involving money, here I can give solid facts.

After 40 years of doing this, I still find it frustrating not to be able to give stronger information to those in positions such as Jim, but frankly, I'd need to put my adviser hat back on and put in several days of professional time with them, to give them the critically important, detailed plan they need.

- Paul Clitheroe

John B
December 15, 2022 10.10pm

Mic drop...

Great answer Paul