Red herring: Three reasons why Big Super is wrong about retirement
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Big Super has launched an expensive and frightening advertising campaign aimed at pre-retirees. Industry Super Australia is trying to tell us that if super contributions don’t increase in the next few years, we’ll all have to sell our homes just to survive in retirement.
It’s a well-worn and self-interested playbook. In a bid to influence Government policy so they can increase their sales, the super funds are trying to feed off our fears that we won’t have enough in retirement.
But it’s a red herring argument. They’re distracting from the facts with an irrelevant and false narrative. Here are three reasons why Big Super is wrong.
Australian retirees don’t overspend
Retirees don’t blindly spend down their super until it runs out. We’ve helped thousands of local retirees live in retirement and we’ve never met one who keeps spending their super once it becomes clear they’re spending too much.
Most Australians have reasonable expectations of their retirement. Ultimately, they just want to have enough money so that they can keep doing the activities they’ve always done and continue spending time with the people they care most about.
Our experience is confirmed by research. According to CoreData, 85% of Australians living in retirement can differentiate between their financial needs and discretionary wants. And they can be flexible when required. They are willing to cut back on spending on luxuries to get their financial plans back on track when required.
Our home is more important than super
Sure, it’s better to have both, but when it comes to the crunch, it’s more important to own your own home in retirement than to have super.
According to CoreData’s Best Possible Retirement research, home ownership is a far more important retirement satisfaction driver than a high super balance. Home ownership provides a sense of security for Australian retirees as they grow older, and it has an added advantage of being excluded from the age pension means test.
The age pension provides a guaranteed income that is effectively tax free, indexed to wages and paid fortnightly.
We can’t imagine a world where you would trade this home ownership and age pension combination for a higher super balance.
Increasing super contributions won’t help pre-retirees
When it comes to our super there are two more important things for pre-retirees than the level of contributions. The level of investment returns and fees are both more important.
Pre-retirees are coming to the end of their careers so the increase in mandatory super to 12 per cent a year over the next four or five years won’t really matter. There’s just not enough time to make any meaningful difference. But higher investment returns and lower fees will.
That’s the way the mathematics work. Pre-retirees are at their peak lifetime super balance, so a small increase in returns or a small decrease in fees can have a big impact.
And that’s why pre-retirees needn’t worry about being forced into homelessness in retirement. You always have options when unexpected things happen in retirement and selling the family home is usually the last resort.
When you deal with When Financial Solutions it’s not a matter of ‘if’ you can approach retirement with confidence, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions. This article is general and does not consider your personal circumstances. If you would like advice specific to you, please give us a call.