Smart Investing
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The Federal Budget’s confirmation that the annual cap on concessional superannuation contributions for all fund members over 50 will halve to $25,000 from the 2012-13 financial year, has some investment commentators envisaging that more investors will turn to negative gearing.
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We've been told by the financial community at large that it's a tough time to be an investor. The financial markets are extremely volatile. Bond yields are near historic lows. The outlook is uncertain.
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The latest bouts of sharemarket volatility and this month’s cut in official interest rates once again highlight the crucial role of bonds in a properly diversified investment portfolio.
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Self-managed super funds typically have a much high exposure to cash than fixed interest.
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The Australian superannuation industry reverted this week to its unwanted status as one of the government’s favourite Budget ‘hollow logs,’ with billions of dollars in savings extracted from the system by reneging on a tax break meant to encourage higher retirement savings, and a doubling of the concessional tax rate on the super contributions of those earning more than $300,000.
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News & Commentary
Retirement evolution 21 Dec 11
At what age do you intend to retire – if at all? Do you aim to wind-down slowly to retirement by working fewer hours or by taking a part-time job? And how do you plan to finance your retirement?
These are among the crucial questions facing the wave of baby boomers who are inexorably moving nearer and nearer to what has – at least in the past – been considered a typical retirement age.
It seems that many Australians are warming to the idea of retiring at an older age than in the past. And many are easing their way into retirement by progressively reducing their workload.
The concept of abruptly finishing 40 years or so of full-time work on a Friday and entering a quarter century or so of retirement from the following Monday may be fast losing its appeal.
Further, a relatively high proportion of the workforce in their forties and above expect their superannuation savings to play a big role in financing their retirement lifestyles.
The findings of the latest Retirement and Retirement Intentions report, recently published by Australian Bureau of Statistics, reflect this changing attitude to retirement.
The report found that:
- More than 40 per cent of the full-time workforce aged 45-plus intend to switch to part-time work before completely retiring.
- Forty seven per cent of the workforce aged 45-plus plan to retire between ages 65 and 69. And 28&&37&& intend to retire between 60 and 64, while 14 per cent intend to remain at their desks (or whatever) until at least 70.
- Just over half of those aged more than 45 (and who intend to retire one day) expect superannuation to provide their main source of income. And 27 per cent believe that the age pension and other government allowances will be their main retirement income.
Consider how these expectations compare with what is actually happening right now.
The average age at retirement of those who retired in the past five years was 61. According to the survey for the ABS report, the biggest source of retirement income is the age pension and other government allowances (53 per cent of current retirees) followed by superannuation (27 per cent.) Interestingly, 44 per cent of women named their partners’ income as their main income.
Many factors are probably at play here. Certainly, reliance on super savings will inevitably rise as the compulsory contribution system matures. However, many retirees are at risk of being overly optimistic about how far their super will really stretch in retirement.
And by the way, 13 per cent of the workforce aged over 45 does not want to ever retire – a sentiment that must have been reinforced by the latest bout of high volatility in the market.
Perhaps a key point is to plan carefully for retirement and to be realistic about how much money you will need to finance your desired standard of living in retirement.
* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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