Managing your super in a volatile market

It’s been a tough year with rising inflation and interest rates, and a rollercoaster ride on share markets which all take their toll on those living on superannuation. The super industry regulator, the Australian Prudential Regulation Authority (APRA), says there’s been a 3.2% drop in total super assets in the 12 months to September 2022. So what should you do with your super during such volatile times?

Some handy tips to consider for your super

Building a resilient plan for retirement involves managing volatility and thinking about your investment expectations. The recent market turmoil we’ve experienced may well persist as the world adjusts to changing economic and geopolitical situations. This will likely lead to a wider range of investment returns.

But this doesn’t necessarily mean poorer outcomes if you adopt and adhere to a robust, diversified strategy that’s attuned to your needs, circumstances and goals that will allow you to weather a variety of market conditions.

While financial markets remain unsettled as the era of ultra-low interest rates has come to an end, it is important to remember that superannuation is a long-term proposition and markets tend to recover over time.

Consider the economic outlook

At any given point in time, there are a number of factors that contribute to the performance of Australian and global investment markets.

One of these factors is the outlook for the domestic and international economies. When the outlook is positive, investment markets tend to react accordingly with increasing valuations in asset prices.

Conversely, when the outlook is negative and there are perceived threats and challenges to the global economy – often referred to as ‘economic headwinds’ – this can lead to falling asset prices and investment markets tend to weaken.

Amid the current climate of geopolitical tensions, coupled with rising levels of inflation and crippling supply chain issues, global share markets have fallen significantly since early 2022. This resulted in many negative returns on some investments.

As a result, many retirees with superannuation benefits invested in account-based pensions who are drawing regular payments from their superannuation funds, have seen their account balances reduce at an unexpected rate.

For these members, this is an opportunity to review the situation and consider some steps to assess their investment strategy.

Strategies to consider for your super

Review your investment risk profile and investment options

Account-based pensions usually offer a range of investment options, each of which have a specific risk profile. Options range from those that are considered low risk, where investment returns tend to exhibit lower levels of volatility, as well as higher risk strategies that have a bias towards growth-orientated investments which are expected to produce higher investment returns in the long term.

But they typically exhibit higher levels of volatility. Therefore, depending on your own investment risk profile (which is a reflection of your concerns, objectives and priorities when investing) you can choose and tailor available investment options.

Reduce drawdowns from account-based pension

If you get more than the minimum allowable amount from your account pension payment, you can potentially reduce that amount. If your situation allows for this, and you have another source of funds, such as a bank account, then reducing your reliance on drawdowns from your account-based pension during periods of falling investment returns may increase the longevity of the available account balance.

Review any Centrelink payments you get

Most payments from Centrelink, such as the Age Pension, are subject to means testing. Therefore, if your account-based pension balance falls and you’re also in receipt of a payment from Centrelink (or you do not receive a payment at all because you were previously assessed by Centrelink as exceeding the Assets Test upper threshold), you should contact Centrelink and request a review as your total assessable assets. If they’ve fallen in value, you may be eligible for a payment increase.

Alternative income streams

Consider introducing a non-market linked income stream product to your retirement portfolio. A non-market linked retirement income stream, such as an ‘annuity’, provides investors with certainty regarding the amount and duration of income payments. This is because these payments are agreed upon and confirmed at the start of the income stream, removing investment market performance and returns in relation to payments from these structures.

Consider employing a ‘bucket’ strategy

Such a strategy involves segregating your account-based pension balance into several different investment options (i.e. ‘buckets’), each with varying levels of risk. This will offer the ability to specifically draw down required payments from an investment option with a lower level of risk and allows the investment options with higher allocations to growth-orientated assets time to appreciate. Such an approach can insulate funds from market volatility, allowing growth-orientated investments time to recover from market slumps.

Seek professional advice from a financial planner

As with all investment decisions, several of the items mentioned should only be done after consulting with an independent professional financial planner.

Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321)(‘Active Super’). This article does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser.

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