CPA Australia released their third Superannuation - The Right Balance report on Tuesday. The report provides some pleasing news in that it suggests that the superannuation system in Australia has improved significantly since their first report was commissioned in 2001.
However the report provides reminders for the general public that:
These conclusions drawn by the authors of the report provide a reality check. Our viewpoint is that there are three key lessons hidden in these findings for everyone:
- Every extra dollar that can be saved, through investing with lower fees and smaller tax consequences (i.e. reduced levels of trading), will provide a more comfortable retirement.
- Every extra dollar that can be earned through increased investment returns will provide a more comfortable retirement.
- The earlier people prepare for retirement by putting away extra savings the better off they will be in retirement.
I know this is not rocket science but it is a message that needs to reiterated.
Of course these lessons do not solely refer to the superannuation environment. If you want/need access to surplus funds before retirement than use an investment portfolio, with the proviso the funds do need to be put away rather than eaten up by general expenditure!! Of course, for many, superannuation is the most tax effective place for these investments.
Basically what we are saying is don't just leave your superannuation / investments sit ideally especially if it is in a high fee environment. Get it into an environment that will further benefit your situation through lower fees and strategic investing to reduce tax consequences. Similarly, keep a careful eye on your asset allocation. The longer away you are from retirement (or more appropriately from your life expectancy as your superannuation / investment assets will need to last until then), the more comfortable you should be in exposing your investments to growth assets such as Australian shares, international shares and listed property. Historical analysis shows that over the long term these assets will provide greater returns than cash and fixed interest.
If you would like more information on these issues or want a "Superannuation Stress Test" please get in contact.