Age of vulnerability

Many more Australians will soon have unrestricted control of large amounts of money. Such sizeable amounts would have seemed like lottery wins to earlier generations.

This will occur, of course, as baby boomers spearheading Australia's fast-ageing population move from work to retirement, and they become free to invest all of their super savings outside the super system.

The Australian Securities & Investments Commission (ASIC) is clearly worried that the burgeoning group of recent retirees are vulnerable to being taken for a ride or simply making unwise investment decisions that could cost them their retirement savings.

Superannuation savings of, say, $200,000 or so, may seem like a fortune to some of us. But face reality: such a capital sum alone will not generate a big retirement income, and retirees would typically struggle to rebuild their finances after losing money in, say, a failed investment scheme.

Recent retirees have to make investment decisions with extreme caution.

As I wrote in my last Smart Investing piece - regarding financial literacy, April 29 - ASIC had commissioned Roy Morgan Research to survey more than 1200 investors to an effort to know more about their levels of financial literacy. In turn, the regulator wants to use the information to develop more effective ways to protect their wealth.

In the introduction to the survey results, ASIC writes that as most of the baby boomer generation retires over the next decade, many may choose to remove their retirement savings from the "relative safety" of superannuation.

And ASIC warns: "The current environment of high participation rates [in investment markets] and diverse investment experience provide greater opportunities for unscrupulous investment issuers and advisers, including, at the most extreme end, perpetrators of financial frauds and scams."

One of the disturbing findings of the survey was that many investors surveyed had difficulty reaching investment decisions because of what the ASIC report terms "decision-making barriers". These perceived barriers of these investors include: information and choice overload, fear of uncertainty, time pressures, not knowing enough about investing, and not knowing who or what to trust.

Yet the survey found that many of the investors who have difficulty reaching investment decisions rely solely on their own judgements and reports in daily newspapers when making investments.

There is little doubt that those entering retirement are extremely vulnerable. Move with extreme care if you are entering this stage of your life, and don't be reluctant to gain investment advice from a quality financial planner.