What’s wrong with leaving my super in the default option?

My super fund has a bunch of different investment options. How should I decide which one (or ones) I should be using? Is there anything wrong with just leaving it in the default option?

Thanks for raising this question. The investment options you choose within super has a very significant impact on your retirement benefit and the longevity of your savings.

Largely, the appropriate investment option is determined with reference to your age. The further you are away from retirement, the more aggressive you can be. More aggressive options will be more volatile, which is why a long time frame is important.

There’s nothing wrong with being conservative with your super, but depending on your age, you could be missing out on some big returns.Credit: Simon Letch

Markets go up roughly 3 out of 4 years. So long as you’re in for a reasonable period of time therefore, you will get a great outcome. But negative years are inevitable, and are part of investing.

Indeed, the potential for occasional negative returns explains why investing in shares and property produce higher returns than savings held in the bank. You get compensated for taking on this volatility. To manage this risk, you invest for the long term so that the positive returns outweigh the negatives, and your retirement savings grow.

There is also a psychological factor here. By investing aggressively, there will be periods where your account balance drops sharply. It is essential that you ride out these periods, and do not sell.

If you don’t feel confident doing this, you should consider a more conservative option with a smoother glide path.

I am single, 64 in May with $1.9 million in super, $300k in an offset account and a mortgage of $975,000. In light of the current global uncertainty, I’d prefer to take $800,000 out of my super to pay off my mortgage, leaving me with $125,000 cash in bank and $1.1 million in super. Will my superannuation fund let me do this before my 65th birthday in 2026?

Between ages 60 and 65 superannuation can be accessed if you have retired, or had a period of retirement. Specifically, the rule states: an arrangement under which they were gainfully employed has come to an end after they reached age 60.

There is some extra wriggle room if you are working less than 10 hours per week, but you still need to have ceased employment at some point.

It would also be worth checking whether you have any “non-preserved” monies in your super account. These are getting rarer but relate to periods of work before 2004. These monies can be withdrawn without satisfying a normal condition of release.

If we downsize, will it hurt our pension? My husband and I each receive a part pension. We are thinking of downsizing and would free up around $500,000 in the process. But it seems to me that if we do that we will lose the pension. Am I missing something?

Yes, a downsize given the circumstance you present here would reduce your age pension. Centrelink ignores the value of your home, but all other assets count in the means test assessment.

By liberating half a million dollars from your home, your asset test position has worsened from the perspective of age pension eligibility.

The tradeoff will be that your $500,000 will now be generating an investment return. Assuming 5 per cent interest, as an example, that is $25,000 per year, which is likely to be more than the pension you will lose. The key then will be to ensure the money freed up through your downsize is put to work.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.