There has been much talk over the past 24 hours about the very low level of superannuation that most Australians have. An ABC article here is an example of this.
The crux of the stories have revolved around quotes like this (from the ABC report) 'The Centre for Social and Economic Modelling has found on average women aged 45-60 are retiring with just $8,000 in superannuation whereas men retire on an average of $30,000'.
$8,000 or $30,000 in superannuation is chump change - almost not worth having. The age pension for individuals is about $13,000, a little less for each member of a couple, and this is what people these people will be relying on in retirement, unless they have substantial assets outside of superannuation.
Amongst all the bleak commentary on low superannuation balances, some other realities have been missed. The first is that it is quite easy, with a few years of extra savings, to increase your superannuation balance. Superannuation remains the most tax effective investment environment that is around - it you use it well, it is very effective. The second aspect that has not been commented on is that amongst the proposed superannuation changes the centrelink assets test will be relaxed. This means that retirees will be able to have a higher level of assets and still receive some part pension to supplement the investment earnings from their superannuation and investment assets.
Superannuation remains the most tax effective investment environment. The things a successful investor will do to take advantage of this include:
- Making some additional contributions to superannuation early in their working life (if they are eligible)
- Use the Government Co contribution if they earn less than $58,000 a year
- 10 years from retirement start making extra superannuation contributions - using the tax effectiveness of salary sacrifice contributions
- Don't lose track of superannuation funds, roll small funds into one good superannuation fund so that you are keeping all of your assets in the one place.
