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Market downturns can cause superannuation balances to fluctuate, which can be unsettling, especially as you near retirement. However, a drop in your super balance doesn’t necessarily spell disaster. By staying calm, assessing your situation, and following practical strategies, you can safeguard your superannuation and even position yourself for future growth.

Here are some expert tips from financial advisers on what to do when your super balance drops.

Stay Calm and Avoid Rash Decisions

One of the worst mistakes you can make is reacting emotionally to a market dip by selling or making drastic changes to your super. Panic-driven decisions can lock in losses, especially if you sell investments during a downturn.

Tip: Keep a long-term perspective. Superannuation is a long-term investment vehicle designed to weather market volatility.
Understand the Market Cycle: Market downturns are a normal part of the economic cycle. Historically, markets tend to recover, often rebounding after downturns.

Review Your Investment Strategy

A declining super balance can be a good opportunity to review your investment strategy and ensure it aligns with your age, risk tolerance, and retirement timeline.

Check Your Asset Allocation: If your super is heavily invested in growth assets like shares, you might experience greater volatility. Depending on your risk tolerance, consider a more balanced allocation.
Adjust for Your Retirement Timeline: Younger members can afford to stay invested in growth assets to maximise long-term returns, while those nearing retirement may benefit from a more conservative approach to preserve capital.

Rebalance Your Super Portfolio

Rebalancing is the process of adjusting your asset allocation back to its target levels. During market downturns, asset values can shift, which may increase your exposure to riskier assets.

Tip: Consider rebalancing by buying undervalued assets (e.g., shares) during a downturn, which can position your portfolio for gains when the market recovers.
Automate Rebalancing: Many super funds offer automatic rebalancing, which adjusts your portfolio based on predefined allocations without the need for manual intervention.

Consider Making Additional Contributions

Adding extra contributions during a market downturn can enhance your super balance by buying investments at lower prices, known as “dollar-cost averaging.”

Salary Sacrifice or Personal Contributions: If possible, consider salary sacrificing or making personal contributions to your super. Not only does this increase your balance, but concessional contributions may also reduce your taxable income.
Non-Concessional Contributions: If you’ve reached your concessional cap, you can make after-tax (non-concessional) contributions, which can further boost your balance over time.

Review Fees and Costs

High fees can erode your super balance, especially during times of poor market performance. Reviewing and reducing fees can help preserve your super balance and improve long-term returns.

Tip: Compare fees across different funds or options within your current fund. Small fee reductions can significantly impact your balance over the years.
Avoid Duplicate Accounts: If you have multiple super accounts, consolidating them can reduce fees, as you’ll only be charged for a single account.

Check for Insurance Coverage Within Your Super

Superannuation accounts often include insurance (such as life insurance or income protection), which can be useful but may also drain your balance due to regular premium deductions.

Tip: Review the insurance coverage in your super account and determine if it’s necessary or adequately tailored to your needs.
Adjust or Opt-Out: If you find the insurance is too expensive or unnecessary, consider adjusting the level of coverage or opting out entirely.

Consider the “Buckets” Approach for Retirement Income

For those approaching or in retirement, a “bucket” approach can help manage volatility. This strategy involves dividing your super into different “buckets” for short, medium, and long-term needs.

Cash and Fixed Interest for Short-Term: Keep enough in cash or low-risk investments to cover 1-3 years of expenses, protecting your income from market fluctuations.
Growth Assets for Long-Term: Keep the remaining balance in growth assets (like shares) for long-term appreciation, allowing for potential recovery as markets improve.

Stay Informed but Avoid Checking Your Balance Too Often

While it’s important to monitor your superannuation, constantly checking your balance can lead to stress and panic-driven decisions.

Tip: Review your balance quarterly or semi-annually rather than daily. Focusing on long-term performance rather than short-term fluctuations can help maintain a level-headed approach.
Focus on Your Plan: Remember that superannuation is a long-term investment, and short-term drops are normal, especially in growth assets.

Consider Alternative Investment Options in Super

Many super funds offer a range of investment options that vary in risk level, from conservative to high growth. If your current option is too volatile, consider switching to an alternative.

Balanced Option: For a mix of growth and defensive assets, a balanced option may provide a smoother ride through market turbulence.
Lifecycle Investment Options: Some funds offer lifecycle options that automatically adjust the asset allocation based on your age, reducing your risk exposure as you approach retirement.

Explore Investment Diversification for Added Stability

Diversification reduces risk by spreading your investments across various asset classes (e.g., shares, bonds, property, cash). If your super fund allows, consider adding other asset classes to balance out your risk exposure.

Tip: Diversify into asset classes with lower volatility, such as bonds or infrastructure, to counterbalance riskier assets like shares.
Consider Global Exposure: Including international assets can provide additional growth opportunities and reduce reliance on the Australian market.

Delay Large Withdrawals or Switching to Pension Mode

If your super balance has dropped significantly and you’re close to retirement, delaying large withdrawals or converting your account to a pension mode can give your investments time to recover.

Tip: Postpone accessing your super for 6-12 months if possible, allowing more time for market recovery.
Draw from Other Assets First: If you have other assets, consider drawing from them instead of super to give your super balance time to stabilise.

Seek Professional Financial Advice

Managing superannuation during market downturns can be challenging, and a financial adviser can provide tailored guidance to ensure your decisions align with your retirement goals.

Benefits of Financial Advice: An adviser can help you evaluate your investment strategy, rebalance your portfolio, manage fees, and ensure you’re optimising contributions.
Super-Focused Advice: Look for an adviser specialising in superannuation and retirement planning to get the most relevant and effective advice for your situation.

Don’t Abandon Growth Investments Completely

While a downturn can make it tempting to move all assets to cash or conservative options, doing so may reduce your portfolio’s ability to recover when the market improves.

Tip: Keep a portion of your super invested in growth assets, especially if you have a longer time horizon. Growth assets like shares typically outperform conservative assets over the long term, helping your super balance grow.
Gradual Rebalancing: If you feel overexposed to growth assets, consider gradually rebalancing rather than a full shift to conservative options.

Reevaluate Your Retirement Timeline if Necessary

If the downturn significantly impacts your super balance, consider revisiting your retirement timeline. You may need to adjust expectations temporarily until your balance recovers.

Delay Retirement by a Year or Two: Delaying retirement by even a short period allows more time for your super to grow and can make a substantial difference in your retirement outcomes.
Consider Part-Time Work: Moving to part-time work rather than full retirement can also reduce the strain on your super and provide additional income as you wait for the market to stabilise.

Conclusion

A drop in your superannuation balance can be unsettling, but by staying calm, reviewing your strategy, and making informed adjustments, you can protect your retirement savings and even set yourself up for future growth. Remember, superannuation is a long-term investment, and the market will experience ups and downs. Regular reviews, sensible diversification, and, if needed, advice from a qualified financial adviser can help you navigate volatility and stay on track toward a comfortable retirement.