If this has happened to you, we understand you may be quite worried at the moment. So here are some things people at different life stages could consider:

People who are ten or more years away from retirement

It’s important to keep in mind that super is a very tax-effective place to invest.

This is because:

• investment earnings are taxed at a maximum rate of 15%, not your marginal rate which can be up to 46.5% (includes a Medicare levy of 1.5%), and
• you can receive a tax-free income at age 60 or over.

You also need to remember that super is a long-term investment. This is because you are investing not only for the ten or more years until you retire, but the 20 to 30 years you could spend in retirement.

So despite the recent market declines, it’s still important that your super is invested in a portfolio that matches your timeframe. And for most people in this age group, a portfolio with a moderate to high weighting to shares and property would generally be considered appropriate.

You may even want to think about investing more in super, so you can benefit from the tax concessions, as well as the lower market prices at the moment.

One approach is to make super contributions from your pre-tax salary. This is known as salary sacrifice. The beauty of this strategy is that your contributions are taxed at a maximum rate of 15%, not your marginal rate. So salary sacrifice can enable you to make a larger after-tax investment for your retirement.

Another approach is to make super contributions from your after-tax pay or savings. If you meet certain conditions, this could entitle you to receive up to $1,500 in additional super from the Government. This is known as a co-contribution and it can help you to boost your retirement savings.

People who are approaching retirement

If you are 55 years of age or over, you could consider making salary sacrifice contributions (see above) and starting what’s called a ‘transition to retirement’ pension. Because of the potential tax benefits, this strategy could enable you to build-up your super without reducing your take-home pay.

But if you had planned to retire soon, say in the next year or so, you may need to work for a little longer. This will give your existing super more time to recover. You can potentially contribute more, and each year you work is one less year you will need to support yourself without a regular wage.

Alternatively, you could consider working part-time and use a ‘transition to retirement’ pension to replace your reduced salary.

Here’s how it works:

Peter, aged 60, was approaching retirement. He needs an after-tax income of $40,000 pa to meet his living expenses.

Rather than leaving his employer completely, he decides to work part-time and will earn a salary of $25,000 pa (after-tax).

He will also invest his super in a transition to retirement pension and draw a tax-free income of $15,000 pa.

By using this strategy, he will achieve his income goal and not have to draw as much from his savings.

People who are already retired

If you are already retired, you’ve probably been impacted more than other people by the financial crisis.

But you need to keep in mind that super pensions are a very tax-effective place to invest your retirement savings. This is because no tax is payable on earnings in the fund and you can receive a tax-free income at age 60 or over.

If you are worried about your financial situation, there are a couple of options you could consider.

If your risk tolerance has changed, you could choose a more conservative investment portfolio within your pension. But remember that more conservative investments usually earn lower returns over the longer term. So if you make the switch you could increase the chance you’ll outlive your savings. Even in retirement, sticking with a suitably diversified portfolio is generally the better approach, regardless of market conditions.

Another option is to reduce the income you draw from your super pension (subject to the minimum income limits). This will enable you to retain more of your money to participate in the eventual sharemarket recovery. While reducing your income may impact your lifestyle, you may find you are now eligible for greater Centrelink benefits, because of a reduction in the value of your assets.

Finally, if you have the opportunity, you may want to return to work – either on a full or part-time basis. This could enable you to use the ‘transition to retirement’ strategies outlined above to improve your financial position.

To find out the best approach for you, you should speak to your financial adviser.

General Advice Warning:

These comments contain general information and may constitute general advice. They do not take into account any person’s particular investment objectives, financial situation or individual needs. They should not be relied upon as a substitute for financial or other specialist advice.

Before making any decisions on the basis of these comments, you should firstly, consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs and secondly consider the relevant Product Disclosure Document.

Opinions expressed constitute our judgement at the time of issue and are subject to change.