I saw the most ridiculous headline on the Australian Financial Review (AFR) yesterday. It read, ‘Ignore the uncertainty and invest in super.’
I almost spat out my corn flakes when I saw it on the AFR website. I wondered who in the heck was this article aimed at? Was it me, a young professional in their mid 30s? Was it someone like my Dad, early 60s and retiring? Was it perhaps the current batch of ‘green’ graduates in their crazy-20s?
To be honest, I can’t figure out who it was aimed at. Superannuation in Australia has turned into a $2.032 trillion tax revenue monster. It’s the last place I’d want to put my money.
I can’t remember a single government in my working life that hasn’t wanted to tinker with super. And sure, I might only be in my 30s, but I’ve seen six Prime Ministers come into office (Rudd twice). As a point of comparison, in the same time the US has had three Presidents. The UK has now had four PMs. Russia, three Presidents (two, but counting Putin twice).
Anyway the point here is every Australian government has wanted to change super. And in my view, every one of them in the future will probably want to change it too. So would I actively invest my money in super? Hell no.
Chances are I’ll likely never even see my super. The current retirement age is 67, but the government has suggested pushing that well out to 70. By the time I get to 70 — well let’s just say I’ll be closer to death than getting my hands on my money.
As a young person who’s 35, 40, maybe 50 or 60 years away from getting near it, putting more money in super is bonkers. People say it’s to ‘secure your future’. I don’t believe that.
No, in my view, superannuation is helping to put your future at risk. But how?
Would you rather have a job or not?
For a start, as mentioned, if you put it in you might never see it again. That’s taking money away from you now to one day (maybe) see it again. That’s not a risk I personally want to take.
Putting extra into super also means less money in your pocket tomorrow. I’m talking about your personal cash flow.
In Australia, cash flow is everything. In fact, you want to do everything humanly possible to get more cash in your hand every day you can.
Let me explain why.
Right now the country is on the brink of economic calamity. A large part of this is due to the slowing of wages growth. Wages are still growing, but at a declining rate. In fact, wages growth is at its slowest in almost two decades.
What does this exactly mean? Well typically slow wage growth has a tight relationship with unemployment. Low wage growth usually means high unemployment. But unemployment in Australia is 5.8%.
So what does this tell us?
Well it suggests people are keeping their jobs, but not getting pay rises. It suggests businesses are tightening the belt to combat the economic headwinds, and employees are the first to cop the impact.
It’s suggests a situation where employees either get a minimal or no pay rise, or quit and try find a new job. The alternative is unemployment.
I’m pretty sure in that predicament you’d take the job over the pay freeze.
This is where I come back to the importance of personal cash flow.
Build a new income stream
Imagine you’ve got a full time job, it’s reasonably secure, but your employer says there’s a freeze on pay rises.
You don’t like it, but what are you going to do? You’ve got a mortgage to pay, school fees, the car needs a service and rego is due soon. Then there’s the family holiday you promised a year ago but is now at risk…you were banking on that pay rise after all.
It’s clear what gets priority — the mortgage. In an overpriced housing market debt is the main priority when there’s so much of it. If you pay more than 35% of your after-tax income on your mortgage, you’re technically in mortgage stress.
So without a pay rise you have to look at other ways to be frugal. It’s pretty easy to see why Aldi has now claimed more than 10% of the Aussie supermarket sector.
But then the cost of living in Australia is high. Things are expensive. After the mortgage, utilities, food, transport, clothing and bare essentials, there’s not a heap left over. Yet you should invest more in superannuation? I don’t believe so.
If you’ve got any money left over at the end of the month you should invest it, but I believe it should be outside of superannuation. That way if you ever did need it on a whim you could access it.
Sure the government can still tax you on it, but it cannot be taken from you. When you want it, when you need it, you have access to it. And it can provide you with income you can use today, not in 50 years’ time.
You see, through dividends or options trading you can build your own separate cash flow. It can help supplement your (now frozen) salary.
The importance of building your wealth in addition to your salary is never more clear than it is now. Your nest egg is the money that you can accumulate and access on a short time span. Money in Super can’t protect your future if you don’t have a future to protect.
And remember, if there are pay freezes now and things don’t get better, how far off is it until you’re asked to take a pay cut?
Don’t believe a pay cut is likely?
Well check out Money Morning on Saturday and I’ll explain how, not only are mass pay cuts coming to the Aussie market, they’re already happening. And it could set the country back 20 years.
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