The past few years that included fires, floods, a pandemic, and war has caused everyday investors to become hyper-aware of market movements and the subsequent effect on their investment/superannuation portfolio valuations.
It’s important to remember that volatility is part of a normal functioning market. When formulating your strategy and risk profile, future market volatility should be taken into account, however uncomfortable it may seem to experience in the short term.
Is your super falling behind? Here are some tips for you to ease the stress.
My Super is Going Down: What Should I Do?
Super is a long-term investment, and although investment markets are volatile these usually rebound. Keep your long-term investment strategy in mind as you approach or enter retirement.
Stay Calm
Market conditions can affect the value of your super investment over time. You might miss out on future market improvements if you react to short-term market changes.
Diversify
Most members of superannuation funds have money invested in more than just the share market. Different asset classes perform differently over time, which helps to even out the highs and lows of market volatility in a given asset class.
Think Long Term
Super is an investment for the long term, thus many investment goals focus on a 10-year time frame. Volatility is to be expected, but in the long run, markets usually get back to normal after short-term changes.
Stick To Your Plan
Find out how much risk you’re willing to take with how your retirement money is invested, and include that in your financial plan. It would help if you looked over your financial plan every so often to ensure it still fits your needs.
For example, if you’re getting close to retirement and your retirement savings are in a high-growth investment strategy, you may be taking on too much risk for your current life stage.
6 Ways to Boost My Super
Sticking to your plan doesn’t necessarily mean you leave your super account as it is. You still have to review your plan and check if it meets your retirement planning goals.
If your plan doesn’t meet your goals or if you wish to boost your super to cushion the blow of future downturns, here are some tips for you to boost your super. It’s important to remember to seek the advice of a professional financial adviser and complete your due diligence before commencing or making changes to your strategy.
1. Keep Track Of and Consolidate Your Super Funds
If you’ve changed jobs, names, or addresses, and worked part-time or casual jobs, you may have multiple super accounts and be paying numerous super account fees. Check if the Australian Taxation Office (ATO) is holding unclaimed super for you.
Consider consolidating your super funds if you think it’s advantageous for you.
2. Take Advantage of Salary Sacrifice Contributions
Salary sacrifice is when you arrange for your employer to contribute a portion of your pre-tax salary to your super fund, in addition to the super guarantee.
Salary sacrifice contributions, aka concessional contributions, cut take-home pay, but you’ll only pay 15% tax on them (or 30% if your total income is more than $250,000).
This will be less for most people than their marginal tax rate. You get a benefit because you pay less tax and have more money saved for retirement.
3. Make the Most of Tax-deductible Contributions
Tax deductible contributions are voluntary contributions to your super that you can make on top of what your employer pays you under the super guarantee, if eligible.
When you file your tax return, you can claim a tax deduction for these after-tax super contributions (aka non-concessional contributions).
If you have extra income, putting money into super and claiming it as a tax deduction may be beneficial.
4. Get Co-contributions from the Government
A $500 government co-contribution may be available if you’re a low to a middle-income earner who makes after-tax super fund contributions without claiming a tax deduction.
If your income for the 2022-23 financial year is $42,016 or less and you make $1,000 after-tax super fund contributions, you’ll earn the maximum $500 co-contribution.
You may also be eligible for the low-income super tax offset if you’re a low-income earner.
If you earn $37,000 or less and your employer makes super contributions on your behalf, the government may refund the tax on such contributions up to $500 per year.
5. Add to Your Spouse Contributions
Superannuation contributions on behalf of your spouse may be an option if you earn more than your partner and want to boost their super savings or vice versa.
Also, you can get an 18% tax offset on your tax return if you contribute up to $3,000 to your spouse’s super fund. You must contribute a minimum of $3,000 and your partner’s income must be $37,000 or less to receive the $540 maximum tax offset.
You can get a partial offset if their income exceeds $37,000. You can still make personal contributions for them once their income surpasses $40,000, but you won’t get an offset.
6. Make Downsizer Contributions
Regardless of their work status, super balance, or contributions history, people over 60 can make a voluntary $300,000 super contribution from the sale of their principal dwelling. Couples can contribute up to $600,000 in total to their superannuation. The ATO website calls these downsizing contributions into superannuation.
Preparing for the Market Downturn: What You Can Do
Superannuation is an investment for the long term. Changing your investment options in reaction to market cycles is a huge decision that depends on your age, life stage, and risk tolerance.
It’s risky to try to “time the market ” because leaving a flailing investment and re-entering it when market circumstances improve could damage your retirement savings. Staying the course could help you capitalise on market gains and minimise losses.
Your long-term financial strategy should be a priority at all times but especially if you’re nearing or in retirement and your ability to earn a salary is ending or has ended. For example, if you are getting close to retirement and your retirement savings are in a high-growth investment strategy, you may be taking on too much risk.
Diversification and choosing an investment allocation suitable for your circumstances could help to mitigate risk and market declines.
In Summary…
Your super investments may fluctuate with market conditions and reacting to short-term market movements could cost you future gains.
Diversification can guard against market downturns because different asset classes perform differently over time, balancing market volatility in a specific asset class.
Since super is a long-term investment, your super goals should be set to a long-term target. Worry not since markets tend to normalise following short-term volatility.
Include in your financial plan your retirement investment risk tolerance. Checking your financial plan periodically will assist guarantee it meets your needs. You may take on too much risk if your retirement assets are in a high-growth investing strategy.
Know your risk appetite when considering your financial plan. You should review your financial plan regularly to make sure it still meets your needs.
Is Your Super Falling Behind? Seek Expert Advice from CCFPG to Get Back on Track
Having a good plan for your money allows you to better handle times when the market is unstable. If you need professional advice to figure out how much risk you’re willing to take or if your financial plan is still meeting your needs, you might want to talk to a qualified financial adviser.
Have your retirement plan checked with Central Coast Financial Planning Group. We are a team of experienced financial advisers based in Erina on the Central Coast and can help you plan for the retirement years you deserve. Call us or book online to secure your initial meeting with our advice team today!
REFERENCES:
- https://www.ato.gov.au/individuals/super/growing-your-super/keeping-track-of-your-super/
- https://www.ato.gov.au/Individuals/Jobs-and-employment-types/Working-as-an-employee/Salary-sacrificing-for-employees/#:~:text=What%20is%20salary%20sacrificing%3F,less%20tax%20on%20your%20income.
- https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/claiming-deductions-for-personal-super-contributions/
- https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/government-super-contributions
- https://www.ato.gov.au/Individuals/myTax/2022/In-detail/Super-contributions-on-behalf-of-your-spouse/
- https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/government-super-contributions
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