Super and Retirement Wealth
Almost everyone saves through their work superannuation (or super) scheme. The purpose of such an arrangement is to transform the balance into retirement income.
The challenging part isn’t saving — as it is compulsory — but efficiently converting the balance into income.
The biggest benefit to a super is the lower tax burden. Those who invest outside of the system face greater levies.
Is a Super the Best Option?
The superannuation scheme assumes that working-age individuals are too myopic to appropriately save for old age.
But for the older pension-age persons, a free-market approach is desirable.
The focus of supers is to increase retirement savings, not necessarily net wealth — which is why it’s not always in your best interest.
This is a significant opportunity cost.
You should be aware…
Outside of your super there is an astonishing amount of investment options available to help you grow your nest egg.
You’ll want to diversify your holdings to maximise security. Maybe you invest in blue-chip stocks, a diversified managed fund or two, and a term deposit.
These are similar to super funds but without access restrictions; they pool investors’ money to give access to a range of assets and investment sectors.
You won’t need much money to get started with one of these, and you can withdraw at any time.
You’ll also want investments that keep pace with inflation — you could be living upward of 20 years after retirement.
If you’re looking for something more long-term — 7 years plus — capital growth investments may be right for you. This includes property and shares, which generally appreciate over time and pay dividends.
There are many benefits to investing in housing. You can benefit from capital gains and get tax deductions from negative gearing and depreciation allowances.
Rice Warner says:
‘A retiree over the super preservation age would now be better served by having at least three portfolios: an account-based pension (or a transition to retirement pension if they are still working); a super accumulation account; and at least one non-super portfolio.’
Clearly, the simple super approach just isn’t desirable anymore.