Reclaiming your lost super

Australians are not used to receiving negative returns on their superannuation – and even more unused to having their superannuation generate negative returns for two years in a row, especially on balanced options.

But the current situation which many people find themselves faced with provides a good opportunity to reassess superannuation strategies and goals, according to Russell Investment Group director of superannuation investments Geoff Peck.

“You have to go back and work out what your goals around retirement are and how far away you are from using the superannuation money,” he advised.

“People need to take action in respect to the future rather than take action based on the past. It’s too late to do anything about the last two years of investment performance, so any decision now has to be action based on what you think is going to happen in the future, what your goals are and what your existing strategy is in relation to achieving those goals.”

Peck said some people were unaware of the power of superannuation to access a wide range of investments.

“Superannuation is simply an investment vehicle in a concessionally taxed environment,” he added.

“Nearly everything that
can be invested in outside of super can be invested in –
to a degree – inside of super. Within most superannuation funds for example there is
a property investment
option,  a share investment option, a cash investment option and a fixed rate option. Superannuation offers tax concessions with the trade off that you only use this money for retirement.

“The challenge for people is that they think of superannuation as a completely different class of investment. But superannuation is really a tax vehicle rather than a different type of investment.”

So how should you rebuild your super?

“The correct approach is to go back to the fundamentals of what this investment is for,” Peck said. “As it is for your retirement you need to compare your investments on an after-tax basis and see if you can find a better one. If the investment is for a short-term item, then superannuation is not appropriate.”

Get advice early – access to professionals is often included through superannuation funds and is not utilised by clients enough.

“Most Australians in superannuation funds don’t use a financial adviser,” Peck said.

“A lot of them have access to financial advice through their superannuation fund whether they are in a retail fund, a corporate fund or even an industry fund. They will either have access to an adviser they may be paying for already, or financial advice may be available at a small charge.

“If people are seriously considering what they are going to do with their superannuation, then advice can be a good thing – especially if they are uncertain about what they should do,”
he concluded.

 Things to consider

You need to understand your investing objectives in the context of your risk appetite and the length of time you have before you need it back.

• Understand the options you have within your superannuation fund.

• Consider all your superannuation accounts, if you have more than one, to consolidate them.

• Set your investment strategy with the future in mind more than the past.

• Review all of it on a regular basis. There is a potential for people to go through these review processes only when a disaster is happening. They tend to ignore their super for many years while nothing major is happening and potentially miss out on opportunities to reduce risk.

Make your strategy

Your strategy for reclaiming super should be based around three principles – your objective, the timeframe and your appetite for risk.

 Objective

Financial security in retirement is about having sufficient assets to provide an income that you are comfortable to live on during a long period of your life when you won’t have work income. At the moment there are some tax benefits you have in retirement around income streams and there are not as many work style expenses such as travel, but equally as you get older there are higher health costs. Generally as a rule most people should be targeting an income around 70% of their pre-retirement income. Obviously, the closer it can be to 100%, the better off you are.

Timeframe

Your timeframe basically helps you manage risk. If you have a long timeframe you can afford to have more volatility in your investments. For example, if you want to achieve an investment return of 8% per annum over 20 years, it is virtually impossible for a cash account to achieve that. So on the basis of that desired return, cash is one of the riskiest ways to achieve that objective, whereas a diversified portfolio is a comparatively lower risk method of achieving that.

Risk appetite

No matter how good the common sense is and how compelling the evidence is to invest in shares over the longer term for an adequate retirement, if you are someone who will stay up overnight overcome with worry then you need to take that into account. It may actually mean that you have to have a lower expectation of retirement income, but that trade-off is up to each individual.