Just thought the below article was an interesting read - some large numbers in there????
Sydney Morning Herald - 24th Mar 2010 - Annette Sampson.
Many baby boomers are retiring with debt and little super, writes Annette Sampson.
Retire early with a nice, fat lump sum to fund your retirement? You've got to be kidding. For most baby boomers it will be challenge enough just to retire debt-free.
While government and the super industry debate about whether 9 per cent compulsory super will be sufficient for the average worker, the generation that missed out is reaching "that age" with inadequate super and virtually no chance of catching up.
An associate professor at NATSEM at the University of Canberra, Simon Kelly, says the average super account balance for males aged 60 to 64 is just $135,000. For females, it is less than half that - $62,000.
If you'd like an income of at least $50,000 in retirement, that doesn't come close. Including the age pension, the average male retiring at 65 with $135,000 could fund their desired income for less than three years before relying solely on government benefits.
But even that's overstating the case. Kelly says the "average" figure is highly skewed by a few individuals with very large super balances. He says the median account balance for men is $33,000 and for women it is zero. That's right - at least half the women in this age group have absolutely no super.
The figures for 50- to 59-year-olds are not much better. Kelly says the median account for men in this group is $44,000 and $10,000 for women. It makes a joke of super's role in providing an income in retirement. For many of these people, Kelly says, their super will be swallowed the moment they buy something. For many retirees, buying a new car is the first thing they do with their money - and the average woman doesn't even have enough to do that.
To make matters worse, he says a growing number of people will retire with debt. Previous generations, which tended to distrust debt, may not have had a lot of super but most retired with their mortgage and other debts paid off.
But baby boomers and subsequent generations have grown up with debt and maintain debt later in life. Kelly says they are also the "sandwich generation", with adult children and-or ageing parents to consider. Borrowing to fund costs such as house extensions is not uncommon as they near retirement.
In a 2008 report for AMP, NATSEM found the number of people age 60 or over and still paying off a mortgage had doubled in 10 years (9.5 per cent in 2005-06 compared with 4.2 per cent in 1995-96). This age group also had the biggest jump in housing stress, up about 80 per cent from 5.3 per cent in 1995-96 to 9.5 per cent in 2005-06.
"Unlike their parents, who regarded debt as evil and to be paid off as quickly as possible, many baby boomers are carrying debt into their retirement years as well," says the national manager for advice development at IPAC Securities, John Dani. "Most of that debt is in the mortgage. It's the result of constantly upsizing to a bigger or better house or moving to a better suburb as a reward for all that hard work. It's also due to the advent of home equity loans, which allow borrowers to draw on their home equity for renovations or to take a world trip."
The harsh reality is that for many baby boomers, the first call on their super payout will be paying off debt, not setting up a portfolio to provide an income through retirement.
"There used to be a myth that retirees would blow their lump sum on a caravan or overseas trip," says the managing director of superannuation for Russell Investments, Steven Schubert. "But the reality for the majority is that if they do blow the money it will be on things like paying off debt - and it's hard to argue against doing that. People also use those early retirement years to set themselves up by doing things like replacing cars and whitegoods so they won't be breaking down when they're 75. That's also a reasonable thing to do.
"But if you have a $100,000 lump sum but pay off $20,000 debt and you want to upgrade your whitegoods and car and keep some money aside for a rainy day, there's not a lot left."
Kelly says many baby boomers have become used to a comfortable standard of living and won't take kindly to curbing their lifestyle. "A lot of them have two incomes and may be living on something like $100,000 a year," he says. "But if they have to use their savings to pay off debt then live on the age pension it will be quite a severe drop for them."
The chief executive of the Australian Institute of Superannuation Trustees, Fiona Reynolds, says the debate about super often overlooks the fact that there are haves and have-nots. The have-nots are generally workers closer to retirement who have not had the benefit of super all their working lives and women, who typically earn less and spend more time out of the workforce.
The institute's modelling shows the average annual compulsory super rate for olders workers - indeed for probably half the current workforce - is 5 per cent or less, well below the 9 per cent for a full working life that the government uses in its modelling. In some cases, for women that have taken time out of the workforce, it is 2 per cent or 3 per cent.
Kelly says male white-collar workers are "probably OK" as many had super before it became compulsory and have saved over longer periods. But blue-collar workers and women are in greater strife, particularly women - many of whom have only returned to the workforce in their later years and tend to work in part-time or casual jobs.
The Investment and Financial Services Association recently estimated the average Australian was underfunded by $73,000 - though the situation is much worse for the "have-nots" than for those with substantial super savings. Rice Warner Actuaries, which conducted the IFSA research, says underfunding is not surprising when you realise you need to contribute 20 per cent to 30 per cent of salary during a full career to provide a defined benefit lifetime pension of 60 per cent of salary in retirement. For most of us, that's impossible.
To guarantee a comfortable living in retirement, it says, middle-income workers would need to build a super account worth as much as their family home. For most, this is not practical and they will need to retire later or adjust to a lower income in retirement.
Dani says many people have the false belief that their expenses will magically halve when they stop working, so they don't have to worry too much about retirement savings. "The reality is you spend as much, if not more, in the first few years of retirement," he says.
The graph, from Rice Warner, shows incomes (and spending) drop substantially from age 65, with many being limited to the age pension. It says there is also a trend for self-funded retirees to spend their super in the first 10 to 15 years of retirement before relying on government benefits.
However, many surveys show future retirees have much higher expectations, with most saying they will need incomes of $40,000 or $50,000 or more.
Schubert says a rough rule of thumb is that you need $20 to $25 of savings for every $1 of annual income you want in retirement if you're planning to live to the average life expectancy and you want to protect your income against inflation. So that $50,000 income could require $1 million-$1.25 million. But he says this isn't quite as scary as it sounds. Whether we like it or not, most retirees will continue to get a fair chunk of their retirement income from a full or part age pension. The government's own estimates show 75 per cent of retirees will still get a pension in 40 years' time; the only difference super will make is more will be receiving a part pension rather than the age pension alone.
Schubert says the critical thing for over-40s is to be putting aside what money they can. "While saving may not get you to what you'd ideally like, the combination of saving and a part pension will allow you to achieve a modest income," he says.
He says people "shouldn't be fooled into thinking there is a magic investment that will provide higher returns and turn around their savings shortfall". Unfortunately this usually results in investors taking risks they can ill afford and can make them worse off.
Dani says repayments on non-deductible debt, such as a mortgage, is one of the best investments you can get. As the family home is also exempt from capital gains tax, and the age pension income and assets tests, it is also attractive from a tax and benefits point of view. Schubert says whether or not you own your home is a big contributor to how well off you are in retirement. While non-home owners get a higher pension, he says it is not enough to compensate for the added costs and lack of security in not owning your home.
But he says if you end up with a $600,000 house and just $50,000 in savings to live on, you might need to rethink how your assets are weighted. Downsizing may be an option - though there are costs in doing so that may outweigh the benefits. Kelly says reverse mortgages, where you borrow against the equity in your home, may also appeal more to the baby boomers than to their parents, however Schubert says they should be treated with caution.
"I wouldn't plan on pulling out $100,000 and building up a big debt early in retirement but they may play a role in supplementing your income as your investments start to run down," he says.
If you're counting on an inheritance to get you out of trouble, Dani's advice is simple. Don't. He says modern medicine has transformed many fatal conditions into chronic illnesses that will eat away at the pool of available funds. With life expectancies growing, you may also find that inheritance is further off than you expected.
Dani says the reality is many people are going to have to work longer to have any chance of living comfortably once they stop working. Fortunately, there is already a growing "abhorrence" of the idea of a traditional retirement as many people start to scale down their working hours rather than quitting the workforce completely.
"Working well into your 60s will become more and more the norm," he says. "Not purely for financial reasons but because of the skill base and knowledge older workers have to offer."
But Dani says it also makes sound financial sense. "We call it the positive double-whammy," he says. "Not only are you continuing to accumulate super and allowing it to compound but you're not drawing on your capital to live on. Our rule of thumb is that every additional year of work after 55 adds another three to four years to the life expectancy of your capital when you retire."
Don't fancy working any longer than you have to? Then maybe this will persuade you. As John Dani of IPAC Securities points out, working longer gives a double financial benefit. Not only are you putting off the date when you start to spend savings but you're continuing to save and enjoying compounding returns while you do it.
To show what a difference it can make, IPAC's head of technical services, Colin Lewis, looked at the case of Jack and Jill, both 57, who are hoping to retire at 58. They spend $52,000 before tax and want to maintain this through retirement.
Jack earns $80,000 and Jill $50,000. They get the 9 per cent super and own their house.
They can save $50,000 a year after tax and decide to save $30,000 through Jack salary sacrificing into super and $20,000 outside super.
Jack currently has $135,000 in super and Jill $50,000.
If they stop working at 58, Lewis says, they will have $250,000. But if they want to live on $52,000 a year, they will run out of money at age 72 and will have to rely on the pension. That's even after assuming they get benefits until then and only draw on their capital to reach their $52,000.
But if they retire at 62, says Lewis, their savings will have grown to about $544,000. They can fund that $52,000 income (using their capital and a reduced level of Centrelink benefits) to age 92.
How the numbers stack up
Did you know that of every dollar of private savings you spend in retirement, just 10 cents will comprise contributions made while you were working? Thirty cents will
come from investment earnings before you retire and 60 per cent will come from post-retirement investment returns.
Staggering, isnt it? But according to the Russell Investments managing director of superannuation, Steven Schubert, this is roughly how the numbers stack up for someone who has saved over a full working life.
He says it shows the high importance of investing well in retirement. A poorly constructed portfolio, or sticking a large amount of your money in a sure thing that
goes bad, can have a devastating effect on your standard of living.
People forget that when they reach retirement theymay have stopped being a saver but theyre still an investor, Schubert says.
But the bad news for the underfunded baby boomers is that the rule of thumb only stacks up if you have been saving and enjoying the benefits of compound interest.
It doesnt mean saving isnt important. If you dont have money in the system the whole thing stops working. You cant make something from nothing, Schubert explains. His advice to those approaching retirement? Save what you can while
you have the opportunity. You may not get all the way to where you want
to be but youll still be better off than you would have been.
There is a lot to think about in this article - it's scary trying to figure out what path to take. It looks like I'll be working for (quite) a few more years.
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never trust seafood more than 50K's from the coast
A lot to think about in that little lot. The first thought i had in consideration of the above was this......
In investment reserves how much cash will i need when i am dead? In capital holdings how much security do i need to have in reserve when i reach 100 ?
I have worked hard all my life and supported my family well but this little black duck is looking forward to being broke cause the journey getting there will be both a dream come true and worth the lifetime it took to make it so!
My super will likely run out when I am about 82. Thats when we sell the big house and move in with the kids. They are not aware of this plan at this time.
One of the things I've picked up from the G.N. website is the availability of part-time work whilst tripping around the block, I can only hope it's as good as a lot of Nomads have told me. I know some recent retirees who definitely don't need the money but do the fruit picking thing because they love it, meet other great people etc., you know the story, I hope it's still good in 4 years time
What about this beuty, compare it with bank interest (a joke in itself) and any finance costs you may have. Save with Super, what a load of rot. You would be better off paying the bills, put the extra money under the matress and claim the pension.
The Age - 25th Mar 2010 - By ERIC JOHNSTON
BANK executives, postal workers and university staff are among those best placed for retirement, based on the long-term return performance of their superannuation funds.
In contrast, higher-cost retail superannuation funds including some operated by the nation's biggest banks have delivered some of the poorest investment returns over the past five years, according to a comprehensive snapshot of the nation's $1.3 trillion superannuation industry.
The figures, compiled by the Australian Prudential Regulation Authority, come amid the federal government's review of the industry. Inquiry head Jeremy Cooper is eyeing measures aimed at driving down member fees and improving returns.
The APRA figures, which track Australia's 200 largest funds by asset size, show the average annual rate of return for super funds was 3.4 per cent in the five years to June 2009. Average returns over the past three years the period covering most of the market downturn were a more modest 2.3 per cent.
In-house corporate super funds were the best performers over the period, delivering average returns of 4.2 per cent.
Public-sector funds, such as those run on behalf of councils or public servants, came a close second, with average returns of 4 per cent over the five years.
Industry super funds in general performed in line with overall fund returns of 3.4 per cent. Retail funds, which include super schemes operated by AMP, Commonwealth Bank and Westpac, underperformed during the five years, producing average returns of 2.4 per cent.
The figures show that $282 billion of the nation's superannuation savings are tied up in funds that have delivered below-average returns over the past five years.
The figures allow consumers to compare the performance of their superannuation fund with the industry as a whole.
Topping returns over the past five years was the in-house staff super fund of investment bank Goldman Sachs JBWere with annualised returns of 9.6 per cent.
Others include the $5.7 billion Australia Post Superannuation Scheme with 6.2 per cent, and the giant $23 billion university-focused UniSuper with 5.7 per cent.
Poor performers include the boutique Pinnacle Superannuation Fund with returns of minus 0.4 per cent. Tower Superannuation Fund returned just 0.9 per cent while the Aviva-managed Premiumchoice fund returned 0.4 per cent.
Twobob - I don't know what the point you are making here with your second posting. Are you trying to just scare monger or are you only just starting to look at superannuation and don't know the full story?
Sure, we are going through through a lean period now but if you take the long term figures then you are way off the beam. When I took a package in 1996 I sat down with my newly found advisor (that I was sent to by my employer) and studied the trends. At that time the short term trends were way above the 10 or 20 year trends. A couple of years my Maple Brown Abbot funds were netting up near the 30% mark for the year. These down turn periods occur every few years. The last big down turn was around 1990. I have had some fantastic returns on my allocated pensions up until the last few years. Even my ComSuper scheme which was having a lean time the year I retired produced a return of 8.3%
My last report showed a growth of 36% from the low point a few years back. In a couple of years time I expect to be back at my peak (and I have been drawing a small income as well during that time.) Super fund members were crying poor a few years ago. They were bemoaning the fact that they had lost 50% of their money. The fact is they had lost nothing unless they sold up. A lot did because they took notice of the dooms-men, shock jocks and people who spread gloom and doom like you are doing now. I have little sympathy for these people, they have not sort advice from qualified planners and have paid the price. A decent advisor would have instructed them like mine did. Super is a long term investment. You have to ride the peaks and troughs. You may have to ride the troughs by taking on casual work. When you get to the peaks you salt some of the extra income away in cash deposits to ease the troughs.
In your first posting you made a point about many not being able to take early retirement. I say - so what. Early retirement is a modern phenomenon. 15 to 20 years ago I had no allusions of being able to retire in my 50s. Very few of my work colleges had either. It was only the high flyers that could afford to and they were work-a-holics and were disinclined to.
So what changed? Firstly the economic forces in Oz were changed with things like floating the currency and deregulation of financial institutions through the 80s. Then there was the restructuring of the workplace where many of us were handed good redundancy packages. With the large returns on super in the 90s and our packages came a flood of early retirees. We are now getting back to more like normal times. Get used to it. However we will not be back to the conditions of the 80s and early 90s just yet, there will be those who received good returns during the boom times and did not panic during the huge slump and blow their super by cashing it in and putting it in the bank. They will have to delay retirement by a few years but they will be OK. To those who panicked and blew their super I can only sympathise with you, but you should not have blindly followed the panic merchants.
As time goes by, we will get to those did not start their super early enough for a comfortable retirement. However this will be a return to the status of workers that retired in the early 90s or before. They will have to work until retirement age and be content with the Centrelink pension. During this time the retirement rate will slow down. After that, even those who will have the full benefit of their 9% super guarantee will not be able to join us retirees as early as we pulled the plug. Workers wanting to retire early will have to make arrangements in addition to their 9%. I doubt that even the proposed raise to 15% will still not produce funds for much of an early retirement.
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PeterD Nissan Navara D23 diesel auto, Spaceland pop-top Retired radio and electronics technician. NSW Central Coast.
I too lost funds like many did .. I then held out .. sold nothing .. although my various shares had depreciated somewhat in value, I still had the same amount of shares.
.. I recently sold my house and a percentage of that sale (as I am under 65) was added into my super structure ..
My last statement .. showed that for the last 6 months, my funds had me now in the black .. even after all my expenses were deducted ..
PeterD, you've got it I think. I am resigned to the fact that I'll be working about 2 years longer than I had hoped but at least I'll be OK financially. If I did choose to go early there is still the option as I said earlier to work as you go, I know that this sounds crazy to some, why retire to go back to work but you can cover you're expenses for a year or two, that leaves alot left in your bank, hopefully
This is a complex issue well beyond the scope of a forum such as this one but that should not stop us having a conversation on this or other topics.
I confess to having not (as yet) read the articles in detail before making a couple of observations.... I feel sure that anyone who invested in market linked assets (via super or otherwise) in the mid 90s would be better off than those who parked their savings "in the bank", even when the market was at the bottom.
Those who were paying into super during the "slump" would have been buying in at a good price (known as "averaging down")
It usually makes sense to "roll-over" most of one's super on retirement so that those funds left after drawing down living expenses will continue to grow, albeit with the usual short term volatility.
OK... these comments are very general, over-simplified, and not applicable in many cases. Try to get good independent advice, not just sales talk of most "financial planners"... not easy to come by.
Look I try to avoid these sort of post , I think they just stir up fear in people who don't have the proper information to deal with it and can make people panic into making un informed discussions has Jimricho has said we all should seek out a registered financial planner for the right advice . On the ABC radio on last friday they had a expert from a university who said panic is a real problem in these situations he stated that some one who had $ 5000000 before the crash panic when the crash happen pull the the funds out of thier investment fund would have received $350000 to put in the bank and right now would still have the $350000 less what it has cost to live in that time with no chance of growth , but if they had left the money where it was growth has return slowly and heading back to where it was and has had an income while all this was happening . some of the happiest i know are on the pension , happiness is a state of mind money wont make us happy but sure helps us to have a good time
Peter I have been away, nice to have the swag under me for awhile, so only just got back to reply
I did not write the articles, only posted them, so they do not express my opinion. The reason for posting them was because there is an undercurrent forming, via the media, to suggest that Baby Boomers are potentially going to be a burden on Australia's ability to afford these retiries.
How grossly different in view both articfles were. One seems to blame the BB for not looking after themselves and the other suggest the majority that did, used under performing funds. No win situation
I do, and have followed Super for a long time, but my concern is, as you stated, it takes a proffessional to keep up with the changes to super and retirement. How can anyone take a position, when the goal posts keep changing, without a team of Financial advisors, just to understand the change.
A long time ago on here, we had posts during the GFC, where their 'expert' financial advisors told a member to sell!!! If they had done, as Jonathan, and kept their investment, they would be ok now. They sold as advised, and had to stop their grey nomading, to return to work and start again. They should have used your advisors.
I do agree though, that as super is compulsory, it should be a wealth building vehicle. The writer says, there is a world of difference between funds performance, so only those that can choose their fund, and have an interest and good advise, can do something about it. You sound like that sort of person and good onya. Most, do not considered it, till close to retirement. While the Governement make it compulsory, they should also prevent under performers from being in the market - set a benchmark
With these types of articles, those of us that do not have what is 'considered' to be enough, may start to stress about it. I think more of this type of article are to come, and just wanted to point that out. Dispite the negative view of needing to live on the pension, we are entitled to it. Some retire early by choice, a lot of others are made redundent and find it difficult to find a new position after 50yo, therefore live off their savings till a pension is obtainable.
To blame BB for being a burden on society is wrong, it needs to be remembered that we have paid for these entitlements through our working life. Any claim that it cannot be afforded is rubbish. The Future fund has currently $66 Billion under management, just as a starting point.
So my motives were simply to say, that those which have little super and claim the pension, are not a burden. Those of us that have been fortunate to generate more, good on us. Some of us have had luck and good advise, It is not BB fault that the rules kept changing, and now there seems to be a move towards blaming BB because they are retiring.
I think discussion is valuable to assist with the understanding of these matters. Some of us have a better handle on our own financial issues, while others depend on the information and advice of others. Tho throw this stuff around the forum is a great way of weighing up the cheques and balances, or imbalances, as the case may be. I recently reviewed my own situation with the Bank's financial advisor, and learned that things will eventually recover to where they were before the crash in 08. I was forced to retire at 56, and took my piddling little super which I'd accumulated over the previous 10 years. Before that we weren't required to have a super fund, I was a self-employed single parent who didn't have enough to stow away, but I was pretty much debt free, living in a rented unit. Then I went off to work for wages, and I later made my own contributions to build it up. If we don't panic, get a clear picture of our own circumstances from your financial institution's advisor, things will recover and stabilise. Knee jerk reactions will only hurt the knees and the jerks. Stay calm and review your own stuff so you know exactly where it is now, and what will happen in the next 12 mths. Keep smiling.
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20ft Roma caravan - Mercedes Benz Sprinter - SA-based at the moment. Transport has no borders.
Management makes the decisions, but is not affected by the decisions it makes.
Twobob's last contribution to this post makes a lot of sense and is a valuable contribution to the topic. Those of us in the BB age range (in my case a 1943 "model") have made a significant contribution to the productivity of this nation and many who are still in the workforce continue to do so. It's the nations (per capita) productivity that is the nation's wealth. Those of us who are fully or partly self funded retirees continue to contribute through our investments and those who are "full" pensioners have also contributed very significantly to the nations productivity in the past.
This I believe is the moral justification for those entitled, receiving some consideration in the form of a pension rather than the tired old one of "I've paid my taxes and I want some back". Our taxes weren't squirrelled away in some sort of piggy bank or jam jar for our retirement, they are/were used to provide the government services (including pensions then paid) that were provided at the time.
Some materialistic economists, pollies and other "need-to-get-a-lifers" want us to continue working to we drop. One wonders why? Could it be so that they can have an even more comfortable retirement at our expense??? We've done our bit, it's their turn now. (Twobob also makes a valid point about over 50s looking for work)
The Superannuation and Managed Investment industry love to put around the **** and bull that in a decade or so there'll be no aged pension. This is simply panic creating misinformation with an ulterior motive. Does anyone think that with a significantly "grey" electorate any government will allow that?
That said there are some challenges ahead such as financing health and aged care but this nation is now wealthier than it's ever been in its history and should be able to rise to those challenges.
By the way, my understanding of the Future Fund is that it was set up to finance the unfunded liability of the old public service defined benefit super scheme, not pensions in general. I could stand to be corrected on this however.
-- Edited by jimricho on Sunday 28th of March 2010 06:34:10 AM
PeterD, you've got it I think. I am resigned to the fact that I'll be working about 2 years longer than I had hoped but at least I'll be OK financially. If I did choose to go early there is still the option as I said earlier to work as you go, I know that this sounds crazy to some, why retire to go back to work but you can cover you're expenses for a year or two, that leaves alot left in your bank, hopefully
