Why you need to save your super. An open letter from Alan Kohler
It’s my belief that Australia does not have the best retirement system in the world, as industry and political leaders usually claim, but one of the worst.
Australia used to have (as most western countries still do have) a “defined benefit” system, where a certain level of income in retirement is guaranteed for life. But during the 80s and 90s, virtually all employers abandoned this system in favor of “defined contribution” (also known as “accumulation”) funds. This system places all risk – market (that things go wrong with the investment) and longevity (that we live longer than expected) – onto the individual. To cap it off, the government’s tendency to change the taxation of super as an easy way to increase revenue means we’ve got no way of knowing where we’ll really end up.
So, contributions are legislated, but the government keeps moving the goal posts on how much it’s going to take in tax. We are left to our own devices in working out how to invest, so we usually invest through private, largely unregulated wealth managers, and we bear all the risk.
How it works
- During our years in paid work, we make mandatory contributions to a super fund which charges an unregulated fee and may or may not do a good job
- Most of us have no way of sensibly choosing between funds and fund managers
- At retirement the fund either gives us the cash or rolls it into an allocated pension. We decide how much of the principal to withdraw, and once again we take all the market and longevity risk
- Many people, in a panic after realising they don’t have enough for a basic, much less comfortable, retirement, take even greater risks in the hope of improved return and then lose the lot (e.g. Trio Capital, Storm Financial)
Now most of us are living well into our 80s, retirement is far more expensive than 9% of salary will fund. What retirement will cost is different for every individual.
Doing nothing, or not doing enough, or relying on others to do it for you will impact only you. It’s not your financial adviser, the government, or your super fund manager who’ll be eating cat food if your super runs out – it’s you. So you’ve really got a vested interest in getting informed.
So what can you do?
Well, what you shouldn’t do is hope you’ll be ok, or rely on someone else to work it out, or put it off until later. Educate yourself! Work out what you’ll need in retirement and how you’ll get there from here.
Save our Super is designed to help you work through exactly that. It’ll provide you with the framework and tools to identify how to get to a comfortable retirement from where you are today.
Register now to join the super revolution, and be in the best possible position for your retirement.