Retirement | Slack Investor

Superannuation … Engage! – Part 1

Most Australians, particularly young Australians, rarely show interest in their superannuation(retirement)fund. I can understand this when you are just starting your working life and your experience with super is just to see a slab of your pay earmarked for some obscure fund that you wont be able to access until you are almost fossilized at the age of 60.

However, it is time to engage … our super fees are too high in Australia … and a lot of the problem is the design of the system … and apathy. The Australian compulsory superannuation system is much envied – However, it could be improved – your default fund is decided by your employer and this, annoyingly, could change with each new job – it is time to take control!

According to the Super Sting report put out by The Grattan Institute, Australian’s pay $21 billion a year in super fees. Australians pay fees at almost 3 times the rate of other OECD countries. The report states

… a 30-year old Australian today will have his or her super balance reduced by almost $250,000 in fees (in today’s dollars) at retirement!

This is too much! Set aside an evening where you hunt down the latest super statement from your fund and do a bit of google research. I would throw in a glass of wine … but that’s just me!

Sure … there is a delay in getting your super … but it is your money, why give to the bloated financial industry!

Many super funds ask you to pay fees of up to two per cent per year to have your compulsory superannuation ‘managed’ However, with a tiny bit of effort, it is possible to restrict your super fees to around 1% (or less!) per year. This means a person with a fund balance of $50,000 could reduce their fees from around $1,000 per year to less than $500 – just by filling out a few forms .. the whole process is outlined on the ASIC Moneysmart site – I will borrow and paraphrase these steps …

Choose a fund – The Slack way is to let someone else do the legwork for you and go to the independent site SuperRatings – they list a top 10 funds (I have shown the top 5 – over a 5-year period below). Note that on this trawl, they are all Industry funds. Retail funds usually have lower returns as they have higher fees.

TOP 10 RETURNS AS AT 28/02/2017
Rank	Fund Investment Option	Return	Return Period
1	HOSTPLUS – Balanced	10.80%	5 year
2	Cbus – Growth (Cbus MySuper)	10.66%	5 year
3	UniSuper Accum (1) – Balanced	10.56%	5 year
4	AustralianSuper – Balanced	10.54%	5 year
5	CareSuper – Balanced	10.54%	5 year

Don’t get carried away with small differences in returns but, as well as previous returns, take a look at the other important factor, yearly fees – RateCity has sponsorship deal with some super providers, but their listing on performance comparison here shows typical yearly fees on $50k balances – If you can get fees $500 or below (<1%), you are doing OK.

Check your insurance cover – Income insurance is usually a good idea, and this is a separate component to your fees- life often can sometimes throw up something unexpected and a basic policy might help you out in times of trouble. For older folk … near retirement with equity in your house … this insurance is not so important.
Open a new account – Contact your proposed new fund and set up an account – no upfront transfer of money is required … this will come later. Ask them for all details to tell your employer – Choose well … and this will be your super fund for your working life.
When your new fund is established, tell your employer – Make sure they know where to pay your super and make sure you have your new account number. Your employer will have to enter these detail in the payroll software- Keep this fund for ALL of your jobs when you fill out your employee information forms!
Rollover super to your chosen fund – This is simple if you have only only one existing fund – your new fund will have a form that you can use to request a rollover from your existing fund. OR, if it is complicated and you have several funds going, you can combine these online through myGov,

There is more to say on this topic … stay tuned for part 2. For more information take a look at the ATO’s keeping track of your super page.

Most Australians Struggle in Retirement – What to do? – Part 2

The previous post identified residential property or shares as likely growth investments that all investors should become friendly with.

The economist Shane Oliver has collected some data on the performance of each of these investment vehicles that goes back to 1926. The graph below uses a logarithmic scale which is quite appropriate for such long term reviews where there is a big range of values. The good thing about this scale is that in percentage terms, a vertical movement of, say 10%, moves the same distance whatever the year However, the downside is that it does visually compress the dollar gains for the higher achievers shares and property – the dollar values on the left axis should be considered in detail.

Looking at the above, it is clear that Australian residential property (blue) and shares (orange) both represent good investments. These values indicate Australian averages and in some markets (Inner city Sydney and Melbourne), property has done even better!

What stands out to Slack Investor is the raw dollar values for each investment class that 90 years of investment would reap. $100 in shares or property would be worth at least a million dollars now. The raw figure returns for bonds (light green) and cash (black) of around $50000 and $20000 in 2016 are much less impressive – If you want growth … shares or property are the big games in town!

The graph above shows that over 90 years, Australian shares are a slightly better investment than Australian property – However, over different time frames, property has done better than shares. Russell Investments have put out a report analysing returns for the last 10 years to December 2015. Australian residential property gained on average 8% p.a. compared with 5.5% for Australian shares.

As well as the past returns from each asset class, there are other considerations such as tax, liquidity,, transaction costs and ability to gear – Banks have traditionally allowed higher gearing ratios for property (80-100%) compared with shares (typically 50-70%).

Despite these complexities, if you want to prepare for retirement with more than basic superannuation, you must get involved with investing in either shares or property – they are growth assets that, with careful selection, will always do well in the long term – and do especially well in times of economic growth. Investing in these assets inside or outside of superannuation will help provide for your financial independence.

Most Australians to Struggle in Retirement – What to do? – Part 1

At some stage in your life, if all goes well, you might be on your way to buying a house to live in and starting to think about the next step of your financial future. If you are lucky enough to be an Australian employee, you will already be exposed to the share market through your work-funded compulsory superannuation (thanks Paul Keating!). The compulsory super now stands at 9.5% of your wages. So, you might think that your financial future is all taken care of … But wait, some crackpot naysayer from the ridiculously named Committee for Sustainable Retirement Income says

“Even after contributing to superannuation at 12% for most of their working life, most retirees will still not meet the comfortable retirement benchmarks.”

Cripes! We had better do something about this … and the more time that you have to work on this, the better!

A good place to start is adding tax-advantaged “salary sacrifice” contributions to your super. This is a great idea if you are in the last 10-15 years of your working life, but the downside is that you will be locking up your savings until you reach your, quaintly termed, “Preservation Age” – the age when you you will be able to access your super.

If you were born after 30 June 1964, the preservation age is 60 … and, If I was 20-30, I would think that this is too long away off to worry about – It is a long time to lock up your money! Also, one of the few things that you can guarantee is that future governments will gradually increase the preservation (and pension) age.

So, what can we do to fortify our financial future – The only easily accessible games in town are

Money in the Bank (Online of course!)
Bonds (or Fixed Interest)
Residential Property
Shares

The latter two are generally what I would consider to be growth (above inflation) assets and, although there are risks involved with each, to be serious about growing your money, you must get involved with one or the other, or both!

Through your home or compulsory superannuation you might already be a little invested in each of these asset classes and might be looking for new opportunities.

A flick through the paper will show you some great opportunities – Investment seminars conducted by self-made millionaires who, for a small fee, would be willing to impart the secrets of their financial success. In this case, Slack Investor would take the advice of ASIC on their MoneySmart site and show great caution.

ASIC suggests seeking independent advice before investing in any such scheme. Slack Investor suggests that you first educate yourself in these matters – and then avoid these seminars like the plague. My Dad would suggest you ask the question – “What are they selling?”

After all these suggestions, Slack Investor is pooped, stay tuned for the next instalment on this exciting episode as we explore further the shares vs property dilemma.