Superannuation: it's not all doom and gloom

IT'S not all doom and gloom for superannuation balances, despite the massive plunge super funds have taken during the latest share market falls.
Long-term financial modelling estimates most people will not be as greatly affected as they fear by the time they retire, while even those close to retirement now still have decades to make up the losses.
Financial services company Provisio Technologies says "short-termism" in super fund performance reports can create unnecessary fear and worry in some people.
"Market falls such as that experienced by the Australian Securities Exchange in the new financial year have far less affect on long-term retirement income than most investors realise," Provisio director Cameron O'Sullivan says.
"If the market falls 20 per cent in four months, which happened this year, then it feels like Armageddon.

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"Even in the case of a significant drop, if you look ahead to projected retirement income you'll see a much less dramatic picture," O'Sullivan says. "By highlighting the long-term view and reducing the focus on short-term volatility, investors are less inclined to react in potentially disadvantageous ways."
The company which undertakes financial modelling has produced two scenarios showing how the latest share market falls may impact on someone's eventual retirement income.
The forecasts are based on research from independent company SuperRatings that estimated the average balanced super fund was down 5 per cent at June 30.
In the first case study of a 45-year-old with a super balance of $100,000 which has slumped to $95,000, the difference in retirement income at age 65 was less than $10 a week.
In the second case a 65-year-old with super of $200,000 which has fallen to $190,00, the difference in retirement income was less than $20 a week.
In both cases, O'Sullivan says, neither would hit the worst-case scenario of running out of super income (after including top-up payments from Centrelink benefits) during their life expectancy.
"A common fear among investors is that their retirement income will not last and a drop in markets can exacerbate that fear," he says.
O'Sullivan says while the $20-a-week slug to the 65-year-old could hurt some retirees, share market slumps have still not been dramatic enough to cause the super fund to run out of money before the average life expectancy.
One of the country's largest funds, AustralianSuper, has set up an online service that calculates how long members' super will last in retirement.
Every time a member logs on to their account they receive a pop-up message showing how long their super should last.
Although perhaps confronting, the pop-ups encourage people to think about their balance and retirement income goal, says AustralianSuper chief executive Ian Silk.
"It's entirely natural to be spooked when people hear that their super has lost money," Silk says.
"However, people don't go out and sell their house when they read the value has fallen because they know their house is for the long term.
"It's not guaranteed to rise every year but over the long term, investing in equities will make a greater amount than investing in risk-free assets such as cash."

Thanks to Herald Sun