Why super balances fluctuate

Should you worry if your super balance is fluctuating? Or is it a sign that you’ve got the right long-term, growth-oriented approach to your super….

The answer depends on whether your super choices are aligned to your needs.

For many Australian super investors—and there are 16 million1 of us—COVID-19 may have caused your super balance to change overnight.

In this article we’ll address the reasons for this and what it means over the short and long-term.

The COVID-19 crash

Your 2020 super balance has bounced around because COVID-19 has forced lockdowns around the world.

As the world’s economy largely depends on people getting together – in shopping centres, offices, stadiums, bars and airports—countries grounded to a halt.  As the crisis began to unfold in Wuhan, Lombardy, London, New York and Auckland – share prices tumbled too.

Impact depends on how your money’s invested

In 2020 super balances haven’t just fluctuated downwards. As Governments and central banks flung masses of cash at the problem (and a clearer picture of the virus’ weaknesses emerged), share prices soared back up. The US and German markets both had an increase of over 20% in the June quarter.

So, what do all these numbers tell us about the nature of your super balance?

Growth fund

It will fluctuate. And it will fluctuate in proportion to the percentage of growth assets in your super fund options. If you’re in a Growth2 fund where perhaps 85% of your money is in shares and property, short-term falls in the sharemarket will be reflected in your super balance.

Balanced fund

The same is true—but to a lesser extent—if you’re in a balanced fund where you could have up to 70% of your money invested in shares and property.

Conservative

If you’re in Conservative or Cash options, your balance won’t move so much with the market as most of your capital is invested in low-return, low-risk options like cash and short-term government securities.

Higher returns mean more movement

The crucial point is that this movement—the volatility—is the price you pay for higher returns.

In fact, over 10 years, the average person invested in a Growth super fund outperformed those invested in a Conservative super fund by more than 2% per year3.

That may not sound much, but super is a long-term investment and two percent extra a year, compounding over decades, can make a serious difference to the amount of money you retire on.

Determining your comfort level with volatility

Every person’s super plan is different.

If you’ve got a long time till retirement and you can look past short-term changes in your super balance, you may find that taking a more aggressive approach with your investment options is ok. This means your portfolio would have greater exposure to higher risk assets like shares and property than those with lower risk, cash and fixed income.

As you get closer to retirement, or if your super is all you have to rely on in retirement, a more stable super balance could be desirable so more conservative investment options may suit you.

Take control of your super

The best thing you can do is review your investment options and make sure they’re tuned to suit your age, attitude to risk, current financial circumstances and long-term plans. Speaking with a financial adviser might make that review even more effective.

At BlueRocke, our goal is to make you wealthier than you can be on your own. With appropriate advices, you may have a potentially improved financial position over time. Contact Dev Sarker at 1300 717 136 today!

 

1 ASFA: The benefits of Australia’s compulsory superannuation system – June 2020
2 We’re using categories from Moneysmart.gov.au. The exact numbers may differ slightly depending on the investment manager you’re with. The principles remain the same.
3 Chant West: Super funds navigate crisis to deliver surprise result – 17 July 2020

 

Source: https://www.mlc.com.au/personal/blog/2020/09/why_super_balances_fluctuate

Four tips to get your super back on track

Like many Australians, you may have dipped into your super early as part of the government’s Coronavirus financial hardship scheme. While the extra funds can come in handy right now, it’s important to keep sight of the bigger picture.

If you lost your job or had your hours reduced due to the impact of the Coronavirus, you may have taken advantage of the government’s early release of super scheme and dipped into your super to help with your living expenses.

Once you’re in a more comfortable financial position, it may be time to think about how you will rebuild your super balance to minimise the long-term impact on your retirement savings. This is especially important when you’re young because of the power of compounding returns over time. You can use the government’s moneysmart super withdrawal estimator to see how much of an impact the withdrawal may have on your retirement, so you can work out how much you need to rebuild.

Here are four simple suggestions for how to get your super back on track again.

1. PUT ANY SPARE MONEY BACK IN YOUR SUPER

If you didn’t need to use all the money you withdrew from your super, you can add it back to your super account as a one-off contribution. As well as boosting your balance, this might allow you to reduce your income tax (if you’re eligible to claim your contribution as a tax deduction).

Keep in mind, however, that the ATO is imposing penalties for anyone they determine has taken money out of super and then recontributed it for the sole purpose of obtaining a tax deduction. You can read more about it on the ATO website.

2. ADD A LITTLE BIT EXTRA TO YOUR SUPER EACH PAY DAY

If you’re back at work now and earning a wage, check whether your employer supports salary sacrificing. This is using part of your before-tax salary to contribute to your super, on top of the 9.5% Super Guarantee contributions your employer already makes for you. It will also reduce your taxable income, which means you could potentially pay less income tax.

Regularly putting in extra money to top up your super can make a big difference to your balance over time. For example, this chart shows the difference contributing a small amount each pay could potentially make to your super balance at retirement.1

Salary sacrifice per week Super balance at age 65 Difference
$0 $168,605 —
$10 $180,260 $11,655
$20 $191,915 $23,309
$30 $203,569 $34,964

 

1. Assumptions: This example assumes an initial super balance of $0, a salary of $65,000 p.a. and a weekly salary sacrifice of $10, $20 or $30 per week over 25 years. Current age is 40, and retirement age is 65 years old. Results are in today’s dollars, adjusted for annual inflation of 3% CPI and 3% of rising community living standards. The balanced investment option assumes an investment return of 3.46% p.a. after fees and tax. Source: CFS First Tech Team.

3. PUT A LUMP SUM TO GOOD USE

If you’re lucky enough to come across a lump sum, it could make sense to put all or some of this money into your super. For example:

  • a redundancy payout
  • a tax refund
  • an inheritance
  • the proceeds from a sale, such as a car or your house.

Just remember that there are limits around how much you can contribute to super each year. Currently, you can make up to $25,000 in before-tax (concessional) contributions and $100,000 in after-tax (non-concessional) contributions each financial year.2 If you go over these caps, you may have to pay additional tax.

4. CHECK YOUR INVESTMENT STRATEGY

How your super is invested may make a difference to how long it takes your balance to recover. Typically, growth assets like property and shares have higher returns than defensive assets like cash and fixed interest. Most investment options in super funds have a mix of both growth and defensive assets.

Check your latest statement, log on to FirstNet or download the Colonial First State app to see if your investment strategy is appropriate for you. If you’re not sure, get in touch with a financial adviser. Contact Dev Sarker at 1300 717 136 today!

Source: colonialfirststate.com.au

Early access to super extended

On 23 July 2020, the Government released the Economic and Fiscal update which included previously announced measures that were amended or reconfirmed.

Extension of early release of super (coronavirus) application period
Access to superannuation for eligible individuals under the financial hardship – Coronavirus condition of release will be extended. Currently, applications to have an amount released in 2020/21 need to be made by 24 September 2020. However, the application period will be extended to 31 December 2020.

An amount up to $10,000 may be accessed up until this date by eligible Australian and New Zealand citizens and permanent residents.

The superannuation regulations will need to be amended to support this measure.

For more information about this temporary condition of release and the application process, see the below super access articles on the MLC website:

To help you keep your clients informed we have updated our two early super access articles.

Other superannuation measures
The update also included the following measures, some of which had been previously announced:

  • The Government intends to legislate the previous proposal to increase the maximum SMSF membership limit from four to six. The commencement date will be after Royal Assent.
  • The start date of the Retirement Income Covenant will be deferred to 1 July 2022. This relates to superannuation fund trustees being required to consider retirement income needs for members.
  • Amendments will be made to the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 which is currently before Parliament. The changes include deferring the commencement dates of various amendments which includes ceasing the operation of eligible rollover funds.

Source: MLC Tech

We’re here to help, reach out to Dev Sarker at 1300 717 136 today if you need any assistance.

Contribution flexibility for older Australians – Regulations made

On 29 May 2020, the Government made regulations which increase the age at which contributions can be made:

  • without meeting the work test, and
  • on behalf of a spouse.

The measures are effective from 1 July 2020.

It is important to note that legislation will need to be passed by Parliament for the proposed changes to the eligibility age for the bring-forward rule for this to become law. This Bill proposes to allow individuals under aged 67 on the prior 1 July to trigger the bring-forward rule. Currently, this is only available to those aged under 65. It is proposed to commence from 1 July 2020.

Work Test

The work test will no longer need to be met to make voluntary contributions to superannuation from 1 July 2020 for those aged 65 and 66. This means the work test requirements will align with Age Pension age which will be 67 from 1 July 2023.

The removal of the work test provides the opportunity for eligible clients to:

  • make non-concessional contributions
  • make concessional contributions including catch-up contributions
  • implement the recontribution strategy
  • manage tax, including capital gains tax
  • claim the spouse contribution tax offset or co-contributions (if eligible)
  • make contributions under the small business CGT concessions, and
  • transfer foreign superannuation into an Australian superannuation account.

Spouse contributions

The age limit for spouse contributions will increase to 74. Currently, spouse contributions can only be made if the receiving spouse is under age 70. Additional flexibility will be provided by the removal of the work test for those aged 65 and 66.

This would enable spouse contributions to be made for the receiving spouse without the need to satisfy the work test up to age 67. From age 67 to 74, the work test would need to be satisfied by the receiving spouse.

Making spouse contributions is a simple strategy that enables that spouse’s superannuation to be boosted. This may be used as a means of equalising the superannuation interests of both members of the couple. It may also entitle the contributing spouse access to the spouse contribution tax offset.

There is no change to other criteria, such as the total superannuation balance, which will limit the ability to make non-concessional contributions.

Need advice? 

Speak to financial adviser, Dev Sarker at 1300 717 136 today.

 

Source: MLC News and Updates, article published on: 01-06-2020

https://cloud.ecomms.mlc.com.au/contribution-flexibility-regulations?utm_source=ExactTarget&utm_medium=Email&utm_term=6099416&utm_campaign=&utm_content=

Managing your super in a market downturn

We’re here to help you understand what happens in a share market downturn,

If you’ve seen a decrease to your super balance as a result of the coronavirus, it’s understandably cause for concern.

When your balance goes down (or up), it’s as a result of changes in the value of investments in your super fund — this could be a mix of cash, shares, fixed income, property, and more—and, of course, your balance will change when you or your employer adds money each month, or when you withdraw money in retirement or through insurance premiums, fees and taxes.

Severe as they can feel, events like this aren’t permanent. In fact, based on history, markets have bounced back from other global shocks including epidemics like SARS and Swine Flu.

In this article, we’ll address five key areas to consider when it comes to thinking about your super in a market downturn and when there’s increased volatility.

1. Maintain a long-term perspective

Super is like any type of investment, there will be times of highs and lows. For the majority of Australians, super may be our longest-term investment given we start investing in super when we get our first job and don’t access the money until retirement.

It’s also the nature of investment markets to change rapidly, particularly shares, property or fixed income investments. The share market for example, is a public market so when the share market rises or falls, changes in share prices may impact the value of your super if it’s invested in shares.

Markets recover with time

But from what we’ve seen in the past with events that disrupt investment markets, markets do eventually recover, it just takes time.

From the 1987 Stock Market Crash to the bursting of the Tech Bubble in 2000, each trigger is different and the time it takes to recover varies too — it can take months, weeks or even years. While disruptions to markets occur fairly regularly, they are impossible to accurately predict.

So, if you do decide to make changes to your investments during falling markets—like switching to a different type of portfolio—it’s important to also consider what impact that will have on your returns when markets recover.

The value of $10,000 invested for 70 years

The dollar value 70 years later is shown at the end of the graph (at 31 December 2019) with the average annual return in brackets.

2. Review your investment strategy

While these events may make you want to take action, it’s important to take a moment to consider your investment strategy including why you invested that way in the first place.

Understanding the investments that make up your strategy and how they are expected to perform over long periods of time, can help you think about your strategy objectively, instead of reactively. Particularly short-term market volatility which can influence your investment decisions.

If your strategy is intended to be a long-term plan, which may be the case for those with a long way to go before they retire, making decisions based on short-term market fluctuations may greatly affect whether you achieve your long-term goals.

If you’re approaching or are in retirement, it’s still important to stay focused on your investment strategy. Carefully consider all of your options, and their impact on your retirement goals, before making any significant changes. Speaking to a financial adviser may help with this.

3. Be aware of your risk tolerance

It’s always important to consider how you feel about risk and market volatility.

By understanding your risk tolerance, you’ll be better able to make decisions about the structure of your investment portfolio in a way that aligns to you personally. Risk tolerance depends on how you feel about taking risk and your ability to do so, such as whether you are financially able to bear the risk.

Asset classes like shares and property, have higher return potential and experience greater fluctuations in value, than cash or fixed income investments. How much exposure you choose to have in each of these asset classes, may change depending on your level of comfort, especially during periods of investment market instability.

4. Consider diversification

One of the most effective ways of reducing the impacts of investment fluctuations is to diversify. Multi-asset or diversified funds invest across multiple asset classes to assist in reducing volatility.

Diversification essentially follows the concept of not putting all your eggs in one basket by spreading your money across many asset classes, countries, industries, companies, and even investment managers.
When one area of your portfolio is weak and falling, another may be rising strongly. If you have money invested across many areas, changes in their values tend to balance each other out.

Diversification doesn’t mean you can avoid negative returns altogether, but it helps reduce the size and frequency of fluctuations in your portfolio. Particularly compared to if you’d only invested in shares, for instance.

5. Seek support from a professional

Super funds have lots of information available online to help you understand your savings.
Working with a financial adviser can help you design a plan to achieve your financial goals. They may also provide you with a better understanding about the risks and rewards of investing and how you can manage risk.

While the impact of market volatility can affect your super, it’s important to remember it won’t last forever. The investment strategy you adopt should take into account factors including—your financial goals and the savings required to get there, the number of years you have to invest, the return you can expect from your investments, and how comfortable you are with volatility.

We are help to help. Contact Dev Sarker at 1300 717 136 today.

Article source https://www.mlc.com.au/personal/blog/2020/04/managing_your_super

Covid-19 and your super

Important Update – The Government’s new super and pension provisions announced 22 March

Over the weekend, the Australian Government announced its economic support package to help Australians who are under financial stress as a result of the Coronavirus.

Two of the support measures announced include the early release of superannuation for those financially affected by the Coronavirus and a temporary reduction of minimum pension payment requirements for retirees.

A summary of these measures, including information about who is eligible and how individuals can access these provisions can be found in this link  – https://www.mlc.com.au/personal/corona-virus/government-superannuation-changes

If you need more information, we are happy to help. Contact Dev Sarker today at 1300 717 136.