May 15, 2020
The coronavirus crisis has created financial fear for many people, but particularly those approaching retirement.
You're reading the doom and gloom headlines, the economy has gone into shutdown mode and your superannuation balance has taken a hit.
If you're nearing retirement or recently retired, it is no wonder you're concerned.
But before you panic and let your emotions take over, it is time to take stock and undertstand where you're at. Irrespective of your financial position, you have options and can still enjoy the lifestyle you'd planned for in retirement.
Start by getting the facts
Sit down with your financial adviser and get a true handle on how your retirement plans have been affected by COVID-19. Everyone is different depending on their own personal circumstances. The key factors that will influence the COVID-19 impact are:
- The time until your planned retirement (if you haven't retired yet)
- Your superannuation balance
- Your savings balance
- Diversification of other investments (shares, property etc.)
- Status of your current employment
- Expenses, debts and any other costs
Review your position, and if possible, forecast best and worst case scenarios and how that will impact your retirement lifestyle goals.
Make a plan
After a detailed review and now knowing where you're at, you're in a position to work with your adviser and adapting your retirement plan.
If you're lucky, you may not need to make wholesale changes. A few tweaks to your budget and some restructuring could see you stay on track.
If you've been hit hard through COVID-19, some tougher conversations with your adviser may be required. This may involve delaying retirement or, if you've recently retired, adjusting your lifestyle for a time until more stability returns to the market. It is key to get expert advice as you negotiate these strategic matters.
Now you're ready to address some key questions
As you adjust your retirement plans, there are key questions that are being raised.
Should I move my super funds to cash?
The Australian government has made it possible to withdraw up to $20,000 from superannuation (read more). And with the market downturn and enormous cloud of uncertainty looming, many have been tempted to withdraw their super and protect the money they have. However, this can have consequences and see you experience long-term losses.
Not only does it mean you could be selling your assets for cheap, but you lose the opportunity to replace your savings and regrow your funds when the market rebounds. Additionally, you also lose the tax advantages of super.
This also applies to those nearing retirement who may be looking to pull out super to bolster their financial situation due to coronavirus.
According to Industry Super Australia, during the Global Financial Crisis people who moved their money from an average balanced industry fund into cash in March 2009 were $13,800 worse off after a year and $34,800 worse off after five years.
Should I switch investment options within the same super fund provider?
Each super fund will offer a variety of investment options with different risk-and-return profiles, with most providing options like conservative, balanced, growth and high growth.
You may be considering switching the type of investment your retirement savings are invested in. However, it’s not as straightforward as it seems.
You still could experience losses, and there are several tax or fee complications which can come into play. It also depends on exactly how far away you are from retirement; if you still have quite a few years left, you may be able to wait for market recovery.
So, we’re not saying that you shouldn’t switch your investment options, but you should definitely research first, understand the risks and work with your adviser on this.
Should I move my retirement savings to a different super fund provider?
While many super funds are reporting unusually high levels of members switching their investment options and providers, this doesn’t mean it’s the right move for you.
Transferring to another provider can see you crystallise your recent losses and gain unfavourable tax components, something you want to avoid when you’re so close to retirement.
So if you are considering moving your superannuation to a different provider, it’s important to research components like insurance coverage, fees and tax to fully understand the impacts this choice will have.
Also consider which investment option within your new super provider you will use - keeping the same investment option may defeat the purpose of you switching in the first place.
What else can I do?
Other moves to consider, in line with your updated retirement plan, include:
- Making additional payments to your super where possible and if appropriate
- Researching the government benefits and payments you are eligible for
- Investing - with caution and following the advice of a financial expert (there are some great investment opportunities available to those in the right position)
- Carefully considering your financial situation before helping out family members
- Review your inheritance and estate plan
If you're proactive and make well-informed decisions in a crisis, you could weather the storm to come out financially secure with your wealth plan on track.
It is important to have an experienced financial adviser by your side who can guide you through your situation and retirement strategy.
At any stage in your life, the decisions you make now can make a huge difference towards how you spend your retirement.
Written by Aaron Doig for Calder Wealth Management.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.
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