Is superannuation a trap?
The Australian superannuation system forces your employer to contribute 9.5% of your gross salary to a super fund of your choice. Through regular contributions and conservative investment, the fund grows steadily enough, to the point where you’ve got a fat chunk of cash ready for retirement.
Better yet, the tax rules around it are as about as effective as they can be.
A legal tax-dodge. A beautiful thing! But does it work for you?
Here’s why the system isn’t perfect for anyone other than the plump fund managers shuffling your dollars from stock-to-stock: there’s too many factors that need to go your way to make super work as well as it was designed to.
Many are out of your control.
When super absolutely rocks:
- You’ve been a Copper or similar government person for 30+ years and have a guaranteed income and a payout through a defined benefit scheme (I hate that word)
- You’re an airline captain and you have similar guarantees
- You’ve been working in Australia consistently your whole life and your income has steadily increased
- You retire with a meaty $2m in your super account and you merrily live off the interest
- You’re a high earner, have been making the maximum contribution to your super for a good few years and you’re killing it
- You’re a fund manager getting paid squillions to shuffle other peoples’ money around
But if this were you, you wouldn’t be reading this.
When it doesn’t rock at all:
- You’re a stay-at-home mum working your butt off running around after three kids for years, missing out on half your earning years. Don’t expect to retire with much super
- You’re a middle or lower income earner. Sure, you’ve got a couple hundred grand, but how long will that last?
- You’re a sole trader or run a small husband and wife business and have not contributed to super regularly. Or ever. Panic.
- People who rely on generous bonuses—they don’t always require a super contribution
- Anyone who—like many—has ignored the performance of their super fund and have had stagnant returns
- Anyone who has had multiple jobs and funds, and the fees are eating away at the small balances like a piranha
No one likes reality slapping them in the face but if I don’t do it now (even gently) it’s going to come full force and wallop you when you get the DCM’s (don’t come Monday) or you’re ready for the knacker’s yard after more than 40 years dutifully excavating dirt.
Few things could be worse than expecting a pot of gold to be waiting for you at the end of the rainbow, only to discover a pile of rusty steel.
After all these years, I reckon we’re in a good position to level with you: around 8 out of 10 Aussies aren’t investing outside of super. We didn’t get that from the latest MLC report selling their financial planning services, we got that from 8 years meeting mum and dads spinning their financial wheels.
Which leads us to arguably the single biggest problem with super: It breeds a false sense of security. You think you’ve got a safety net. But you haven’t checked your statement forever, so how would you know?
It gets worse – take one of my best mates’ old man as an example.
40 years at BHP, a proud husband and father of 4 strapping lads. It’s 2009 and he’s 2 months away from saying ‘seeya’ to the gang at the office. What happens? His $1.1m super balance gets slashed to $600,000 as the markets around the globe implode in the Global Financial Crisis. More than 40% of his super wiped out in a single week.
100% True story. Dramatic? Yes. Could it happen to you? You bet.
It’s real: Many people I meet in their late 40s are still so indebted—car, mortgage, even jewellery loans—that they are planning on using their super to pay these debts off. That’s not what your super is for.
It’s unpredictable: How can you depend on your super when the Government can’t make up their mind on how it will be taxed and how much you can or can’t contribute?
The downsides to relying on super are plenty.
We seldom meet people with balances that are significant to safely rely on for retirement. The exceptions are career professionals, medicos, some of my pilot clients, etc. The rest look limited at best.
What to do?
You must pay yourself first and invest for the future.
Owning good quality investment property works well as a long-term investment for most people, for many reasons. When done right, it’s easy, it’s affordable, it’s understandable. The tax rules are favourable, it’s long term, it’s relatively stress-free.
But it not’s the ‘investing’ that I really wanted you to get into your heads. It’s the misguided reliance on your super to work perfectly and provide for you down the track.
You’ve got to get something happening in addition to your super. Invest in a good property somewhere.
Then forget about it for 20 years.
If you’ve invested well (which we will ensure) you can bet that the capital gains of three, four, five hundred thousand dollars are going to come in very handy when you retire. Team this up with whatever your superannuation is at the time and I’ll bet you’ll feel a whole lot better about your golden years when they’re finally yours to enjoy.
Clover Partners does something that no other company in Australia does. We show our clients how property investment can help pay their home off in half the time with a strategy and loan structure that you won’t hear about from anyone else. Imagine a retirement with the title to your home in your sock drawer, an investment property ticking along nicely AND a few hundred grand in super.
Sounds too good to be true? It isn’t, and we’ll show you how.
Want more insight? Give us a call on 1300 823 995 or touch base below