I have been in the financial services industry for almost 20 years. During that time I have met thousands of people looking for a comfortable and secure retirement. However, it did always surprise me how many people didn’t understand how superannuation worked and how it fits into their retirement plans.
I have outlined 3 of the most common misconceptions I have come across.
“I am too young to worry about Super”
It is true that superannuation’s purpose is solely for retirement. For the majority of us that means we won’t see the benefits until our mid to late 60s. It’s difficult to plan for something that is that for away.
We have previously discussed the concept of a “Comfortable Retirement” in our article “Super – are you putting the most in to get the most out?”. It is said that in excess of $545,000 is needed in your super for a comfortable retirement. For anyone, this is a decent amount. Imagine trying to plan for this 5 years out or 10 years our from retirement.
The sooner you understand what your retirement goals are, the sooner you can quantify them. Once you know these two things, you can start to work towards it.
A financial plan early in your working life will allow you to establish your financial goal and develop a strategy. This strategy can then be constantly reviewed to make sure your dream retirement can become reality.
“Super is too risky”
During the GFC, this was a common statement from people that I came across. Fluctuations in the markets left many unsettled. I heard too many stories during this time of people in retirement withdrawing all their super and putting it in cash. I am happy to say this didn’t occur as much in the “Covid Correction.” However, it did still occur.
The truth is that superannuation is the same as any other asset, the amount of risk that you have in your superannuation portfolio is totally up to you.
Inside or outside of super, the assets we invest in are the same. You want to hold all cash? You can do that in super. You want a term deposit? You can do that in super. The benefit is that within super, the maximum tax rate is 15% on earnings. This would be lower than the majority of us would pay personally.
Superannuation itself is not risky, however the portfolio your superannuation is invested in maybe too risky for you.
As set out in our article Is Time on Your Side an important part of any financial plan is putting together an investment portfolio that you are comfortable with. If you feel that ‘super is too risky’ speak to a professional adviser, who will be able to assist you find the right portfolio for you.
“The age pension will be enough”
While we live in a country where government support for the retirees is adequate, the level of support provides a minimum living standard.
It is true that in retirement we often live a more simple lifestyle. There are no kids at home and we have little to no debt. Yes, some could live on $944.30 a fortnight ($711.80 each in a couple). But would you enjoy your retirement?
And can we rely on the age pension at its current levels into the future? Could the government start paring back the age pension levels in the future to make the system more sustainable. Especially in the light of increasing government debt as we try to spend our way out of the Covid led recession.
The Superannuation Guarantee was introduced to reduce our reliance on the age care system. Someone who works for 40 years under the Superannuation Guarantee regime, will have a decent retirement nest egg. But would it be enough? …… see above “I am too young to worry about Super”
Even for those who use a Financial Adviser, it is important to understand the basics of superannuation and retirement. A good Financial Adviser should not be a magician who never reveals their secrets but rather a teacher who educates you.
If you have some questions about your super and retirement, we are here to assist. Schedule a no-obligation Discovery Chat with us to ensure your wishes will be met when your time has come.
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The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. Louella Jorge is an Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser before you act.
