The narrative around superannuation in Australia has changed in recent times. A number of finance commentators have suggested that many Australians have put away far more super than they will need in their retirement years.
But is that really true? Not everyone thinks so.
Tim Mackay, an independent financial adviser at Quantum Financial, thinks we should be a bit more cautious in our approach. In an article he wrote for the Australian Financial Review last week, Mr Mackay took on the role of devil’s advocate.
“One policy position often put forward is retirees should have enough super to last until their neatly planned death date when all funds should be drawn down to zero,” he wrote.
“Nothing should be left for contingencies or the kids.”
But Mr Mackay argues that this theoretical approach ignores most Australians’ reality: “You cannot assume retirement is a line of smooth annual returns with controllable expenses and a known check-out date. Over the 25-plus years of retirement and growing, there are many expected and unexpected events to plan for. If you don’t, it’s highly likely you will run out of money.”
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Some might see that as fearmongering, but it’s hard to argue that over the course of retirement there will be unexpected ‘bumps’ along the way, particularly as life expectancy continues to rise.
On the other hand, it is impossible to deny that superannuation funds themselves will benefit greatly from Australians putting more into super, so they can hardly be blamed for advocating an approach that will result in us putting aside more than we are likely to need.
Striking a balance is the key. What that balance is might depend on one’s definition of ‘need’. Former ASIC deputy chairman Jeremy Cooper argues that our tax system is too generous to wealthy Australians.
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Mr Cooper says the Howard government’s decision in 2006 to make superannuation earnings tax free for people in retirement was extremely generous, making specific reference to franking credits.
In a recent interview with Geraldine Doogue on ABC’s Radio National, Mr Cooper explained: “Let’s just assume that I’m nearing retirement, and I could be earning, say, several hundred thousand dollars a year upon which I would pay absolutely no tax.
“Even better than that for me personally, but not so much for society, I would actually probably receive franking credit rebates as well, possibly in the tens of thousands of dollars,” he said.
Mr Cooper then provided this counterpoint: “Let’s just think I’ve got two kids who are 30 somethings. They’re carrying HECS debts and trying to buy a house in Sydney at the moment. They’re on relatively modest incomes upon which they’re paying more tax than I would be.”
Read: Australians expect superannuation shortfall
The issue, it would seem then, is one of wealth divide. The wealthier are being given concessions that will allow them to put away far more than they will ever need, while the less wealthy heading towards retirement might feel they are being forced to choose between having enough money to survive now and enough to see them through retirement.
Various financial commentators have called for a superannuation cap of $5 million, above which any balance would be subject to tax as ordinary income. Mr Cooper sees merit in that but also believes that any changes made by current or future governments should be gradual.
“[It’s a] very long-term bargain that you’re making with the government effectively. And so, if you were to change the settings for retirement, there would need to be a long conversation about it, and lots of warning for people as to what to expect if they were nearing retirement, time to rearrange their affairs, possibly while they’re in retirement.
Whatever changes the government might make, Tim Mackay encourages us to seek advice and plan carefully. “Plan for living longer and consider working longer, don’t be caught short.”
How do you feel about your retirement plan? Are you comfortable with your current balance, or do you think you’ll need more? Why not share your experience and thoughts in the comments section below?
The problem here is those talking about tweaking the system ignore those who have already retired. Those who have been retired for some time and those who are newly retired have little or no opportunity to change what they have. Many of the recently retired were unable to sock away large sums when compulsory super came along, and have retired with small, sometimes paltry savings.
For many, we worked, paid our taxes and the 7.5% tax to provide an aged pension, and now that safety net which we were relying on is at risk of being cut by those who say there is a better way. Yes, it is always better to be wise in hindsight, but for many of us, our whole working life was dedicated to paying off the home, educating the kids and doing our bit for society. We didn’t have a lot, but we made do. We were not in high-flying jobs that paid ridiculous salaries that allowed stacking away millions.
It seems all the debate and the proposed changes are just another effort to take more off the average Aussie and give in to the small percentage who don’t need it. Vilfredo Pareto identified this in the 1800s when he observed 20% of society owned 80% of its wealth. This trend has continued to this day and is also true of retirement. 20% are well looked after by the systems government puts in place and the other 80%, “Oh well, they clearly didn’t try hard enough”. Just more of ‘take from the average and give to the rich’.
And our politicians support it as they tend to be in this wealthy elite or are aspiring to be by having their snouts in the public trough. Wake up folks. When you eliminate the bottom rung of society a new group become the bottom rung and over time, the elite become the only survivors. Maybe people should read the Lord of the Flies and watch some of the movies like Elysium, 1984, Soylent Green and Metropolis, where civilization declines into survival of the elite at any cost. These scripts are being played out before our eyes.
The pundits playing with people’s survival are using estimates of living standards, life expectancy, and economic growth, but are really continuing to support the elite who have pillaged and polluted the planet to create enormous profits and power for a tiny elite group at the expense of a growing middle-class, who don’t yet realize they are the new poor and just a source of more wealth for the elite. All of the adjustments are just about how to take more of the bulk of society.
You are right OzJames. Practically all superannuation (now-a-days) advice is geared towards current workers, not those already retired. I don’t have much super, but I am sick of the government constantly changing the rules. Some years ago, you could put $50,000 into your super. So I studied to find a better paying job so I could do this – then within 6 months, they lopped it back to $25,000. I had every intention of working till age 70 – I loved my job, and was capable and able. BUT along came the boss from hell who came within a hairs width of sending me to a mental ward. Being single, and totally medically unfit to barely leave my house, I had to stop working. I had to use a chunk of my super to pay off my mortgage. It took me years to recover – just ready to get back to any job – then covid hit. NO employer wanted to hire a senior – still don’t.
It is bloody hard to survive on the pension as a single – I get so annoyed with couples saying they should each get the single pension. Yeah? – my rates are the same, car insurance the same, home insurance the same, rego, electricity, petrol…. So many experts seem to always refer to ‘couples’ when they talk about super. Saw this recently when a previously married friend, constantly complaining about not both getting single pension, but seemed to always be away on trips – her husband passed away suddenly, and bam! – now she only gets a part pension due to then changing to single status! NOW she has shut up and finally sees my side.
I too get tired of hearing about how our age group hasn’t saved hard enough for our retirement. At my first job in 1968, I clearly remember the HR manager explaining about how 7% of our tax would be put away for our pension. THAT was stolen. And just when super came in, had to take some years off to help elderly parents. No super, and I wasn’t paid so lived on savings. Then when I started working, in lowly paid jobs, one employer didn’t pay my super for 6 years – nothing was every done back in those days. So I have scrimped and saved, worked bloody hard, never married, given up my much loved hobby, simply to survive for old age. Now, I’m almost too broke, and worn out, to enjoy it.
Govt has changed the rule, and I am able to add to super without having to work. But with what? I do a tiny little side hustle that doesn’t even cover my annual council rates, but I am constantly on tenterhooks worrying what the govt (which ever party) will do to change super. If you won’t help – leave us oldies alone!
Continually when I read Comments by Some moonbeam group or Government floating ideas for change in the superannuation rules I read the feedback which is unanimous in its views.
Government stop fiddling with the Superannuation rules for those who have already retired.
My addition would be if you are going to change the rules then grandfather those who have already retired!
I applaud this govt for its early attention on people in Agedcare but reading some of the literature coming out of the Aged Care Commission it is not written in plain language and is confusing.
Invisibility of spending does not seem to be addressed.
The literature needs to be written in language that a resident can understand not policy language that only Aged Care bureaucrats are familiar with.
Cheers.