Global share markets have swung both ways this financial year – there have been some falls reflecting geopolitical uncertainty, but also record highs. It’s the kind of environment that can make anyone feel uneasy about their savings – especially if retirement is on the horizon.
As a deferred SASS member, it’s natural to wonder what all this means for you. The short answer is that short-term ups and downs are a normal part of investing – and there are good reasons to stay the course.
As a deferred member, your benefit is invested in the market, which means it has the opportunity to grow over time, but will also experience the ups and downs that come with investing. Depending on the choices you’ve made, your personal account is either invested in your selected strategy or, if you haven’t made a choice, in the Growth option until age 60, then the Balanced option after that. Your SANCS component, which includes your Basic Benefit, is invested separately by the trustee in a strategy closely aligned with Growth.
So yes, your balance will move with the market. But that movement works in both directions – and over time, the trend has been firmly upward.
When markets are volatile, it’s tempting to move everything to cash. It feels safer. But making that switch at the wrong time can actually set you back.
If you switch to cash when markets are down, you lock in your losses. And if markets recover – as they historically do – you miss the rebound. We saw this play out during the COVID-19 downturn. Members who stayed invested generally saw their balances bounce back, while those who moved to cash often missed that recovery.
There’s also inflation to consider. Cash might feel low risk, but over time it loses purchasing power. The same amount that covers your costs today may not stretch as far in five or ten years if it’s sitting in cash rather than being invested and growing.
One concept worth understanding as a deferred member is sequencing risk. This is the risk of experiencing poor investment returns at the wrong time – specifically, just before or just after you retire, when your account balance is at its greatest and you may be starting to draw down.
Losses during this period can have a bigger impact than the same losses earlier in life, because your investments have less time to recover. It’s why the years around retirement are sometimes called the “retirement risk zone.”
Imagine two retirees with the same amount of savings and the same average annual return over 20 years. If one retiree experiences negative returns in the first few years and the other experiences positive returns, the first retiree may run out of money sooner, even though their average returns are the same.
This is something to be aware of rather than worried about. It simply means the timing of when you access your benefit, and how your money is invested at that point, is worth thinking through.
For your personal account, you can invest in one or a mix of four strategies: Growth, Balanced, Conservative and Cash, as long as your selections total 100%.
If you haven’t chosen an investment strategy for your personal account, your balance will be invested in the default option: Growth until age 59, then Balanced from age 60. This automatic switch is designed to reduce your exposure to market volatility as you get closer to retirement, but it may not suit your personal circumstances.
It’s worth checking which strategy your account is invested in and whether it still matches your time horizon and comfort with risk. If you’re close to accessing your benefit, reviewing your investment mix is especially important to help give you the best chance of having enough money for retirement and making it last.
Protecting your investments from market volatility and the decisions you make before and after retirement can make a big difference to your life in retirement. By understanding this impact alongside your retirement goals, you’ll be in a better position to make decisions that are right for you.
If you’re approaching retirement, think about how sequencing risk applies to your situation, your investment strategy and whether you need a plan for that transition. If you’d like to talk it through, an Aware Super financial planner can help you understand how your benefit works in the current environment and what to consider as retirement gets closer.
Your first appointment is free of cost or obligation. Book at aware.com.au/statesuperadvice or call 1800 841 633.
Past performance is not indicative of future performance.
General advice only. Consider your objectives, financial situation or needs, which have not been accounted for in this information and read the relevant PDS and TMD before deciding to acquire, or continue to hold, any financial product. Advice provided by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL 238430), wholly owned by Aware Super. You should read the Financial Services Guide, before deciding about our financial planning services. Issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340), trustee of Aware Super (ABN 53 226 460 365).
