How likely is it that your super will last you out?

The recently released Intergenerational Report 2015, has provided the Treasurer with a powerful argument for prompt and drastic change to superannuation. An extra decade of life over the next 40 years!!

Most self-funded retirees are not ultra-rich. Rather they have saved to fund their own retirement needs, and they value their independence from hand-outs. However at present it is possible by re-structuring their assets, for many to still qualify for some pensioner benefits. Moves to tighten the pension assets test to focus on the needs of the most disadvantaged, are reasonable and should not be opposed in my opinion.

This post seeks to address the picture which is being painted by those who wish to increase the superannuation contributions tax from 15%, that such concessions are a tax scam for the rich and not needed. Such an initiative would no doubt help meet the mounting cost of providing the pension safety net, but would it be fair to superannuants who are now faced with making their lump sums last longer with smaller lump sums, reduced benefits, and an increase in user pays services, subjected to means testing?

If this is to be possible, the government must help retirees to conserve their capital. Before penalizing those who have been industrious and thrifty rather than super rich as they are being portrayed. The architects of change should take into account of how quickly super balances can dwindle. Inflation can have profound influence on spending power, but it is incidents that result in capital losses that cause most damage.

Headline grabbing corporate failures have claimed millions of hard-earned retirement dollars. Investors are not usually to blame. Mostly they have been ventures recommended by qualified professional advisers often working under the umbrella of august financial institutions. .

The biggest risk is market risk. Retracements of about 10%  are not uncommon for investors. But the killer for those of my vintage was the Global Financial Crisis with some self-funded retirees forfeiting 40-50% of their balances. Amongst the most severely hit investments were the franked dividend-paying blue chip stocks, especially the banks. Retirees must continue to sell down their assets at deflated values to fund their monthly distributions, but then lack the capital to re-buy when bargains are eventually on offer.

Most retirees tend to think this won’t happen to them but it may; but perhaps not as severe as the crashes of 1987 and in 2008.

A super balance of $500,000 might have been reduced by $200,000 in the GFC with the loss increased by the tax that had been pre-paid, possibly as much as $30,000. Loss of that much money severely compromises future earnings. Compounding works far more effectively in reverse than it does in accumulation.

In my opinion the fairest solution is for retirees is to only pay tax on what remains when they come to spend it. A return to the Reasonable Benefits Limit, would ensure equity in superannuation concessions.

About Kenneth Robson

I studied at Adelaide Boys' High School, and the University of Adelaide, Medical School. graduating in 1961. My field of specialisation was Plastic and Reconstructive Surgery. Prior to establishing my practice in Adelaide, I spent 5 years working in India, and Papua-New Guinea, in the field of reconstructive surgery for leprosy. In retirement I joined the Australian Technical Analyst Association and passed the two examinations for a Diploma inTechnical Analysis, and the designation Certified Financial Technician (CFTe) by the International Federation of Technical Analysts.
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