The most important things to remember about super
Tags: super, investments, returns, retirement
Whether it’s rule changes, investment returns or concerns about fees and security, superannuation is seldom out of the news. It’s hard to keep up… but what are the key issues you really need to know?
Returns…what should you expect?
Super is a long-term investment and growth assets like shares and property are used to achieve returns in excess of inflation. This “real return”, the return above inflation, is the key measure of performance. The real return of a typical balanced super fund for each decade over the last 40+ years is revealing.
Decade |
Average Real Return % |
|
1970s |
-2.10 |
|
1980s |
10.33 |
|
1990s |
8.03 |
|
2000s |
1.78 |
|
2010 to June 2014 |
5.18 |
From 2000 to 2007, returns even higher than in the 1990s were being achieved. However, as at 30 June 2014, superannuation funds posted an average real return of 4.9% with an inflation rate of 3.0%. As superannuation is a long-term investment, though, we should look at overall returns for 10, 20 and 30 year periods.
Regardless of market volatility caused by the Global Financial Crisis, the average real returns over the long term are favourable for investors - especially when inflation rates of over 10% were observed in the early 1980s and several periods of severe market downturns have been experienced during that time.
Time frame |
Average Real Return % |
|
Last 10 years |
3.32 |
|
Last 20 years |
4.42 |
|
Last 30 years |
6.11 |
Understanding market fluctuations
Financial markets move in cycles so there will be good years and poor years. Unless you’re close to retiring, super is a very long-term investment and it is important that you accept fluctuations without making short-term “knee jerk” reactions.
At what stage are you?
As you go through life you will have differing priorities: saving for your first car, your first house, bringing up the family and, of course, retirement.
While you save for each of these priorities at the time of need, it is not always easy to look ahead. However, retirement is likely to be the most important because what type of life will you lead with no income? With most of the developed world population living longer, it is more likely that you will have to fund 20 or more years in retirement - and you don’t want it to be a time of financial hardship.
Although compulsory superannuation will improve retirement savings over the longer term, if you are already in your 40s or 50s it is important you understand your financial position, how well prepared you are for retirement, and what you need to do in the next decade to make your retirement as comfortable as possible.
How will you fare in retirement?
Will you need to dip into your super to pay off debts when you stop work, reducing your income in retirement? The saving grace may be the equity in your family home. By moving to a smaller more manageable home you may be able to release capital for retirement. However, you do not want to be forced into this position too early in your retirement years.
This is a very important aspect in your financial life so don’t keep putting it off. We can help review your retirement plan and keep you on track – get in contact with us today.
Sources:
www.superannuation.asn.com.au “Super Returns – putting them into perspective” ASFA Background Paper
www.rba.gov.au, “Measures of Consumer Price Inflation”
www.apra.gov.au, “Annual Superannuation Bulletin June 2013”
www.apra.gov.au “Quarterly Superannuation Performance December 2014"
www.abs.gov.au "6401.0 Consumer Price Index, Australia, December 2014"
