Super decisions Has the downturn in financial markets got you asking what you should do about your super? Here are some of the decisions to be considered for investors a long way from retirement, those closer to stopping work and for those already retired.
Under 55 10 years or more until retirement Invest for the long-term, even if it’s hard to do Research suggests investors feel a financial loss around twice as much as a financial gain, and are willing to take on more risk to avoid a loss1. But history tells us that over time, share markets do gain back their previous losses and rise to new highs. So if you’re concerned, instead of taking on more risk to try and halt the falls, perhaps the best option is to focus on your long-term retirement goal and seek advice. 1_Kahneman & Tversky (1979) ‘Prospect Theory: An analysis of decision under risk’, Econometrica, Vol.47, pp.263-292
Under 55 10 years or more until retirement Keep in mind, you’re buying more for less Don’t forget markets are now cheaper than they have been in some time. Contributing to super when the market is down gives you the opportunity to benefit from increased gains once the market recovers. And remember, while the share market may be volatile in the short-term, Australian shares generally perform better than other asset classes over the long-term.
Under 55 10 years or more until retirement When in doubt, seek advice If you’re nervous about your super and the impact of market falls, make sure you speak to your financial adviser to discuss your specific situation and long-term savings goals.
55 & over Less than 10 years until retirement Buy yourself some time – keep working Working longer gives you three potential advantages: 1. you buy time for the markets and your super balance to recover 2. you can delay drawing down on your super 3. you add more to your super through ongoing employer contributions
55 & over 10 years or more until retirement Save now, spend later Adjust your short-term spending, which could mean delaying big expenditure items such as house renovations, an overseas trip, or an upgrade to the family car. Instead, consider moving this money into super’s generally tax effective environment, where it will have the opportunity to grow and earn investment returns when financial markets do recover.
55 & over 10 years or more until retirement Seek professional advice Regardless of market conditions, it makes sense to regularly review your investment strategy and make sure if is appropriate to your retirement savings goal and investment timeframe. Your financial adviser can help you do this, as well as help you work out how much income you need in retirement and your plan to achieve it.
Retired Currently in retirement Adjust or delay your spending plans If your assets and investment value have changed, you may have to adjust your spending or delay any big ‘spends’ in the short term. This will help you to avoid dipping into your income stream, while maximising the amount of your benefit that is kept invested – giving it the opportunity to grow once financial markets recover.
Retired Currently in retirement Review your cash flow and investments If you’re drawing down more than the minimum payment required on your retirement income stream, consider drawing less money or just the minimum amount in the short-term. This way, you will have more money in your account to benefit from any upturn in the market. This will mean you will have a reduced income, so make sure you are comfortable with this prospect.
Retired Currently in retirement Consider returning to work part-time If you recently retired and are drawing down more than your minimum amount, you could consider reducing your payments to just the minimum and returning to work to supplement your income. While this strategy won’t suit everyone, it may reduce the extent to which you drawdown your account, while you buy yourself some time for the markets to recover.
Retired Currently in retirement Check your eligibility for a government pension If the value of your retirement income level has fallen substantially you may be entitled to higher government pension payments, or you may even qualify for the Aged Pension which you weren’t eligible for prior to the market downturn. To access the Aged Pension, you need to pass the income and assets test, and you need to be at least 65 years of age if you’re male, and 63.5 years if you’re female.
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