Getting to know your risk tolerance and risk capacity
An objective assessment of your tolerance and capacity for risk is an important step in feeling confident about your investment decisions and keeping a level head during times of market uncertainty.
Risk tolerance refers to how well you will psychologically handle a period of poor investment returns. Will you be able to sleep at night or will you be gripped with worry and panic? If you hit the sell button or switch your super to cash at the first sign of market volatility, then chances are you have a low tolerance for risk.
Risk capacity on the other hand has to do with the risk you need to take to reach your financial goals and how much risk you are financially able to accept. Risk capacity is about whether you can financially afford to take a certain amount of risk with your savings at a particular point in time.
To evaluate risk capacity other factors come into play such as the income you’ll need to fund your lifestyle, the length of time you will be in retirement, how much money you would need to access quickly for a rainy day, now and in the future.
Once you’ve finished work or chosen to retire, you’ll need to decide what to do with your SASS benefit when you exit the scheme. There are 5 key options you have:
- The final benefit paid as a cash lump sum
- Roll over your SASS benefit into a super fund and leave it in the accumulation phase
- Start a retirement income account/account-based pension
- A combination of lump sum and super
- Leave (defer) your final benefit in SASS
This doesn’t have to be a black-and-white decision: you can always take some of your super as a lump sum and put the rest into an account-based pension or annuity. Or if you’re not ready to decide you can defer your benefit within the SASS scheme or roll over to another super fund until you’ve made a choice. The important thing to remember is, once you take your money out of super, there will potentially be restrictions on putting it back in.
If you were transferred to SASS from another scheme, you may also have the option of a lifetime pension. If you’re unsure whether you qualify for this option, it’s always best to check your annual statement or contact State Super. Visit www.statesuper.nsw.gov.au or call 1300 130 095.