Our retirement system: great, but room for improvement

You could be forgiven for thinking Australia’s superannuation system is a mess. Depending who you talk to, fees are too high, super funds lack transparency and Governments of all political persuasions should stop tinkering.

Yet according to the latest global assessment, Australia’s overall retirement system is not just super, it’s top class.

According to the 11th annual 2019 Melbourne Mercer Global Pension Index, Australia’s retirement system ranks third in the world from a field of 37 countries representing 63 per cent of the world’s population. Only the Netherlands and Denmark rate higher.i

What we’re getting right

While super is an important part of our retirement system, it’s just one of three pillars. The other two pillars being the Age Pension and private savings outside super.

Writing recently in The Australian, Mercer senior partner, David Knox said one of the reasons Australia rates so highly is our relatively generous Age Pension. “Expressed as a percentage of the average wage, it is higher than that of France, Germany, the Netherlands, the UK and the US.”ii

As for super, we have a comparatively high level of coverage thanks to compulsory Superannuation Guarantee payments by employers which reduces reliance on the Age Pension. In fact, Knox says Australia is likely to have the lowest Government expenditure on pensions of any OECD country within the next 20 years.

Superannuation assets have skyrocketed over the last 20 years from 40 per cent of our gross domestic product (GDP) to 140 per cent. “A strong result as funds are being set aside for the future retirement benefits of Aussies,” says Knox. Even so, on this count we lag Canada, Denmark, the Netherlands and the US.

Room for improvement

For all we are getting right, the global report cites five areas where Australia could improve:

• Reducing the Age Pension asset test to increase payments for average income earners

• Raising the level of household saving and reducing household debt

• Require retirees to take part of their super benefit as an income stream

• Increase the participation rate of older workers as life expectancies rise

• Increase Age Pension age as life expectancies rise.

Retiree advocates have been asking for a reduction in the assets test taper rate since it was doubled almost three years ago.

Since 1 January 2017, the amount of Age Pension a person receives reduces by $3 a fortnight for every $1,000 in assets they own above a certain threshold (singles and couples combined).iii

Other suggested improvements, such as increasing the age at which retirees can access the Age Pension, present challenges as they would be deeply unpopular.

The Retirement Income Review

One roadblock standing in the way of ongoing improvements to our retirement system is reform fatigue.

In recent years we have had the Productivity Commission review of superannuation, the banking Royal Commission which included scrutiny of super funds, and currently the Retirement Income Review.

The Retirement Income Review will focus on the current state of the system and how it will perform as we live longer. It will also consider incentives for people to self-fund their retirement, the role of the three pillars, the sustainability of the system and the level of support given to different groups in society.

The fourth pillar

One issue that the Government has ruled out of the Review is the inclusion of the family home in the Age Pension assets test.

Australia’s retirement income system is built around the assumption that most people enter retirement with a home fully paid for, making it a de facto fourth pillar of our retirement system.

With house prices on the rise again in Sydney and Melbourne and falling levels of home ownership, there are growing calls for more assistance for retirees in the private rental market.

The big picture

Despite the challenge of ensuring a comfortable and dignified retirement for all Australians, it’s worth pausing to reflect on the big picture. The Global Pension Index is a reminder of how far we have come even as we hammer out ways to make our retirement system even better.

i https://info.mercer.com/rs/521-DEV-513/images/MMGPI%202019%20Full%20Report.pdf
ii https://www.theaustralian.com.au/commentary/our-retirement-system-is-far-from-perfect-but-its-still-better-than-most/news-story/d3db43e68b3b93d8c6d6e8a8c17a491d?btr=4ff6fe5e96c92f060a779127475fa258
iii https://guides.dss.gov.au/guide-social-security-law/4/2/3

Steering through choppy seas

Like it or not, we live in interesting times. More than a decade after the Global Financial Crisis, the global economy is facing fresh headwinds creating uncertainty for policy makers and investors alike.

This time around it’s not a debt crisis, although debt levels are extremely high, but geopolitical instability.

The ongoing US-China trade war and Brexit confusion in Europe have increased market uncertainty and volatility and put a spoke in the wheel of global growth. The Organisation for Economic Co-operation and Development (OECD) forecasts global economic growth to ease to 3.3 per cent over 2019. It expects Australia to grow at 2.7 per cent.i

Against this backdrop, there has even been speculation that the Reserve Bank may need to resort to ‘unconventional measures’ such as negative interest rates and quantitative easing to boost growth. These measures have been widely used overseas but are foreign concepts to most Australians. So what are they?

Why negative rates?

Negative interest rates have been a feature of the global financial landscape since the GFC, in Japan and in Europe. European central banks charged banks to hold their deposits, encouraging them to lend out cash instead to kick start economic activity.

So far, the Reserve Bank hasn’t followed suit, but we are edging closer. The cash rate is at a record low of 0.75 per cent with further cuts expected.

Most economists think the Reserve Bank is unlikely to take rates below zero. Taking interest rates too low could run the risk of igniting another property boom.

If negative rates are off the table, another way to bankroll economic growth is quantitative easing.

What is quantitative easing?

In the aftermath of the GFC, central banks in the US, Japan and Europe printed money to buy government bonds and other assets. By pumping cash into the system they hoped to boost economic activity.

There has been much debate about whether quantitative easing worked as intended. What it did do was push investors into higher-risk assets such as shares and property in pursuit of better returns.

It has also increased global public and private debt to $200 trillion, or 225 per cent of global GDP. Until now, high debt levels have been supported by high asset prices. But when coupled with geopolitical and trade tensions, debt adds to the downward pressure on growth.ii

The slowdown in economic growth in Australia and elsewhere is reflected in falling bond rates. In recent times more than 10 European governments have issued bonds with negative interest rates. ii

In recent months, yields on Australian government 3-year and 10-year bonds have dipped below 1 per cent, an indication that the market expects growth to slow over the next decade.

What does this mean for me?

It seems more than likely that bank deposit rates will stay low for some time. That means investors seeking yield will continue to look to property and shares with sustainable dividends. But it may not be plain sailing.

Trade wars, Brexit, high asset prices and slowing economic growth are creating a great deal of uncertainty. Each new twist and turn in trade talks sends markets up in relief or down in disappointment.

After a decade of positive returns, and average annual returns of 7 per cent from their superannuation funds, investors may need to trim their expectations.

Time to plan ahead

If retirement is still a long way off, you can afford to ride out short-term market fluctuations. Even so, it’s important to make sure you are comfortable with the level of risk in your portfolio.

If you are close to retirement or already there, you need to have enough cash to fund your pension needs without having to sell assets during a period of market weakness. For the balance of your portfolio, you need a mix of investments that will allow you to sleep at night but still provide growth for the decades ahead. When markets recover, you want to catch the upswing.

i https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019

ii https://www.smh.com.au/politics/federal/200-trillion-in-global-debt-at-risk-if-trust-falters-oecd-20190909-p52pdr.html

iii https://www.ricewarner.com/can-super-funds-continue-to-meet-their-investment-targets/

How much super is enough?

Most of us dream of the day we can stop working and start ticking off our bucket list. Whether you dream of cruising Alaska, watching the sun rise over Uluru, improving your golf handicap or spending time with the grandkids, superannuation is likely to be a major source of your retirement income.

The more money you squirrel away in super during your working years, the rosier your retirement options will be. The question is, how much is enough?

Estimating your needs

Financial commentators often suggest you will need around two thirds (67 per cent) of your pre-retirement salary to enjoy a similar standard of living in retirement.i Lower income households may need more because they typically spend more of their income on necessities before and after retirement.

The latest ASFA Retirement Standard estimates that a couple retiring today needs a retirement super balance of $640,000 to provide a comfortable standard of living. This would provide an annual income of $60,977.ii

Singles need a lump sum of $545,000 to provide a comfortable income of $43,317 a year. These figures assume people own their home and include any entitlements to a full or part Age Pension.

How do I compare?

According to the latest figures, the mean super balance for all workers is $111,853 for men and $68,499 for women. The mean balance at retirement (age 60-64) shows most people retiring today fall well short of the amount needed for a ‘comfortable’ retirement. ii

The gap between men and women persists at all ages. By the time women reach their 60s they have 42 per cent less super than men on average and are more likely than younger women to have no super at all.

How can I boost my super?

If your super is not tracking as well as you would like, there are ways to give it a kick along. When your budget allows, or you receive a windfall, consider putting a little extra in super. Even better, set up a direct debit or salary sacrifice arrangement.

• You may be able to make a tax-deductible contribution up to the $25,000 annual concessional cap but be aware that this cap includes employer contributions and salary sacrifice.

• You may also be able to contribute up to $100,000 a year after tax, or $300,000 in any three-year period. You can’t claim it as a tax deduction, but earnings will be taxed at the maximum super rate of 15 per cent rather than your marginal rate and you can withdraw the money tax-free from age 60. Your age and the amount you have in super can restrict the amount of contribution caps.

• If you earn less than $37,000, your other half can contribute to your super and claim a tax offset of up to $540. The offset phases out once you earn $40,000 or more.

• If you are a mid to low income earner and make an after-tax contribution to your super account, the government will chip in up to $500. To receive the maximum, you need to earn less than $37,697 and contribute at least $1,000 during the financial year. The government co-contribution reduces the more you earn and phases out once you earn $52,697.

• Speak with your employer about directing some of your pre-tax salary into super. ‘Salary sacrifice’ contributions are taxed at a maximum of 15 per cent (30 per cent if you earn over $250,000). But stay within your concessional contributions cap of $25,000 a year, which includes employer contributions.

To work out the difference extra contributions could make to your retirement nest egg, try out the MoneySmart retirement planner calculator.

As the end of the financial year approaches and with the federal election looming, this is a great time to utilise your annual contribution caps and get a tax deduction for voluntary concessional contributions. If you would like to talk about your retirement income strategy, give us a call.

i Moneysmart, Last updates 27 Aug 2018, https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions/how-much-is-enough

ii ASFA Retirement Standard, 1 December 2018, https://www.superannuation.asn.au/resources/retirement-standard

iii Superannuation Statistics, March 2019, ASFA, https://www.superannuation.asn.au/ArticleDocuments/269/SuperStats-Mar2019.pdf.aspx?Embed=Y

Getting into the great outdoors

Despite our intrepid image, Australia is an incredibly urbanised country by world standards, with almost 90% of our population living in or around cities.i The impact of this cosmopolitan living is a proclivity for the indoors, often resulting in sedentary lifestyles, which can augment rates of stress, depression and obesity. The antidote to all this is simple: get outdoors more often. Your body and mind will thank you for it.

The power of nature on the mind

The romantic poets wrote about it at length, and countless artists throughout history have reached the same conclusion: there is healing power in the magnificence of nature. Increasingly science is supporting this thesis, with research into the mental health benefits of being outdoors coming from all corners of the globe.

In Japan, for example, they have a tradition known as Shinrin Yoku, which basically translates as ‘forest bathing’. The idea being that you go into the woods for a length of time to calm down from city life. This practice has been shown to decrease cortisol levels as well as giving your immune cells a boost. In the States they have made similar findings, with research demonstrating that participants performed 50% better on creative problem-solving tasks after having spent three days in the wilderness.ii

By contrast, city dwellers are at much higher risk of developing anxiety and mood disorders than their rural counterparts. The reasons for this are manifold: traffic jams, excessive time seated in front of screens, the close proximity of everything and everyone – they all make it easy to get stuck in your head and sweat the small stuff. The beauty of nature by contrast is its vastness, how it can situate you in the ‘here and now’ and put your problems into perspective.

Body and soil

It appears the old saying ‘go outside and get some fresh air’ was more than just a trick your mother used to get you out of her hair. Indeed, the benefits of fresh air cannot be underplayed. Not only does the increase in oxygen help your white blood cells and thus your immunity, it also boosts your serotonin levels, ameliorating your mood and fostering a sense of well-being and joy.iii

Moreover, people who get outdoors more often are more likely to be exercising thereby producing endorphins. Even the decision to walk to the local shops rather than drive can have numerous benefits.

Cheap and easy

Getting outdoors doesn’t have to mean going on a five-day canoe trip or taking your swag to some remote location. It can be as simple as going to your local park. Australia has a legacy of public green spaces from Victorian times, as well as vast reserves of national parks not far from city centres. The best bit about them is that they are free for everyone and actually function as a social leveller. So why not take your bikes for a ride, pack a picnic with the kids, or enjoy a leisurely stroll with the dog around your local park.

To the future

The proof as they say is in the pudding, with governments around the world developing responses to the health problems associated with the concrete jungle. Many are starting to factor this into both their urban planning and public health policy. In Singapore they have long held the ‘city as a garden’ concept aiming to foster green spaces in municipal centres. Finland’s government endorses five hours of forest time every month to promote good mental health. Studies even showed that suburbs that are more heavily treed have residents with better heart and metabolic health. The same level of increase one would usually associate with a $20,000 rise in income.iv

With science on its side and governments the world over responding to our human need for nature, it seems clear that it’s something we could all use a little more of. Start with the little things—a morning walk around the block or some time out in the garden—and with warmer weather just around the corner, what better time to embrace the new, outdoorsy you.

i https://www.indexmundi.com/australia/urbanization.html

ii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3520840/

iii http://www.phantomscreens.com/resource/getting-fresh-part-1-the-health-benefits-of-fresh-air/

iv https://www.nature.com/articles/srep11610

Homing in on a happy retirement

Owning your own home has long been the Australian dream but after years of strong house price growth it’s becoming less of a reality for many. This has major implications for retirement planning. 

The major factor behind the shifting approach to home ownership is the prohibitive price of property, particularly in Sydney and Melbourne. As a result, today’s younger generations may be close to 40 before they take their first step on the property ladder. 

It’s sometimes argued that renting can be just as wise as owning. Advocates say you can invest the money you save through not paying rates, meeting the costs of maintenance or interest on loans. But this strategy can prove a problem in retirement. 

Owning your own home is often viewed as the fourth pillar of our retirement support system, with the other three being superannuation, savings and the aged pension. 

Increase in mortgage debt

In the past, it was assumed that most people will own their own home outright and be mortgage free by the time they retire. Accordingly, the burden of paying rent or loan repayments is generally not taken into consideration in assessing the cost of living in retirement. 

But in recent years there has been an increase in the numbers of retirees holding mortgage debt. In fact, 9.7 per cent of people aged over 65 had mortgage debt in 2013-14 compared with just 3.9 per cent in 1995-96.i

More significantly, the number of people aged 55-64 with an outstanding mortgage debt had jumped 29 per cent from the level in 1995-96 to 44.5 per cent in 2013-14.i It’s safe to assume that many people in this age group will still be in debt once they reach retirement. 

Some of this increase in mortgage debt can be put down to the rising cost of housing. An additional factor is the increasing divorce rate which means people can find themselves in the uncomfortable position of starting anew in the housing market later in life. 

Cost of housing

If you choose the rental path, you could struggle in retirement as rent can take up an increasing amount of your available income. 

In the past, well over half of renting retirees were in public housing, but that figure has dropped to less than 40 per cent due to reduced availability of public housing.(i) This has implications for retirement incomes. 

Today, tenants aged 65 or over renting from private landlords spend 35 per cent of their income on housing costs.(i) Anything more than 30 per cent is regarded as being in ‘housing stress’. 

Looking at housing figures overall, including those who rent as well as own, 22 per cent of all retirees spent more than 25 per cent of their income on housing in 2013-14, this number has been steadily rising over time.(i)

Advantages of home ownership

One of the advantages of owning your own home outright in retirement is that you can always draw on the capital if necessary either by way of a reverse mortgage or taking out a loan using your home as collateral. 

Another plus is that you have an asset to pass on to the next generation. Although for many baby boomers, passing on wealth is no longer a key focus. In fact, many prefer to use some of their savings to help their children get a foothold in the housing market. 

A COTA50+ survey found that around 40 per cent of self-funded retirees have helped their children or grandchildren fund a deposit for a home.(ii) 

For those who have the funds, this can be a good strategy. However, you do need to be mindful of leaving yourself short in retirement by passing on too much of your money too early. And if you are already retired and receiving an aged pension, then you will be limited to gifting your children no more than $30,000 over a rolling five-year period. 

Housing affordability is becoming an issue for Australians at both ends of the age spectrum. That’s why it’s a good idea to have a talk with us to discuss your retirement housing and income needs. 

i ‘No place like home’, prepared by Saul Eslake for AIST, March 2017, http://www.aist.asn.au/media/20734/AIST_Housing%20affordability%20and%20retirement%20incomes_FINAL%2021032017.pdf
ii https://www.cotansw.com.au/MediaPDFs/COTA%20NSW%2050plus_Report_2016web.pdf

Time to review transition to retirement pensions

Amid the major reforms to superannuation that took effect on July 1, some significant changes to the tax treatment of your Transition to Retirement Pension (TRIP) may have flown under the radar. Some individuals will be affected more than others, so if you have a TRIP or are thinking about starting one, now is the time to review your strategy.

The Government’s super reforms were designed to improve the sustainability, flexibility and integrity of the system. According to the Tax Office, the changes to TRIPs were designed to ensure that they’re not used primarily for tax purposes.i
 

What is a TRIP?

A TRIP allows you to access up to 10 per cent of your super in the lead-up to retirement. The idea is that you can supplement your employment income while you continue to work full or part-time. The tax benefit comes from replacing employment income taxed at your marginal rate with concessionally-taxed income from super.

When combined with salary sacrifice, a TRIP strategy also allows you to boost your super without sacrificing some or any of your after-tax income.

As you would expect with super, there are strict rules around eligibility. For starters, you must have reached preservation age; this is currently 56, rising progressively to age 60 for everyone born after June 1964. Then there are maximum (10 per cent) and minimum (4 per cent) amounts you can withdraw from your TRIP account balance each financial year. And you can’t withdraw your money in a lump sum, it must be received as an income stream unless you retire, turn 65 or satisfy another condition of release.
 

What are the changes?

The main change relates to the taxation of earnings on investments used to fund your TRIP. From July 1, earnings on these investments are no longer tax free. Instead they are now taxed at the 15 per cent rate that applies to earnings from assets held in the accumulation phase of super.

The good news is that payments you receive from your TRIP will continue to be taxed as they were previously. That is, payments are tax free if you are aged over 60, or taxed at your marginal rate with a 15 per cent tax offset if you are aged between 56 and 60.

Another of the super reforms will limit the appeal of TRIPS for high income earners. That’s because the income threshold at which individuals begin to pay contributions tax at the higher rate of 30 per cent, instead of normal super rate of 15 per cent, has been lowered from $300,000 to $250,000.

New limits on concessional (before tax) super contributions may also limit the potential benefit of the popular salary sacrifice strategy when combined with a TRIP. From 1 July, the maximum concessional contribution (including Super Guarantee payments and salary sacrifice arrangements) is $25,000 a year for everyone. Previously anyone over 49 could contribute up to $35,000 a year this way.
 

What should I do?

While TRIPS are still a tax effective way to manage your finances in the leadup to retirement, the new rules mean some people could be better off pursuing other strategies. In some cases, high income earners who already have a TRIP and satisfy a condition of release, such as retiring or changing jobs after turning 60, may be better switching it off or converting to a normal account-based pension.

At the very least, if you have a TRIP or are thinking of starting one and you haven’t already done so, you should review whether it’s still be the best option for you going forward. The new super rules are complex and their impact will depend on your overall financial situation so it’s important to seek professional advice before you act. If you think you may be affected or you would simply like to discuss your options in the leadup to retirement, don’t hesitate to give us a call.
 

i https://www.ato.gov.au/individuals/super/super-changes/change-to-transition-to-retirement-income-streams/

Achieving your dream of early retirement

Spending more time with your family. Picking up a brand new hobby. Exploring exotic destinations for longer than your scant weeks of annual leave would allow. However you paint it, retirement is a beautiful goal to work towards. And starting early means you’ve got more time and energy to enjoy it.

Early retirement has become a popular financial goal for Aussies from a wide variety of different backgrounds and circumstances. A 2016 global survey found that out of 17 countries surveyed, Australia has the one of the highest proportion of people wanting to retire early. In fact, 75% of Aussies aged 45+ wanted to retire within the next five years – as much as fifteen years before pension age.i

Unfortunately, most cannot afford it. There’s a big disconnect between those who want to retire early, and those whose finances will allow them to stop work.
 

What do early retirees have in common?

Those who successfully retire early aren’t just lucky, or from wealthy backgrounds. A US-based study found that early retirees fostered habits and abilities that allowed them to build their wealth sustainably over time.ii

The first is the mindset and discipline necessary for saving. Consistently choosing to save rather than spend – plus compound interest – means real wealth is built over decades.

Speaking of decades, early retirees are more likely to have set long-term goals and focused on them. There’s a psychological reason that this is difficult for many people. Our brains are hardwired for instant gratification and it doesn’t just affect our propensity to snack or hit the sales. Anything we can see, or at least visualise strongly, is much more attractive than anything that’s too far in the future to picture.

Of course, good habits in both these areas are less effective if they’re not shared by your spouse. A spender can undo much of the good work of a saver, even if their finances are not completely intertwined.

Then, there’s the advice factor. That study also found that those who retired early were more than twice as likely to have worked with a financial professional.

How to work towards a comfortable early retirement

Do you want to retire with time to enjoy your golden years? There are plenty of ways you can start building towards an early retirement.

1. Make a plan
   Your plan should be holistic and consider all your circumstances, including children and grandchildren, and spending changes in retirement. Of course, we’re happy to help you map out a plan that’s right for you.
    
2. Establish goals
   If you’re one of the aforementioned ‘instant gratification’ types, try breaking down your savings and investment goals in to bite-sized pieces. Instead of looking at one benchmark (likely in the millions of dollars), look at multiple small goals, and ascribe them labels. For example, call your first chunk of retirement savings your ‘renovate/move house fund’. Nickname your salary sacrifice ‘retirement travel fund’. Feeling like you’ve achieved goals will help keep you on track.
    
3. Invest wisely
   Don’t allow your investment decisions to be driven by trends. Get to know your own risk appetite and tolerance. And always make sure that any individual investment is right for your personal circumstances and life stage.
    
4. Manage your debt
   It’s not fun or glamorous, but paying off debt should be a top priority. Every time you divert a dollar from paying off debt, you’re effectively charging yourself interest that you’ll have to deal with later in life. It’s harsh, but you won’t be able to retire comfortably whilst still making debt payments.
    
5. Set up multiple income streams
   It’s important to consider possibilities and entitlements beyond your super, such as government benefits. By starting early, you may also be able to build other income sources such as cash-positive property or a share portfolio.

Want more help on making your early retirement dream a reality?
Contact us to arrange an appointment.

i http://www.smh.com.au/money/australians-dream-of-early-retirement-but-cant-afford-it-20160225-gn3hph.html

ii http://www.allianzusa.com/lovefamilymoney/insights/common-traits-for-workers-that-retire-early/

Saving for retirement: the big picture

Australians are constantly being told they are not saving enough for their retirement. The argument goes that unless you have enough saved in superannuation you will be forced to rely on the Age Pension. But this is not the whole story.

Super is undoubtedly the most tax-effective vehicle for retirement savings, despite constant government tinkering and rule changes. But for a variety of reasons, most households hold assets both inside and outside super.

Younger people may want to access their savings before retirement to put a deposit on a home, pay for their children’s education or travel overseas.

Investors who are nearer retirement may be hedging their bets by keeping a portion of their retirement savings outside super given ongoing uncertainty surrounding the super rules. By holding assets in different investment structures, such as family trusts or insurance bonds, it reduces the risk of regulatory changes to any one structure.

And from 1 July 2017, under the government’s proposed super reforms, there will be a $1.6 million limit on the amount an individual can transfer from the accumulation phase into the tax-free retirement phase of super. So individuals who anticipate saving more than $1.6 million to fund their retirement will be on the lookout for investments outside super.
 

The three pillars

Australia’s retirement income system is built on three pillars. There is an income safety net in the form of the Age Pension, compulsory super guarantee payments made by employers on behalf of their employees, and personal savings both inside and outside super. It’s this third pillar that is often overlooked in the national debate about retirement savings.

Australians have $2.1 trillion invested in super.i But they have as much again invested outside super - $2.2 trillion according to a recent Rice Warner report on investor preferences.ii And that’s not including the family home or family businesses.

So who’s investing and what are they investing in?
 

Saving outside super

According to the Rice Warner report, there are big differences in investment patterns outside super, depending on a person’s age and wealth.

Wealthier investors typically have a higher proportion of their non-super savings in direct shares, direct property and international investment assets. Middle-income investors tend to have more of their savings in term deposits.

It probably comes as no surprise that investment property is the largest asset class overall, at 42 per cent of total assets, followed closely by cash and term deposits. Property investment peaks between the ages of 35 and 55, when people start reducing risk ahead of retirement.

Shares represented just 10 per cent of personal investments outside super, although this increases to 19 per cent for the over 75s. It’s possible that older retirees who are living off the income from their investments prefer the higher liquidity and dividend yields on offer from shares compared with rental property.
 

Policy implications

The way Australians actually save for retirement is of more than passing interest, it has implications for future government policy. In a recent paper, the Grattan Institute said that savings outside super should be taken into account in policy decisions concerning retirement income.iii Controversially, the authors argued the Super Guarantee should be frozen at 9.5 per cent, rather than progressively lifted to 12 per cent as planned. At present, both sides of politics support the move to 12 per cent.

The reliance of Australian households on investment property held outside super also highlights the sensitivity of the recent debate about winding back negative gearing and capital gains tax concessions. This would be a major blow for younger investors trying to build wealth to provide income in retirement.

The debate about the adequacy and fairness of super is unlikely to go away any time soon. But it’s important to remember that while super is still the most tax-effective retirement savings vehicle, it’s only part of a holistic approach to retirement income. If you would like to discuss your retirement savings strategy, don’t hesitate to give us a call.

i As at 30 June 2016, ASFA, https://www.superannuation.asn.au/resources/superannuation-statistics

ii http://ricewarner.com/investor-preferences-by-age-and-wealth/

iii https://theconversation.com/the-superannuation-myth-why-its-a-mistake-to-increase-contributions-to-1...