Coronavirus – What should you do with your super?
If you’re wondering what you should do with your super as a result of the Coronavirus, the short answer is do nothing if you can. In this article we’ll provide our thoughts on switching your underlying investments and on the government proposal to access money from your super.
Should I switch my investments to a cash fund?
Many people are concerned about share market falls and are considering switching or have already switched to more conservative or cash-based investment options within their super. For the vast majority of members, we do not recommend this.
Studies going back over all the major share market crashes over decades show that people who switch out after major falls end up being the biggest losers. This is because they don’t participate in the inevitable rally in share markets as the particular crisis’s sort themselves out. Share markets often have some of their biggest daily gains in the early phases of recoveries. Don’t kid yourself you’ll know when to buy back in, even the experts managing billions of dollars can’t get that call right most of the time. The other issue is there are costs to switching in and out of investments to cover stockbroking fees, often these fees are hidden but they are there.
If you are a retiree and drawing a pension from your super, you should consider putting in place a plan to deal with market falls. Whilst share market falls aren’t much fun for younger people building their wealth, they are buying investments regularly as their super contributions go in, so it’s an opportunity for them to buy investments cheap. If you’re in retirement and drawing down you’re regularly selling investments to fund your pension payments and it’s not a good time to sell. There are a range of protection strategies available and you should discuss their suitability to your personal situation with an experienced Financial Planner.
How do I access money from my super?
The government has proposed that affected people will be able to access $10,000 from their super between now and the end of the 2020 Financial Year on 30th June and then another $10,000 in the 2021 Financial Year after 1st July. The first question to ask is should you access money from your super. As highlighted above, now is not a good time to be selling investments to fund a withdrawal. Making a lump sum withdrawal now will certainly have an impact on your future retirement, the smaller your balance and the younger you are, the bigger the impact. Withdrawing money with 30 years until retirement means you are giving up 30 years of compound interest on that money equating to around $200,000 less at retirement. If you only have 10 years until retirement the affect if lower but still equates to around $43,000 less at retirement. If you are fortunate and still have an income, consider if you need to access your super. If you’re not sure, consider accessing it, putting the money away in reserve and then contributing it back into your super later if you didn’t need to use it.
The process for accessing your super is going to be controlled by the government and not by the super funds. The government has indicated that accessing your super is only going to be approved for people directly affected by COVID-19 who have lost their job or had their work hours reduced by 20% or more, if an employee, or suffered a 20% or more reduction in income if a sole trader. The government will manage the application and approval process through their myGov website with applications being accepted from 20th April. You can register your intent to claim now by logging in to your myGov account. If you do not already have a myGov account, you should immediately go to the website mygov.au and select ‘create an account’. The scale of the number of requests expected means you should not expect the government to provide an alternate phone or paper-based method. Along with many new technologies like video calling, this crisis means you need to adapt and start using myGov.
As always with finances and market crashes it is time to keep a cool head and carefully consider your options before acting. Using someone with financial knowledge and experience as a sounding board is one of the things clients of financial planners’ value most at times like these.