The Association of Superannuation Funds of Australia (ASFA) has just released a report claiming many existing retirees will run out of super well before the end of their lives based on data from the ATO, APRA and other government agencies. According to the report approximately 80% of people aged 60+ who passed away between the years 2014 -2018 had no super at all for up to four years prior to their death.
This is quite a staggering statistic and I suspect surprising to many Australian’s who have grown up with the superannuation system since starting work. The question is how has this happened? Well one quite obvious reason is that these people are the last generation of people who haven’t had the benefit of the super system for their entire working lives.
Go back in recent history and the super guarantee started at a very modest 3% contribution rate in 1992. So if you were 60 in 2014, you were 38 when this started, already well into your working career. So the rate was low, and started late for this generation. But that’s not all. Having not grown up with it there is a lack of education around super so that older Australian’s are not only not knowledgeable about super but actually sceptical about it.
As a financial adviser it is not uncommon for me to hear someone say ‘I don’t believe in super’. While understandable it is quite nonsensical. Superannuation is a tax vehicle designed for saving money for your retirement. Saying I don’t believe in super is like saying I don’t believe in companies or family trusts. I get it though, what they are really saying is I don’t understand it so I’m going to avoid it. Unfortunately what this means is that you may not accumulate enough money to fund a comfortable retirement. Alternatively, (and in some people’s view even worse!) you may have enough but being outside of super could be paying much more tax than you need to!
So what’s the answer? Well in my view it’s best to follow some simple super rules. Try to educate yourself on the basics of super, including how your fund is investing your retirement savings. Find and use a qualified licensed financial adviser where appropriate if you feel like you need to, particularly if you are later in your working life. If you are self-employed don’t fall into a trap we see all too often of not paying yourself super. If you are DIY’ing, stick to the major super funds out there, and their generic investment options. Don’t think you can outsmart the market, you can’t. Generally stay high growth when you are young, and get more defensive as you get older. These are some simple rules to help you avoid being a statistic. Good luck!