Australians, overall, have less superannuation than might be expected – check your balance and compare it with others in your age group.
If your balance is below where it should be for someone your age then you’ve got some thinking to do and decisions to make to ensure you enjoy the best retirement you can.
Recent figures released by APRA show the average Australian super balance is $88,000.
But that figure means nothing because it is averaged out across a wide range of age groups and incomes.
A better picture of the superannuation universe comes from APRA’s new Quarterly Superannuation Industry Publication.
The figures below are drawn from there.
The first place to start is with the younger cohort. Those under 25, unsurprisingly, have little in the way of super savings with 70 per cent having under $6000 in their accounts.
The most basic thing to do if you are in that situation is just continue working and your account will increase over time.
But Rainmaker executive director Alex Dunnin says there could be some headwinds affecting you that you are unaware of.
“Young people have 12 per cent of accounts but only 1 per cent of the dollars in superannuation,” Mr Dunnin said.
Considerations for young people
Fees erode low balances proportionally more and this affects young people.
“There are fee caps but the fees in funds that are set in dollar amounts erode smaller balances quicker, especially where there are insurance costs as well,” Mr Dunnin said.
Those effects will reduce quickly as funds grow, particularly as contributions move towards 12 per cent of wages in coming years. But many younger people may be in the gig economy and are not getting automatic super guarantee payments from their employer and need to make personal contributions to build a balance.
For people in that situation or younger people worrying about low balances then there are other things to think about, Paramount Financial Solutions principal Wayne Leggett said.
If you put extra money in super in your 20s “you are locking it up for decades because you can’t get at it until your 60s and there are many other options out there you miss out on,” he said.
Most importantly there is property.
“If you’re in your 20s getting equity in real estate is really important. If you own your own home, pay some of the mortgage down, and if you don’t then you could buy a rental property to get into the market,” Mr Leggett said.
For people in mid-life, say in their 40s, there are other considerations.
Crunch the numbers on your super and your income and make a call on whether you are likely to build up enough super to meet your retirement needs.
“Remember that the 12 per cent of your salary that you are going to get in super over your working life is probably going to get you near a retirement lifestyle that you can come to terms with.”
Pay down the mortgage or super?
For people in mid-life with a reasonable super balance this question until recently was a no brainer.
“When your balanced super fund was returning 8 per cent and your mortgage was costing you 2.5 per cent, then building your super balance was the thing to do,” Mr Leggett said.
However, now that interest rates are rising and super returns have fallen you need to look closely at your situation to see what is best for you.
Take some advice, either privately or through free services run through industry super funds if you need another set of eyes to help with the review.
Coming up to retirement
There is a very complex reality you need to deal with if you are moving towards retirement and you don’t have enough super to retire on.
The question is: Should you aim to be self-funded by moving as much money as you can into super or should you be content with a full or part pension?
A full pension is available for those with assets between $280,000 for single home owners and $419,000 for couples owning a home.
For non-home owners the figures are $504,500 and $643,500, respectively. Remember the family home is not included in the assets test.
For a part-pension the limits are $622,250 for singles and $935,500 for couples owning a home. For non-home owners, the figures are $846,750 and $1,159,500 respectively.
So if you are moving towards any of these thresholds as you approach retirement you need to work out whether it’s worthwhile going without now to build a higher super balance or spend more now and draw more from a Centrelink pension in the future.
Despite the fact that we have had compulsory super for 30 years the system is still unequal with only 93,000 people having more than $1 million in super.
However, 1.81 million people of all ages have less than $25,000 in super.
“In the future most people will have heaps of money in super, but this transitional generation [who had no or low levels of super contributions early in their careers] haven’t been in the system long enough to build up big balances,” Mr Dunnin said.
The New Daily is owned by Industry Super Holdings
