What's the cost to Superannuation?

Superannuation remains a topic that is often quite contentious in Australia. The rules are often changing, it seems like it regularly needs defending and most people really don’t have a clue what compulsory superannuation means until they are starting to think about when they may actually need it.

The Federal government through the Pandemic has allowed some people to access $20,000, assuming they were successful before the end of financial year 2020 and early on in financial year 2021. The author is aware that much of the spending has not been on mitigating circumstances of hardship, but has flowed through the economy in the form of small boats, new outboards, cosmetic procedures and the like.

It got us to thinking, what is the actual cost of taking this out of someone’s super and what does it look like at the various life stages. There was an assumed 65 year old retirement age, though the author suspects many will work past this point, though possibly more in part time employment. The results below highlight a 7% and 10% average annual return. Over a 28 year period including the GFC to circa today, the average annual return has been 8.3% for an industry super fund.

The risk to the economy down the track is that if the younger cohorts continue to drawdown their super, the impact on retirement lifestyles will be significantly impacted. This is not just an individual issue, but a generational issue as wealth is generally passed and often accumulated from one to the next. Whilst the ski principle, Spending the Kids Inheritance is often joked about, the above may actually prove to be unwittingly true.

Financial literacy is equally as important as English and Maths in our education system, it might be time to make it mandatory if the future is being robbed for the gratification of today. For many, the pandemic has actually made many people aware of just how little they need to live comfortably and reassess what is important and necessary. For many though, that has not translated into thinking about what that might look like in twenty or thirty years time.

Matthew Gross | Director