Super? Who is thinking about super? Super is something your employer does, isn’t it? It is not something we need to think about! Right? If you are in your mid thirties and forties, you are not thinking about super and retirement. Like me, you are busy dealing with your job, business and family while thinking about how you will pay off the home mortgage.
There is no time to think about the future, let alone retirement. It is a one day, someday, maybe in the future problem.
Superannuation is a complex and dynamic area. The Australian government has been reforming it for the past 20 years and it remains a major public policy challenge. The rules are always changing and the government is dealing with an aging population, budget deficits (shortfall), and the affordability of the aged pensions. It feels too hard and frankly too boring to have to deal with. Let us simplify it for you.
Most people who contact me about superannuation have either reached a milestone birthday like 50 worried they have 10-15 years to retirement or they have had a major life changing circumstance like losing their job or getting sick. They finally realize they don't have much time to secure their future. And frankly 10-15 years is not enough to "catch up" to ensure you enjoy the same lifestyle during the retirement years as those during your working years. You need to do something about retirement and superannuation now because if you don’t, you won't have enough in retirement to maintain your current standard of living.
According to research in 2014 by the University of Melbourne, 47% of couples and 78% of singles are NOT on track to retire on a “comfortable” retirement income. This means that most people have a “low” super balance. A “comfortable” retirement income in 2014 was defined by the Association of Superannuation Funds of Australia (ASFA) as $57,665 for couples and $42,158 for singles. This is assuming you have good health and you own your home. As of March 2017, the ASFA Retirement Standard for a comfortable lifestyle is $59,971 for a couple and $43,665 for a single.
I believe the reality for most people is actually much worse! The average super balance for a 40 year old is currently no more than $120,000 and will they have no more than $350,000 when they come to retire at 70 (assuming 9.5% yearly super contributions is invested for next 25 years). That's not enough to retire on and maintain their current standard of living on the “comfortable” retirement incomes stated above.
In fact, within the financial planning industry in Australia, we have a Rule of 25 which states you will require 25 times your desired retirement income in income-generating assets (excluding your home). ie $57,000 retirement income requires $1.4 million in assets. Are you on track to maintain your current standard of living in retirement?
Many Australians have believed that the aged pension is a right. After all, you worked hard and paid your taxes, so in retirement, the government should look after you. Agree? Unfortunately, it is no longer that straightforward. The government's Intergenerational Report highlights budget challenges if we continue on the current trajectory. As of 1st January 2017, 330,000 pensioners saw their pensions cut due to more stringent eligibility criteria. The retirement age is being raised to 70 for those born after 1964. The government is moving towards defining the pension as a safety net for the poor.
What about the middle class?
By the time someone in their mid forties comes to retire, I wonder what the super system will look like? We need to take control and have a plan to secure our financial future.
Building wealth takes time. To build 25 times your desired income in income generating assets could take 25-30 years. The current mandatory super contribution of 9.5% is not going to cut it. You need to think about how you could leverage the super system and buy income generating, appreciating assets like property and shares to boost your retirement savings.
Come along to the Free Super Seminar and learn;
1. Super Basics – What you can and can’t do.
2. Super Builder – Fastest strategies to build your super balance
3. Super Booster – Smartest ways to leverage the super system
If you got value from this article please share it with others. Join me at the seminar and secure your financial future.
Susan Wahhab is a Superannuation Specialist, Financial Adviser, Accountant (CPA), Australian Tax Agent and Author of ground breaking and practical book Money Intelligence® - Anchored in Values. She is also the Founder and Managing Director of Accounting & Tax firm Winner Partnership Pty Ltd and Financial Planning firm Money Intelligence Finance Pty Ltd
Susan is passionate about helping people achieve financial security and freedom. She truly believes that people can become financially independent by developing a healthy relationship with money. The book outlines the 6 Steps to Financial Transformation to secure your financial future and give back to your family and community.