Taking a personal perspective on the global super challenge
As Smart Investing discussed recently*, Australia ranks near the top ...
.... of the latest Melbourne Mercer Global Pension Index in terms of our retirement-income system’s adequacy, sustainability and integrity.
The report (PDF), published by the Australian Centre for Financial Studies, makes the crucial point that many of the diverse retirement-income systems around the world face common challenges.
These challenges include encouraging older people to keep working, discouraging the spending of retirement savings for purposes other than to provide a retirement income and increasing retirement fund membership among the self-employed.
Another challenge, not surprisingly put forward in the report, is to encourage people to voluntarily save more for their retirement, thus attempting to reduce dependence on government pensions.
Although the retirement-incomes report appears to be aimed mainly at government and the pension/retirement sectors, individuals saving for retirement may pick up valuable pointers from its findings to, perhaps, discuss with their financial planners.
These pointers include:
- Work until an older age. The straightforward logic is that the longer a person remains in the workforce, the greater the opportunity to save for what will be a shorter and therefore less costly retirement than otherwise. An individual’s ability to work longer will much depend, of course, on personal circumstances including health and employment opportunities.
- Consider joining a super fund if self-employed. Unlike employees, the self-employed in Australia are not required to save in super. And research by the Association of Superannuation Funds of Australia (ASFA) has long shown that the self-employed overall have extremely low super savings. There are obviously exceptions with many of self-employed, for instance, embracing self-managed super.
- Try to save more in super within the annual contribution caps. The more that super members contribute to super, the greater their potential rewards from its concessional tax treatment of contributions and earnings as well as from compounding as their balances grow.
- Think carefully before accumulating pre-retirement debt with the purpose of repaying it with super savings. The payment of debt with super could be detrimental to your retirement lifestyle.
- Consider taking a superannuation pension rather than a lump sum. This will help ensure that your savings remain in the concessional-tax or tax-free super system for as long as possible and, most importantly, make your retirement lifestyle as comfortable as possible.
While governments and societies as a whole grapple with how to make retirement-incomes systems sustainable as global populations rapidly age, individuals can act to ensure that they are personally prepared as much as possible for retirement.
By Robin Bowerman
Principal & Head of Retail, Vanguard Investments Australia
20th October 2014