Certainly, those who take time out of the workforce to raise a family are disadvantaged in the current superannuation system.  Added to this is the relative immaturity of the super system, with the 9% Superannuation Guarantee Contributions only applying since the 2002-03 financial year.  It will take until around 2045 to see the real impact of compulsory superannuation contributions on average superannuation balances at retirement (based on a people starting work at 20 and retiring at 65).

The article is based on a report from a study conducted by David Hetherington from Per Capita and Warwick Smith for the Australian Services Union.  The study tracked how superannuation balances are changing over time.

The report suggested a solution via a new “accumulation pathway”, which models the superannuation balance required at each age needed to afford a basic retirement, with the government making top-up payments if people fall more than 5% below the pathway.

This just sounds like a new form of social security to me and would likely have a significant negative impact on the budget over the longer term.

Providing for your own retirement is a fundamental tenant of the current superannuation system.  The Age Pension is there to provide a sort of safety net but with the current single maximum pension being $23,159 per annum, the lifestyle afforded on the pension is certainly not one of luxury.

What can you do to avoid a life of poverty in retirement?

Take control. Make a financial plan. Receive financial advice from an independent financial advisor. At the very least, take heed of the below steps and you’ll be on your way to securing your future through sound financial management.

1. Make a financial plan and start saving as early as you can for retirement, as that gives you the benefit of compounding interest over your working life
2. For parents who take time out of the workforce to raise children, consider the splitting of contributions with your spouse.  This involves the non-working spouse receiving up to 85% of their working spouse’s super contributions each year. It will help keep the non-working spouse’s superannuation balance growing while they are out of the workforce or earning less.  This strategy also makes financial sense for those who may get close to the maximum Transfer Balance Cap of $1.6 million in their working life.
3. For those who take time out of the workforce yet don’t have a spouse, or those who prefer to keep their finances separate from their spouse, the pressure intensifies.  You need to focus not only on the now but what you need to do to accumulate adequate financial resources for retirement. It’s not an easy road to walk but, if at all possible, make some extra superannuation contributions when you return to work to “catch up” on the lost earning years.  By doing this you’ll also reduce your taxable income, which may have some immediate benefits to your financial situation.

There is no one right answer. No silver bullet. A combination of financial management strategies may need to be employed to ensure you have enough to provide for your retirement.

To get help in planning your future there are some great tools available to everyone on the Government’s Money Smart website at www.moneysmart.gov.au .  These tools can provide you with some help around savings goals, budgeting and planning your retirement.

Obtaining professional financial advice from an independent financial planner or investment advisor can also assist you on your way to a comfortable retirement.

Do you really want to rely on what the government may or may not provide? Or do you want to take control of your finances and ensure a comfortable life in retirement?

Hewison Private Wealth are highly qualified financial advisors, wealth managers and superannuation / SMSF experts. If you would like to speak to a financial advisor on how you can secure your financial future – in the short and long term – please contact us 03 8548 4800, email [email protected] or visit www.hewison.com.au

We specialise in:

• Financial Planning & Wealth Management
• Superannuation & SMSF Advice
• Retirement Planning Advice
• Not for Profit & Trust Funds
• Investment Portfolio Management
• Cash Flow & Tax Planning
• Succession & Estate Planning
• Risk Assessment & Wealth Protection

The information provided above is general information only.  It does not consider your needs, financial situation or objectives. You should seek specialised advice from a qualified financial adviser