In case you haven’t heard it yet, global financial markets have taken a beating latelyand super is caught up in the turmoil.
Most Australians have invested their pensions in industrial or retail funds, which invest in assets such as stocks, bonds and real estate.
Rising interest rates and inflation have meant that many of these assets have fallen in value of late, said Jacie Taylor, an independent financial advisor in Adelaide.
“There are a lot of things that are putting pressure on and driving the markets down right now,” she says.
Should we be concerned then? And what can we do to protect our super during periods of market volatility?
We spoke to Mrs Taylor and Richard Gough, a financial advisor based in Victoria, to find out.
Why it’s important to have a long-term vision
While the headlines about crashing markets can be scary, retirement is a long-term investment.
Ms Taylor says it’s important to avoid getting too caught up in short-term market movements, especially if retirement is still a long way off.
“If you have decades before you retire, think of this as if it were your favorite product for sale at the grocery store,” she says.
“When something goes on sale, you buy more of it because you know it’s a good idea. It’s exactly the same attitude you should have about retirement.”
As you get closer to retirement age, it’s important to plan ahead for corrections and market volatility, says Ms. Taylor.
For younger Australians building their super balance sheets, the situation could present an opportunity to invest at lower prices, says Ms Taylor.
“For anyone in their twenties, thirties, forties and early fifties, you’re a buyer — your money goes to super. When there are drops… that’s a good thing,” she says.
“It’s not necessarily a good thing if you’re a salesperson, in the run-down phase [when you’re withdrawing your superannuation]†
Why it can be dangerous to time the market?
For example, if you are concerned that the stock market and real estate prices may fall, you may decide to convert your retirement from a balanced investment option into cash.
While it may seem like a logical idea, in reality it is nearly impossible to time the market. Even if you’re right and prices keep falling, they can bounce back quickly while you’re still on the sidelines.
“They’ve essentially sold low and bought high, which is the opposite of what you want to do.”
An easier approach is to have a long-term retirement strategy that you can stick to during difficult times.
For example, Mr Gough says the Australian stock market has returned about eight percent a year, including dividends, for the past 20 years.
“That includes the GFC, including the correction during COVID, and the current correction. You’re still getting an average of 8 percent,” said Mr. Gough.
What should you keep in mind if you are considering supplementing your pension?
If you want to increase your super balance and you have some money available, one strategy might be to make a voluntary contribution.
If you make less than $56,112, you may be able to take advantage of the super-co-contribution plan to increase your balance by up to $500. increase†
If you are not eligible for the personal contribution, you may be able to claim tax deduction on your contribution.
“If you’re thinking long-term, you can put some money into the fund before June 30 and claim back a deduction,” Gough says.
“Maybe you have a double win, claim the tax deduction and buy… cheap.”
To claim tax deduction on a voluntary contribution for this financial year, you must:
- Make sure your fund processes your money before June 30.
- Fill out a “Notice of Intent” form to claim tax deductionsand send it to your super fund.
- Claim your tax deduction when you file your tax return.
Most funds allow you to contribute via bank transfer or direct debit.
If you are considering raising your super, keep in mind that you will not be able to transfer the money until you meet one of the conditions for withdrawal.
That usually means waiting until retirement age, but first home buyers may be able to withdraw voluntary super contributions to buy a home under the First Home Super Saver Scheme†
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Posted † updated
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