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In the past few weeks, we have seen economies be brought to a standstill by COVID-19, unprecedented social measures announced by governments around the world, and a new, unusual rhythm of living that many of us are still settling into.

         

In the past few weeks, we have seen economies be brought to a standstill by COVID-19, unprecedented social measures announced by governments around the world, and a new, unusual rhythm of living that many of us are still settling into.

Although it might feel like things are calming down a little as markets begin to seesaw with less extremity, it's still the case that uncertainty ahead is likely to be the only constant. Even for the most measured of investors, staying the course in such times can be challenging, and perhaps particularly so for those who have retired.

You may have read in the news that many investors are “buying the dip” and taking advantage of trading opportunities caused by the volatility, with the view that share prices will eventually rise again. But for many in retirement, the first instinct is not to capitalise, but to protect. And advice to stay the course, while important, can feel a little off base when your super fund's portfolio has dropped sharply and you are starting to feel a bit helpless.

Here are three options to consider if you're in the retiree camp.

Reassess your asset allocation

Staying the course doesn't necessarily mean do nothing. More practically, it means sticking to your investment plan but periodically re-evaluating your asset mix to ensure it's still aligned to your goals, time frame and appetite for risk.

In light of all this volatility, perhaps you are now realising your tolerance for market risk is not as high as you previously thought – or you were comfortable but hadn't got around to updating/reviewing since you retired. In a severe market event like this you want to avoid trading in response to market moves and locking in losses. But it does make sense to revaluate your risk tolerance and consider how to rebalance your portfolio and lean towards fixed income products. One way to do this can be to redirect your investment distributions to conservative fixed income funds so you can build up the defensive portion of your portfolio over time.

Rethink discretionary spending

Reducing spending where possible goes without saying during difficult times but nobody would label it an ideal solution. But while you can't control the market nor predict its movements, your discretionary spending is however a factor that you can adjust.

For example, let's say your portfolio was valued at $950,000 at the beginning of the year.

Assuming a six per cent average annual return throughout retirement, you estimate you have a total amount of $4,750 to spend a month. If all other factors remain the same but your portfolio balance declines by 25% (to $712,500), your estimated monthly income drops by almost $1,200 a month (to about $3560).

For the time being, tightening your belt slightly in step with your reduced portfolio balance might help ease financial stress and help navigate through the crisis.

Relay concerns to a trusted adviser

The value of a good financial adviser often shines most brightly during periods of market uncertainty. When you're not sure what best to do, advisers can offer guidance and support that's tailored to your individual circumstances.

According to some research Vanguard recently conducted into the value of financial advice, it was noted that instead of purely focusing on portfolio and financial value, it is also worth assessing the value advisers can bring from an emotional standpoint.

Peace of mind can't be quantified in dollar terms but it is perhaps just as important as the figure on your portfolio statement. A second, professional opinion can calm your nerves or boost your confidence during these unsettling times. And if you're feeling particularly affected by the last few weeks, it might also help you readopt the right mindset to make considered investment decisions for your future.

Staying the course isn't always as easy as it sounds, but by keeping emotions in check and focusing on the factors you can control, you might weather this storm better than you think.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
15 April 2020
vanguardinvestments.com.au

 

 

The Australian superannuation industry has been in the headlines almost every day in the past few weeks, with the Federal Government predicting that as many as 1.7 million people will look to access their superannuation early as part of COVID-19 relief measures.

       

The key message is that accessing your super may be a critical matter of meeting life's necessities in the wake of a global pandemic – but explore all other options first because the long-term cost on your potential retirement savings is significant.

An interesting by-product of all the discussion about early access to superannuation is that it may have sparked the interest of younger investors who haven't always paid the closest attention to their own situation.

According to a research report by the Financial Services Council, the majority of young adults do not check their superannuation accounts and those under 35 were more likely to not know how much money they currently held.

With superannuation so topical, now could be a good time to learn a little more about it, even if retirement seems a long way away – particularly if you do not need to access but have rediscovered multiple accounts that you may have not got around to consolidating and still costing you in fees.

Superannuation 101

Superannuation is essentially money you regularly put into a fund in preparation for when you retire. It is deducted from your pre-tax earnings and when you stop earning a wage, your superannuation funds will be what helps provide you with a regular income in retirement.

Your employer is responsible for paying your superannuation into your specified fund at a compulsory contribution rate of 9.5 per cent of your annual salary. This applies to everyone who earns A$450 a week before tax.

Your superannuation fund then manages your money for you and invests it – either in their default fund or in the investment option of your choice.

Superannuation strategies

One of the simplest things you can do to manage your superannuation is to make sure you only have one account. If you've had multiple jobs in the past, your employer may have selected a default superannuation fund for you. And the more accounts you have, the more fees you are paying and the more your balance gets eroded. You can access ATO services to consolidate your superannuation via the MyGov website.

You are also able to select an investment option for your super, typically growth, balanced or conservative. Each investment option differs in their risk and return. A growth option will usually invest more of your superannuation in higher risk assets such as shares or properties, whereas a conservative option will invest more in lower-risk assets such as fixed income or defensive assets.

One of the key advantages that younger investors have is time, for the simple fact that the longer you have to invest, the more opportunity you have to realise returns. Choosing a high growth investment option earlier on means that although it may be riskier, you have the time to ride out market cycles and capitalise on the good years before you reach retirement. You also have time to reap the benefits of compounding interest on your superannuation balance.

Another strategy to consider is voluntarily contributing funds to your superannuation if you are in a position to do so. Even small amounts add up over time, and could reduce the tax you pay. According to the government's Money Smart website, these concessional contributions are generally tax effective if you earn more than $37,000 a year as they are taxed at 15 per cent. This might be lower than your marginal tax rate. But just remember there is a cap to how much you can voluntarily contribute a year.

Early access

While ultimately the decision to withdraw superannuation should be determined by your own financial situation, it is also important to understand the potential impacts of doing so. Based on an average net return of 6 per cent per annum, the value of $20,000 (the maximum you can withdraw) could grow to approximately $205,000 in 40 years.

Drawing down on your superannuation right now also means you are selling assets when the market values have fallen because of the uncertainty around COVID-19 and the economic impacts. You are asking your superannuation fund to sell your assets at a lower market price and even if you intend to repay it over time cashing out now may mean you can't recover this value when the market rebounds over time.

Conclusion

For those in their 20s or 30s, superannuation won't seem like a priority when you may have only recently entered the workforce. And day-to-day living expenses take precedence so voluntarily contributing more to your superannuation won't seem too appealing when you usually can't access those funds until you turn 67.

But superannuation is more than just a distant pile of money for future you, it also represents financial independence and freedom, and is best cultivated from an early age. This is especially true in recent years where millennials are experiencing record low interest rates, a tough housing market to crack and low wage growth. Making the right investment decisions about your superannuation may be an accessible way to growth your wealth right now.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
29 April 2020
vanguardinvestments.com.au

 

 

New data from Roy Morgan has shown self-managed superannuation and public sector funds both increased their customer satisfaction rates in March, despite significant market upheaval, but their industry and retail counterparts were not so lucky.

           

Self-managed super funds received the highest level of customer satisfaction (75 per cent), up by 0.3 of a percentage point from February, while public sector funds increased by 0.3 of a percentage point to 74.5 per cent. 

In contrast, industry fund satisfaction fell by 1.1 per cent in a month to 64.4 per cent, while retail funds were down by 0.2 of a percentage point to 60 per cent. 

Roy Morgan chief executive Michele Levine said that although longer-term trends show increased customer satisfaction levels, shorter term it is a very different picture.

“The average satisfaction rating across all superannuation funds is 64.2 per cent in March, a 3.4 per cent increase from a year ago,” Ms Levine said.

“However, this annual comparison misses a fall of 0.6 [of a percentage point] in the month of March after the ASX 200 market peaked in late February.

“Driving this fall has been a monthly decline of 1.1 per cent for industry funds in March.”

She noted the early super withdrawal option over the next six months will add to further challenges for the retail and industry funds.

“Industry funds based on employees in hospitality and retail industries are particularly exposed to this policy as many of their workers have been stood down in recent weeks as Australia fights the COVID-19 coronavirus pandemic,” Ms Levine said.

“A majority of industry funds had declining month-on-month satisfaction in March, and the challenge for all superannuation funds going forward will be finding ways to maintain customer satisfaction amid trying market conditions, reduced returns and ongoing uncertainty.”

 

 

Sarah Simpkins
24 April 2020
smsfadviser.com

 

 

Coronavirus resources have been added to the many others we supply our clients.  Resources such as many latest news articles, educational videos (updated recently), client portals, calculators, and stock prices.  You have 24/7 access to all these tools and resources.  Any question, simply ask. *

         

Latest News. 7-9 individual articles every month and all chosen for their relevance. Our website is a great place to stay informed.

Videos. All are relevant, interesting, educational and interesting. Videos that are changed three times a year to ensure you and your family are able to lean about many issues related financial issues and topics.

Calculators. A good range of calculators to help you better understand and manage your personal and family financial issues. Four of the more popular are: Pay calculator, Budget Calculator, Loan Calculator, and Super Calculator

Client Portals. Portals are quite common on many sites and can be used to store your data, pay bills, log onto investment systems.

Ask us a question at any time. If you have a question on any related topic then don’t hesitate to use a form on our site to ask.

Your information is private and confidential and should be treated that way. Using Secure File transfer means your information is encrypted when sent in either direction over the Internet.

Many sites also have a message window feature that displays messages of interest or that cover topics and deadlines you should be aware of.

 

* Not all are on every website.

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