If you’ve never looked at your super before there is a pretty good chance that the underlying investments are in what’s known as a balanced fund. This would see about 70% of your super invested in growth assets (property and shares) and the rest invested in defensive assets (like cash and bonds). A balanced fund is the default fund where your employer will whack your money if you don’t tell them what sort of risk you are willing to take with your super, and if you’re like around 80% of Aussies, your super will be sitting in a balanced fund. Is it the best option for someone in generations X and Y? I don’t reckon it is and neither do some super providers.

There are a few different super fund providers around who have a different approach to how your money is invested. They will offer a product where the risk that your super is exposed to (and the return you can expect) changes depending on your age. It means that younger people are exposed to higher returns (higher risks) by having a larger percentage of their super in growth assets. As you age and hit significant birthdays your exposure to growth assets lowers slightly such that by the time you are hitting your 60’s and 70’s your  super is protected by having up to 80% or more in defensive areas.

It makes good sense to ensure in the last few years leading up to retirement that you have a high total of cash and fixed interest in your super and only a small amount of shares. Plenty of people who were thinking of retiring just after the GFC hit realised too late that they were too exposed to shares that plumetted in value and left them without enough time in the workforce to recover their losses. In practice that meant eating more catfood in their twilight years.

But this doesn’t mean that as soon as you retire you should have no money in property or the sharemarket, as the trend towards longer life expectancies means a hell of a lot of us will live for 20, 30 or even 40 years after finishing work. It does mean that you should have enough in cash to see you able to ride out a downturn in the markets, so that would mean having at least three years of living expenses in defensive assets. The rest can be invested to provide the growth that you’ll need to see you through until it’s time to go into a wooden box.

I can sense that you’re thinking “This is too complicated, and I don’t need to worry about this stuff for decades.” Let me simplify it for you.

Give very serious consideration to investing your super in growth assets right up until you are within 7-10 years of retirement, then drop your risk back every year until it’s very low by the time you retire. Shovel away at least three years of living expenses into low risk assets while turning up your exposure to growth assets again on the remainder.

Obviously individual circumstances can play havoc with this type of approach, but to me it makes a lot more sense that the one size fits all approach of a balanced fund for life, or a product that will see you reducing your exposure to growth assets 20 years too soon.