My super is tanking:  Should I withdraw my super?

This question arrived at the end of last week.

And it’s easy to see why.

The ASX All Ordinaries index dropped by 2.51% in a single day, recovered by 0.15% on Thursday and then dropped again by 1.51% on Friday.

This ongoing volatility is clearly starting to rattle many retirees.

Little wonder as much of our savings are invested in the Australian share market – either directly as private investors, or through our super funds.

Watching your life savings/retirement nest egg sinking while battling rising household costs is very debilitating.

When this happens, other forms of investment can start to look preferable. With 5% returns now possible on term deposits, cash is an asset class that is starting to look much safer than many others.

So the question of whether you should make the call and withdraw funds from your super before your nest egg loses even more value is very topical.

As is the case with many strategic financial decisions, there is no right or wrong answer, nor any short cuts to making the most appropriate decision.

There are, however, four key considerations which can guide your thinking. These are:

  • Taking a long view
  • Recognising and avoiding all or nothing thinking
  • Acknowledging rational fears without needing to respond to them
  • Considering ways of earning more to cover a shortfall

Taking a long view

Looking a few feet in front of us while in an elevator only gives us limited information. Stepping out of the elevator on the 102nd floor of the Empire State Building, we can see and learn a whole lot more.

Viewing stock market changes day to day is mildly interesting – and probably unavoidable as such coverage is part of most evening news broadcasts. But it’s the year-on-year, decade-on-decade performance that matters. This is because retirement income needs to fund us for 20-30 years. So looking at short term gains and losses is a distraction from the main goal of funding our retirement.

Yes, stock markets are volatile right now. No doubt about it. But investors who sell at the first sign of a downturn crystalise the loss. They make it real. Riding out a stormy market phase makes a lot more sense than actually losing money.

The following two long term trend reports may help with your long term view.

International investment funds manager Vanguard recently released a snapshot of the performance of different asset classes over a 30-year period. Based upon a $10,000 investment in 1991, the results (assuming reinvestment of all income) were as follows

$10,000 Investment in 1992 Investment value in 2022 Per annum returns
Australian Shares $131,413 9.0%
US Shares $182,376 10.2%
International Shares $94,184 7.6%
Australian listed Property $90,243 7.8%
Australian Bonds $55,588 5.9%
Cash $35,758 4.3%

Source: Vanguard

Superannuation funds have also been measured over the long term. In the past year, many have declined by about 3.3%. But it’s worth noting that this loss came hard on the heels of an 18% gain in Financial Year 2021.  Over the longer haul, returns have been steadily increasing. Chant West data confirms a 7.9% over the 30 years since compulsory super was introduced in 1992

There are many reasons why you may need or want to access your super savings. But if you are wanting to fund a long retirement, following long term investment returns is the best way to ensure that your calculations are based upon facts and not short term emotions.

Fears of financial upheaval are valid

After a long period of relatively stable international relations, the conflict in Ukraine has had significant global financial ramifications. In particular, the reduced supply of energy from Russia to Europe has seen energy prices jump, supply lines for many consumer goods tighten and grain exports reduce, resulting in growing fears of famine in certain areas of the world. Two years of pandemic lockdowns and supply shortages are exacerbating the current conflict related shortages. As economies around the globe emerge from Covid restrictions, inflation is rising rapidly. The combination of all these factors is unsettling, personally, as well as having a major influence on economic performance. But whilst it is important to understand that this volatility is real, it is also important to have a clear understanding of factors under your control – and those outside your influence. A quick glance at charts of economic performance during the early Covid lockdowns and then one year later, is a great reminder that things can head south quickly and bounce back up again just as quickly. Worrying about things that you can’t change is counterproductive. Seeking advice on those aspects of your financial planning that you do control is smart. Knowing the difference is critical.

All or nothing thinking is rarely helpful

Keeping a cool head is a great life skill. Avoiding knee-jerk reactions is a capability that can be acquired by ensuring you consider a wide range of information before responding to changes in your investment returns.

Adding to savings by earning more income is smart

Age Pension recipients are getting some relief. As evidenced by this week’s lift in Age Pension entitlements, those on an Age Pension receive regular indexed increases to help ameliorate movements in the Consumer Price Index. Recent announcements also allow those on an Age Pension to earn an extra 50% through an increased work bonus this financial year. Given our record low unemployment, there’s never been a better time to pick up extra work. Earning more is always a great strategy and can help with higher prices meaning you don’t have to dip into your savings.

There are good reasons to withdraw super

The above considerations may lead you to believe you shouldn’t withdraw lumps sums from your super in any situation. Not at all. There are good reasons to move large amounts. Some may use such a withdrawal to contribute to a younger spouse’s super account, thus lowering their own assets and qualifying for an Age Pension. Others may pay down a mortgage, again reducing assets for Age Pension assessment, and save on interest along the way.

The rationale for these decisions is the important point. If you know the rules underpinning your super savings, and work within these rules to better arrange your finances, that’s smart.

But such decision-making is the opposite of a kneejerk response to a market blip.

It’s a long-term, well researched financial strategy to further maximise your savings.

Money held in super is in a tax-favourable environment.

Before you withdraw it, make sure you know all the rules of moving money from your super and likely tax impacts.

Negative returns come and go in the lives of all investors. It’s not the ups and downs that matter most, but how we respond. If you would like to better understand your own super and savings options, talking with one of our qualified advisers can be very reassuring. Why not book a one-on-one consultation today?

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