Approximately 84% of Australians are retiring on $21,000 or less per year.
The Association of Superannuation Funds of Australia (ASFA) states that for a comfortable retirement an Individual requires $42,604 per annum and a couple $58,364 per annum.
The ASFA defines “comfortable” retirement as;
“Comfortable retirement lifestyle –
Enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”
Clearly this is not a lavish lifestyle.
By comparison the Association of Superannuation Funds of Australia (ASFA) states that for a modest retirement an Individual requires $23,469 per annum and a couple $33,768 per annum.
The ASFA defines “modest” retirement as;
“Modest retirement lifestyle –
Better than the Age Pension, but still only able to afford fairly basic activities.”
Now more than ever it is critical that we review our retirement investment strategy, whether we have our investments in industry funds, retail funds, or self managed superannuation funds.
Many taxpayers are relying on their superannuation structure to generate wealth rather than the investment strategy. Many pre retirees concentrate on reducing their superannuation fees at the expense of the growth in their superannuation balance, only to find that the investments in the superannuation fund are essentially invested in cash earning less than 3% but with minimal fees and charges. Conversely, others have invested in retail international fund manages with high fees and charges when they could arguably invest in wholesale funds or Australian equalivant funds that offer a very similar return with significantly lower fees and charges.
In order to maximise our retirement assets, we need to focus on the following;
1. Where our superannuation is invested i.e.
a. Australian shares
b. International shares
c. Property, direct property and property trusts
d. Term deposits
2. The fees and charges of our superannuation fund. These are normally broken up into three categories;
a. Admin fees
b. Fund manager fees
c. Adviser fees
Assuming that you are aiming for a comfortable retirement and you are a couple and have accumulated $800,000 in superannuation and retirement assets. If we assume that the tax on the superannuation fund earnings will continue to be taxed at 0% for retirees over 60 years old, and we assume that the inflation rate is 3% per annum, then if you retire at age 60 your retirement savings will be $nil by age 73, if you are earning 3% per annum net of fees and charges.
By way of comparison if we assume the above assumptions but the return is a modest 7% then your super will last to age 78 an additional 5 years.
The above would imply that we cannot be overly conservative otherwise our retirement will out live our retirement savings. Hence, it may be risky for a retiree to have all their wealth sitting in cash and term deposits at the time of their retirement. Arguably, a more balanced approach, such as a combination of shares, property and cash may be more prudent.
Likewise, during our working life the more money that we can accumulate prior to retirement the longer we can choose to enjoy our retirement. Likewise, it may be prudent to have a more aggressive investment strategy in our working years so that we accumulate a healthy retirement savings balance before we choose to retire.
To assist in determining how to maximise your retirement savings, please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.