We’ve all pondered the thought.
Somewhere in between making our hundredth peanut butter sandwich, cleaning up the living room for the sixth time (just that morning) and that dreaded time of day when you start to think about what’s for dinner (sigh) – you might have spared a thought about whether you’re going to have enough to ‘see the world’ once you pull up stumps and officially ‘retire’.
But that thought is often quickly dismissed, replaced with one that goes something like this: I’m still young, it’ll work itself out – everyone retires, they must all work it out somehow right?
Well according to the ABS in 2011-12, 50 per cent of retiree couples had an annual income of less than $28,260 a year. Yikes!!
So yes, we all retire eventually, it’s just how we are able to spend our retirement that is the difference.
The superannuation guarantee
But before you get all hung up on how you could possibly live on $28,260 per year, let’s keep in mind that the compulsory superannuation scheme hasn’t been around all that long.
The mandatory superannuation guarantee was only introduced by the Keating Government in 1992 – some 24 years ago.
So using the average retirement balances for those that have retired in the last 10 years or less, as an indication of where you and I are headed in terms of our retirement balance, is a little misguided.
After all, it’s likely they only experienced the benefits of compulsory superannuation in the last 20 or so years of their working lives. While most of us have only ever known a superannuation system with a compulsory superannuation guarantee, which means by the time we come to retire – we will theoretically have higher average superannuation balances.
The risks to your superannuation balance
But you shouldn’t be resting on your laurels on that fact alone. There are a number of risks you need to be aware of, to just how much super you’ll end up with at retirement age.
Some of these risks like market and investment risk – which is simply the risk that your principle may fall in value over the short to medium term due to market volatility – are largely out of your control.
But there are other risks to how much you will ultimately have to retire on that can mitigated.
So let’s look at those.
Being a woman
As women, we face a number of challenges that our male counterparts don’t equally bare:
1. We tend to live longer and therefore need our balances to last longer
2. We tend to earn less than our male counterparts for comparable work
3. We often take lengthy periods of time out of the paid workforce to raise a family
What this means for our superannuation is that we tend to accumulate less even though we have a reason to need more and for it to last longer.
Carrying debt into retirement
No doubt when you picture your retirement – you’re assuming by that stage you’re debt free and that your twilight years will be spent drinking wine on the deck of some river cruise through Europe (don’t worry, I’m there with you!)
However, according to new research by ING, a growing number of us are failing to pay off our homes by retirement. The ING studies revealed that those aged 65 – 80 owed an average $158,500 on their mortgage in 2015.
This outcome is basically due to the fact that housing has become more expensive, homeowners are entering the market later in life and taking on a larger amount of debt in order to do so.
This means two things for your retirement balance if you happen to be one of the ones calling it quits and still owing money on the mortgage;
1.You will either use a lump sum withdrawal to pay off the outstanding loan (leaving you with less) OR
2.You will continue to fund mortgage repayments from your retirement funds meaning a need to plan for higher than anticipated annual expenses in retirement.
Bridging the gap
So what do we do about all this?
We can’t escape the need for housing to raise a family and our gender is decided before we are even born – so how can we bridge the gap here?
How can we be sure we’ll have enough to retire on?
Well to work out what kind of account balance you’re looking at to retire comfortably – you need to take several things into account. To read more about calculating how much you’ll need to retire, you can read my post on that here.
But in terms of bridging the gap – between what you need and what you have, there are a couple of things to keep in mind:
1. Work out whether you’ve lost any superannuation along the way: there is roughly $16.8 billion in lost superannuation in Australia and as women with families our workforce participation is the highest among part time and casual positions. Superannuation is easily lost with this type of movement between jobs. You wouldn’t leave $1,000 cash sitting on the table would you? So why do it with your superannuation?
2. Look at how many accounts you have: According to the ATO as at 30 June 2016 – 43% of Australian’s had more than 1 super account. Now sometimes there may be a valid reason for having more than one superannuation account. However, for most of us having multiple accounts with small balances just means you end up paying more in fees as a percentage of your total account balance – which impacts your bottom line come retirement. If this is you, have a look at consolidating your funds – but be sure to always check whether you have any default insurances inside any of your funds. Because you will lose these if you rollover your funds and close your account.
3. Make sure you have the right contributions strategy for your age and life stage: this could mean simply having just your compulsory super guarantee paid to your account by your employer or a more complicated contributions strategy given your timeframe to retirement. It’s important to seek the right advice on this from an accountant or preferably a financial advisor.
4. Look at your superannuation fees: A study by the Grattan Institute in 2014 titled Super Sting reported their findings that excessively high fees paid by superannuation account holders can reduce an average retirement balance by approximately 20% over the course of their working life.
5. Look at your investment strategy: how are your funds invested? If you’ve never consciously made an investment decision when it comes to your superannuation funds and how the money is invested, your funds may not be invested in line with your preferred risk profile (which is just, how you feel about investment market risk). If you have a higher tolerance to risk than how your funds are currently invested, you could be missing out on potential investment returns.
Even though it can be tempting to defer thinking about your superannuation in lieu of more present financial concerns, as you can see, allowing your present self to give a little thought to it and perhaps make some small changes – will have the impact of giving your future self a bit of a financial break.
But that’s enough super talk for now, it must be time to tidy the living room again or start thinking about what’s for dinner.
Osso bucco? Lamb Roast? Who am I kidding, it’s sausages again.
Rebecca is a financial adviser, financial coach and the founder of The Fiscal Mum, a website that helps busy mums navigate the financial responsibilities of family life with the right tools, tips and advice!!
Her online course Secret Money Business for Mumswas created specifically to help busy mums who are interested in learning how to make smarter money decisions everyday while setting themselves up for a better financial future, and teaching their kids to do the same.
If you would like to talk to Rebecca about your finances or to learn more about what she does, you can find and connect with her via her website [www.thefiscalmum.com], Facebook , Twitter & Instagram .