market volatility and super

Building a resilient plan for retirement involves managing volatility and thinking about your investment expectations. The recent market turmoil experienced will likely persist as the world adjusts to changing economic and geopolitical situations.

It is expected that this will lead to a wider range of investment returns. However, this doesn’t necessarily mean poorer outcomes if you adopt and adhere to a robust, diversified strategy that is attuned to your needs, circumstances and goals that will allow you to weather a variety of market conditions. 

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 investment returns, and as an industry, Australian super funds experienced losses for only the fifth time in 30 years.

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

•    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.  However, 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 are get more than the minimum allowable amount from your account pension payment, you can potentially reduce the amount received. If your situation allows for this, and you have another source of funds like 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 received: Most payments from Centrelink, such as the Age Pension, are subject to means testing. Therefore, if your account-based pension balance falls and you are 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 have 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. While account-based pensions have a range of investment options available, and are therefore subject to investment market returns, a non-market linked retirement income stream such as a non-account-based pension (also often referred to as an ‘annuity’) provides investors with certainty regarding the amount and duration of income payments. This is because these payments are determined, agreed upon and confirmed at the start of the income stream, removing investment market performance and returns in relation to payments from these structures. Due to the nature and characteristics of these types of income streams, you should seek the professional advice of a financial planner.

•    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 could insulate funds from market volatility, allowing growth-orientated investments time to recover from market slumps. 

•    Seek professional advice from a financial planner: Several of the items mentioned should only be done after consulting with a professional financial planner. Active Super’s in-house team of financial planners can discuss these with you to ensure that you are making decisions that are in your best interests and delivering outcomes that best suit you.

Seek Advice 

If you require further advice on your retirement needs, then contact one of Active Super’s financial planners. Feel free to contact us on 1300 547 873 or make an appointment to see how we can help.^ 

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