Preserving retirement savings during COVID-19

Investment markets globally are experiencing significant volatility as economies around the world try to navigate the unchartered waters of the COVID-19. If you’re approaching retirement this volatility can be a source of anxiety, and it can be difficult to understand what a person can do to protect their nest egg.

We spoke to John Dani, private client adviser at AMP Advice, who offered five tips for pre-retirees to consider that may help preserve retirement savings during COVID-19.

If you’re looking at your super balance and seeing it fall in value, it’s human nature to want to protect what you have. But Mr Dani says it’s important consider riding out the storm, to allow for the opportunity to give your super a chance to rebound.

He says by switching to cash, you may be selling assets for less than they bought them, which may lock in your losses and compromise the ability of your super to recover when the market improves.

“From Black Monday in 1987 and the Recession in 1990, to the Global Financial Crisis in 2007, what history shows us is that investment markets do recover,” he adds. “While it is a very, very difficult time and people are naturally fearful, they need to find some courage and keep calm when it comes to their super.”

As part of its economic response to COVID-19, the Federal Government is allowing eligible Australians early access to up to $20,000 of their super. But Mr Dani says that pre-retirees should think very carefully before taking up this offer.

“Not only would you be giving up the gains from a future market recovery, but you may be also giving up the compounding return on the withdrawal between now and when you eventually retire”.

“For some people, though, the early access may be an important option; if they’ve lost their job or their business has suffered, they need to keep a roof over their heads and pay for other necessities.”

In the event that you’ve lost your job, had your hours cut, or your business is suffering, Mr Dani says you shouldn’t hesitate to take advantage of the regular JobKeeper or JobSeeker payments the government has made available.

“Many people in this age group may have never accessed government benefits, but you need to put aside your pride. You don’t need to queue up at the ‘dole’ office, it’s all done online and taking advantage of the government’s measures will help in these extraordinary times we are faced with.”

People should also consider what other measures are available to help supplement and ease any financial hardship or strain they may be experiencing. As mentioned above, the government has introduced some thoughtful options for people who have lost their jobs; many banks are providing hardship measures for those who have mortgages; and the residential and commercial tenants may also have some measures introduced.

These are all options people should be exploring and considering as well to help ease any hardship they may be experiencing.

Some pre-retirees may be faced with pressure to help out grown-up children – or other family members – financially if they’re struggling due to the economic impacts of COVID-19, but Mr Dani says any requests for help should be carefully considered.

“We all love our kids and we all want to help them and ensure they aren’t going to be impacted by financial stress, but remember that they are also probably able to access government assistance during this time.”

Mr Dani says that if you do decide to help your family financially, you need to be really clear whether the money is a gift or a loan, and if it’s a loan it’s a good idea to put this, and any terms attached, in writing to avoid any miscommunication or conflict and ensure all expectations and boundaries have been established up front.

“If you have the courage and the risk appetite, and are in a financial position to do so, the market downturn may represent an opportunity to contribute some money into your super so you could benefit more when the markets recover,” Mr Dani says.

However, he urges anyone considering investing at this time, either in their super or in other financial products such as shares, to do so cautiously, invest within their means and not to borrow to invest.

“The big hint here for anyone wanting to invest is to do so gradually. Don’t try to pick the bottom of the market but adopt a strategy such as investing a set amount each week or fortnight to spread the risk of your entry into the market,” he says.

If you’re unsure, get in touch so that we can assist you to make decisions appropriate to your circumstances. 

©AMP Life Limited. First published April 2020