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We ask the experts: what should we be doing with our super during Covid-19?

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  Published: 03 Jun 2020

If you’re facing financial uncertainty during Covid-19, you might be thinking about accessing your super early or changing your investment strategy. But what would this mean for your retirement balance, and how can your super help the economy bounce back?

It’s understandable to worry during times of great uncertainty. Covid-19 has had a financial impact on individuals, households and the wider economy. But there’s a way forward to a brighter economic future, say the financial experts at Industry SuperFunds. Here’s what you need to know about getting there.

How bad is this current financial crisis compared to the GFC, and can we be confident things will recover?

We know financial markets bounce around a lot, and in particular, during times like these, we often see quite a lot of movement. But we also know that over the long term, financial markets take into account all of this risk.

A little over 10 years ago, there was a worldwide meltdown: the global financial crisis (GFC). You will remember that in a relatively short period of time markets recovered. With that recovery came the restoration of people’s super savings.

Covid-19 is different from the GFC, but industry and not-for-profit super funds have very skilled people thinking about what this means for your investments. We are looking not just at what we can do in the short term to cushion the blow, but what we can do to be ready forwhen there is a recovery.

Markets always bounce back. It’s really important that people have confidence that it’s still worth investing in their financial future, and in particular their retirement savings.

We will come out the other side, and we need to be in a good position to invest when we do. Super is a long-term investment. It’s built to make sure it can carry people’s savings through the troughs and peaks of market shocks like this.

I’m in financial distress. Should I access my super now?

Because of the extraordinary measures that governments have taken to support individuals, families and the economy through this period, there are a few things you should think about before requesting early release of your super. Are you eligible for the JobSeeker or JobKeeper allowances? Both these schemes are designed to help you get through this short-term loss of income, so you are able to pay your bills and put food on the table.

Access to super is something that people should think of as a last resort. Tapping into your super now could have a profound impact on how much money you will have when you retire.

It’s also important for members to know that industry super funds make investments that create jobs and keep Australian businesses strong. Members are not only helping themselves recover, but also the Australian economy as a whole.

Should I switch my savings to conservative, balanced plans or cash investments, to ride out the crisis?

A market downturn is not the right time to sell superannuation. It’s there to provide retirement income when you need it: when you’re older and no longer working. This is the time to sit tight, ride it out if you can, and wait for markets to recover.

One of the key learnings from the GFC was that making a rash decision to switch to a more conservative investment option, or convert your super into cash, can have an exponentially negative impact on your super balance over ensuing decades. Taking money out of super early means you will earn less compound interest and miss out on up to five times the amount you have withdrawn. For a more precise outlook, you can calculate your projected super balance at retirement. Decisions you make about your super now might affect when you can retire, and the type of lifestyle you will have in retirement. Think very carefully before making a decision in the heat of the moment.

I’m retiring soon. What should I do about my super now?

Don’t think about retirement as the end of your super nest egg’s growth. While many things will change, your super will continue to be invested for 20 or 30 years after retirement. The way we invest your assets needs to change, but you still need those investments to work for you into the future.

During the GFC we saw a number of people in or close to retirement switch to cash. Many of those members then lost the confidence to go back into financial markets and ultimately found themselves worse off.

The best thing you can do is take advice about what you can do right now to protect your super and make sure it delivers the retirement you want. It’s important to remember that Industry SuperFunds are working hard to protect your savings and to make sure you can take advantage of the recovery, so you can get back to building your nest egg.

Should I expect my super balance to go down as much as the stock market? And how can I make the most of any rebound?

Not necessarily. Industry funds’ balanced investment options have portions that are invested into direct shares, both Australian and international. However, that’s not the whole portfolio. The diversification of investments means we don’t expect our industry funds to be reducing at the same rate as the share market.

The investment teams in industry and not-for-profit funds are skilled and equipped to look for the signals indicating there’s good buying in the market. If you wait while they take advantage of these opportunities, you will see your super balance -and the wider impact of your investment -continue to grow over time. Crucially, you will be participating in the recovery of the economy after we get through this pandemic.

Are industry super funds better than other funds during this time? Are they better placed to ride out economic stress?

Industry super funds are invested into a broad range of investments: growth assets such as direct shares, and defensive assets such as cash, fixed interest and debt products. They’re also invested into alternative assets such as infrastructure, private equity and property, which provide both growth and income over the long term.

Members, on average, will be better off in retirement when they invest with one of our funds. But they understand that it’s about more than that. Their savings are put to use while they’re working. Industry super funds are investing in things that make a difference to people’s lives on an everyday basis: the roads they travel on, the airports they travel through, the shopping centres where they get their groceries.

Industry super funds are all around us. The diversity of investments can have a stabilising effect, a great counterbalance to the tumultuous ride we’ve seen in share markets locally and around the world.

Watch all the Industry SuperFunds’ super questions answered videos for more answers to your super questions.

Consider your own objectives, financial situation and needs before making a decision about superannuation because they are not taken into account in this information. You should consider the Product Disclosure Statement available from individual funds before making an investment decision. Originally produced content by Guardian Labs Australia to a brief agreed with and paid for by IndustrySuperFund. The original content can be accessed here:

*The above material, whilst correct at the time of publication may include references or statements which are no longer current.

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