A $500,000 superannuation nest egg will not provide the average Australian with a comfortable retirement until they die.
A study to be presented to The Australian/Melbourne Institute Growth Challenge conference today warns that despite people's current beliefs, even large superannuation balances, far beyond current averages, will not sustain retirees unless they are prepared to drastically pare back their lifestyle.
There is more to the story but only pasted a bit of it.
gordon_adl said
04:25 PM Jul 1, 2011
I thought this response was quite apt...but then I'm not retired yet so I can't really say for sure.
'Wow, just look at all the loaded assumptions that serve the interests of the funds management industry. For a start, the "live comfortable" assumption is never consistent over the entire retirement period. It may apply from 65 to 75 but most 80 year old couples, let alone singles, would have trouble spending $38k a year. So by simply shifting assumed outlays to the halfway point of $29k beyond year 80, the retirement amount drops by over $100k. The analysis also assumes zero inheritance amount and zero housing downtrade, each of which are likely to knock at least another $100k of the required superannuation amount.'
pricey43 said
05:10 PM Jul 1, 2011
Well looks like we're in trouble. Will have to find a nice free camp and set up a hamburger stand. Should keep us going for a few more years.!!!
gordon_adl said
05:18 PM Jul 1, 2011
I'll gladly pay you tues for a hamburger today :)
pricey43 said
07:01 PM Jul 1, 2011
Wombat 280 said
08:37 PM Jul 1, 2011
There are just to many variables to be that simplistic in calculating ones monetary needs after retirement . Surprising how your lifestyle changes without you noticing once retired. There are a lot of everyday expenses that are incurred while working that disappear once you leave work. If your smoker and drinker or like your high priced recreational sports like golf then maybe your behind the eight ball.
Cruising Granny said
08:49 PM Jul 1, 2011
I had a little diesel fund and a small managed fund which was serving me very well while I was travelling full time, until the GFC. Always have a contingency plan or an alternate income source. Resting on your laurels doesn't pay very well.
tonyd said
12:45 AM Jul 2, 2011
I, too, read this article. It confirmed my long-held belief that superannuation, as the system exists today, is one of the biggest and longest-running con jobs ever inflicted on a long-suffering Australian public. This comment is based on a long career in financial journalism, including long-term monitoring of the ups and downs of the share market. Super's "success" depends to a great extent on the share market continuing to rise. And that's a BIG punt. The share market is really casino gambling on a huge scale (except that casinos are much better regulated than the share market and probably have fewer shonky operators). Money in the bank produces at least 6 per cent and at the end of the day, you still have your capital. Money in the share market may well produce 20 or so per cent for a little while, but given a few bad days/weeks, your capital can be gone and it never even said goodbye. And I agree with Gordon (above) that many assumptions in this study are nonsense. As you get older, you spend less (and therefore probably don't need that half million). Frankly, I doubt that a great number of Aussies in normal jobs would ever accumulate $500,000 in super. They should have wider options than locking their cash into the share market. Cheers, Tony
dogbox said
07:45 AM Jul 2, 2011
most people believe understanding finance is beyond them but they will study the horses or the football guide ect ect
if you read your super information (which most people don't) you can choose your level of investment risk from low risk (bank interest)to high risk (o/seas shares) or some were in between
it is your money take an interest in it. when compulsory super first came out it was funded by pay rises that workers didn't get so when employers say they have to pay super contributions that just means that they forgot about (or not old enough to remember)the pay rises we didn't get to fund them
Benwerrin said
10:11 AM Jul 2, 2011
The thing is, Australias system is almost a non event, it is totally unrealistic an unable to fund the averge workers retirement to the tune of their lifestyle prior to retirement without some severe reduction in lifestyle. At least 30% of income is required to harvest a fully self sufficient nest egg (without compromise). Australians would be unprepared to accept this rate of income sacrifice, they would expect both the employer and the government to foot this bill, which ofcourse is entirely not possible, as it is beyond the capability of the employer and governments by nature and now history, have no overflow funds to finance this, the very reason that they instigated compulsory SUPER in the first place. For mine, employees should always be prepared to self sacrifice or compulsorily contribute to their own retirement nest egg.
As an example, to retain the same income on retirement, assume that your investment super is returning say 6% on average (that's conservative)... if your retirement income is $50,000 pa, you would require around $800,000 in super on retirement, if earning $75,000 pa you would require $1.2 million, if earning $100,000 pa you would require $1.6 million...and so on.
Singapore has one of the best and most workable systems in the world, they ascertained many years ago the rate of compulsory saving that was required for their citizens to be self funded in retirement and unless we get serious in Australia, we are kidding ourslves.
-- Edited by Benwerrin on Saturday 2nd of July 2011 10:43:39 AM
-- Edited by Benwerrin on Saturday 2nd of July 2011 10:44:24 AM
gordon_adl said
10:48 AM Jul 2, 2011
I do wonder about the kids today. Seems most just spend so freely without thinking about the ramifications of no savings. I also feel sorry for them because I don't see how they are going to be able to afford a house.
As someone said earlier, many older people will sell their house and settle in something smaller, thus opening up some dollars too. In the not to distant past it was basically common practice that the house was going to be passed down to the children. We're now living longer and spending more as technology gives us so much more to do as 'older' people. There really won't be too much to leave our loved ones. I for one, don't plan on doing without just so as I can leave it to the them. When I'm gone, what's left will be theirs, but I'm certainly not going to just sit in a dark room saving money just for them.
As for funding retirement, it used to be that a savings and pension where basically all you needed. Might have bought a few shares in a bank or something but not a whole lot. But of course the cost of living was much cheaper and life was much more simpler. Life seemed to be much easier then. Now there seems to be so many expectations on parents and grandparents.
Oh well, I shall stop rambling. I'm in comtemplation mode this weekend.
Cruising Granny said
11:19 PM Jul 2, 2011
This have been a very good topic and the input has been a great eye-opener. Everyone has had their experiences and if we could pool all that information how wise we'd all be. The young people now want everything brand new, right now. They're not prepared to save, and if they can't pay cash now, they'll put it on "the card". Then they buy a house, and put everything on a line of credit. They have lots to show for it, but it's not theirs. The teens want all these technical gadgets and toys, which don't come cheap, nor do the games and movies. Too hard.
dogbox said
07:06 PM Jul 3, 2011
was the cost of living cheaper ? young people to day want a 4 bedroom 2 story house with 2-3 car garage pool tv in all rooms foxtel ,internet ,xbox, everyone in the house has a mobile phone ,laptop ,ipad, credit card ect we didn't have any of those thing except maybe one tv an that was payed for up front in most cases most families only had one breadwinner
dogbox said
07:16 PM Jul 3, 2011
if you start planning your retirement early people on modest incomes can retire with out having to sacrifice the life style see a financal planner early even if it is only to find out when you should see one the main difference between people on high incomes an modest incomes is expenditure there seem to be more high income earners that end up in financal difficulties
-- Edited by dogbox on Sunday 3rd of July 2011 07:17:33 PM
Knightrider said
08:46 PM Jul 3, 2011
Tony
Appreciate your comments but have to totally disagree with you saying that Super is a Con. Superannuation is the most tax effective means of saving for retirement in this country & YOU can choose where it is invested. I started planning my retirement at 35 y.o.a. & retired at 49 thanks to Super. I am now 60 & whilst not wealthy, I would say very comfortable. My Super (predominately in the Aust & International Share Market) has & I predict always will, earn me sufficient income every year to live my lifestyle. I budget my living expenses approx $60K - $70K yearly. It is all down to PLANNING & as early as possible.
Cruising Granny said
09:03 PM Jul 3, 2011
Well good for you Knightrider. At $60K-$70K a year you're very comfortable indeed in your retirement. I wasn't even earning that before I was pensioned off with the disabilities of chronic health problems. I'm cautious with money, but not lucky nor very wise with investments. Single mums on pensions, retirees on pensions only exist. That's not a lifestyle. Yet they get on with it within their means.
Knightrider said
09:18 PM Jul 3, 2011
Sorry Crusin Granny - wasn't looking for an argument. Only stating an opinion based on a comment by another forum blogger. I'll just get on with life - and all the best to you.
delatite said
09:57 PM Jul 3, 2011
Having just been forcibly retired and now on a ill health workplace pension I find super a worthwhile investment. It funds me currently and into the future. My son even though working part-time has started paying into a super account as has my daughter. What will they be worth in 50 years time??
Cruising Granny said
10:26 PM Jul 3, 2011
No argument here Knightrider, just emphasising the contrast and reality of situations. Even smart investors come unstuck during GFC's. We all count our blessings.
Gerty Dancer said
04:25 PM Jul 4, 2011
tonyd wrote:Money in the bank produces at least 6 per cent and at the end of the day, you still have your capital. Money in the share market may well produce 20 or so per cent for a little while, but given a few bad days/weeks, your capital can be gone and it never even said goodbye.
I whole heartedly agree Tony!
And not only is your capital still there after interest is paid, you dont have any Superannuation Company fees to pay! They can be many thousands a year! It is true that bank interest is taxable, but we worked it out that the tax payable will be about 10% of the Super company fees.
Everybody has to do whatever they need to do to deal with their own situation.
Good luck to us all!
gordon_adl said
04:43 PM Jul 6, 2011
I've actually been looking for some good financial forums...something like this site but geared towards finances. It's actually quite hard to find. I'm aware of stock and property forums struggling to find one that mainly deals with retirement.
Maybe it's because of the legalities that could get involved. I wonder, is asking for peoples opinions considered receiving finanacial advice. Oh the thoughts that constantly swirl in my head.
From the australian.com
http://www.theaustralian.com.au/national-affairs/superannuation-falls-short-for-retirement/story-fn961iy1-1226085202767
A $500,000 superannuation nest egg will not provide the average Australian with a comfortable retirement until they die.
A study to be presented to The Australian/Melbourne Institute Growth Challenge conference today warns that despite people's current beliefs, even large superannuation balances, far beyond current averages, will not sustain retirees unless they are prepared to drastically pare back their lifestyle.
There is more to the story but only pasted a bit of it.
'Wow, just look at all the loaded assumptions that serve the interests of the funds management industry. For a start, the "live comfortable" assumption is never consistent over the entire retirement period. It may apply from 65 to 75 but most 80 year old couples, let alone singles, would have trouble spending $38k a year. So by simply shifting assumed outlays to the halfway point of $29k beyond year 80, the retirement amount drops by over $100k. The analysis also assumes zero inheritance amount and zero housing downtrade, each of which are likely to knock at least another $100k of the required superannuation amount.'
Always have a contingency plan or an alternate income source.
Resting on your laurels doesn't pay very well.
Super's "success" depends to a great extent on the share market continuing to rise. And that's a BIG punt.
The share market is really casino gambling on a huge scale (except that casinos are much better regulated than the share market and probably have fewer shonky operators).
Money in the bank produces at least 6 per cent and at the end of the day, you still have your capital.
Money in the share market may well produce 20 or so per cent for a little while, but given a few bad days/weeks, your capital can be gone and it never even said goodbye.
And I agree with Gordon (above) that many assumptions in this study are nonsense. As you get older, you spend less (and therefore probably don't need that half million).
Frankly, I doubt that a great number of Aussies in normal jobs would ever accumulate $500,000 in super. They should have wider options than locking their cash into the share market.
Cheers, Tony
most people believe understanding finance is beyond them but they will study the horses or the football guide ect ect
if you read your super information (which most people don't) you can choose your level of investment risk from low risk (bank interest)to high risk (o/seas shares) or some were in between
it is your money take an interest in it. when compulsory super first came out it was funded by pay rises that workers didn't get so when employers say they have to pay super contributions that just means that they forgot about (or not old enough to remember)the pay rises we didn't get to fund them
The thing is, Australias system is almost a non event, it is totally unrealistic an unable to fund the averge workers retirement to the tune of their lifestyle prior to retirement without some severe reduction in lifestyle. At least 30% of income is required to harvest a fully self sufficient nest egg (without compromise). Australians would be unprepared to accept this rate of income sacrifice, they would expect both the employer and the government to foot this bill, which ofcourse is entirely not possible, as it is beyond the capability of the employer and governments by nature and now history, have no overflow funds to finance this, the very reason that they instigated compulsory SUPER in the first place. For mine, employees should always be prepared to self sacrifice or compulsorily contribute to their own retirement nest egg.
As an example, to retain the same income on retirement, assume that your investment super is returning say 6% on average (that's conservative)... if your retirement income is $50,000 pa, you would require around $800,000 in super on retirement, if earning $75,000 pa you would require $1.2 million, if earning $100,000 pa you would require $1.6 million...and so on.
Singapore has one of the best and most workable systems in the world, they ascertained many years ago the rate of compulsory saving that was required for their citizens to be self funded in retirement and unless we get serious in Australia, we are kidding ourslves.
Below is the Singapore sheme, see PAGE 4...
http://www.buseco.monash.edu.au/blt/jat/2000-issue5-lang.pdf
-- Edited by Benwerrin on Saturday 2nd of July 2011 10:43:39 AM
-- Edited by Benwerrin on Saturday 2nd of July 2011 10:44:24 AM
As someone said earlier, many older people will sell their house and settle in something smaller, thus opening up some dollars too. In the not to distant past it was basically common practice that the house was going to be passed down to the children. We're now living longer and spending more as technology gives us so much more to do as 'older' people. There really won't be too much to leave our loved ones. I for one, don't plan on doing without just so as I can leave it to the them. When I'm gone, what's left will be theirs, but I'm certainly not going to just sit in a dark room saving money just for them.
As for funding retirement, it used to be that a savings and pension where basically all you needed. Might have bought a few shares in a bank or something but not a whole lot. But of course the cost of living was much cheaper and life was much more simpler. Life seemed to be much easier then. Now there seems to be so many expectations on parents and grandparents.
Oh well, I shall stop rambling. I'm in comtemplation mode this weekend.
The young people now want everything brand new, right now. They're not prepared to save, and if they can't pay cash now, they'll put it on "the card". Then they buy a house, and put everything on a line of credit. They have lots to show for it, but it's not theirs.
The teens want all these technical gadgets and toys, which don't come cheap, nor do the games and movies. Too hard.
we didn't have any of those thing except maybe one tv an that was payed for up front in most cases most families only had one breadwinner
if you start planning your retirement early people on modest incomes can retire with out having to sacrifice the life style see a financal planner early even if it is only to find out when you should see one
the main difference between people on high incomes an modest incomes is expenditure
there seem to be more high income earners that end up in financal difficulties
-- Edited by dogbox on Sunday 3rd of July 2011 07:17:33 PM
Tony
Appreciate your comments but have to totally disagree with you saying that Super is a Con. Superannuation is the most tax effective means of saving for retirement in this country & YOU can choose where it is invested. I started planning my retirement at 35 y.o.a. & retired at 49 thanks to Super. I am now 60 & whilst not wealthy, I would say very comfortable. My Super (predominately in the Aust & International Share Market) has & I predict always will, earn me sufficient income every year to live my lifestyle. I budget my living expenses approx $60K - $70K yearly. It is all down to PLANNING & as early as possible.
I wasn't even earning that before I was pensioned off with the disabilities of chronic health problems.
I'm cautious with money, but not lucky nor very wise with investments.
Single mums on pensions, retirees on pensions only exist. That's not a lifestyle. Yet they get on with it within their means.
Sorry Crusin Granny - wasn't looking for an argument. Only stating an opinion based on a comment by another forum blogger. I'll just get on with life - and all the best to you.
Even smart investors come unstuck during GFC's.
We all count our blessings.
I whole heartedly agree Tony!
And not only is your capital still there after interest is paid, you dont have any Superannuation Company fees to pay! They can be many thousands a year! It is true that bank interest is taxable, but we worked it out that the tax payable will be about 10% of the Super company fees.
Everybody has to do whatever they need to do to deal with their own situation.
Good luck to us all!
Maybe it's because of the legalities that could get involved. I wonder, is asking for peoples opinions considered receiving finanacial advice. Oh the thoughts that constantly swirl in my head.