Your Super is Not Enough. The Wealth Through Property Series
Your superannuation will not be enough!
When superannuation was first brought into Australia, Paul Keating who was then the treasurer said that eventually, superannuation would need to be at 25% of your salary for your entire working life. Currently, it sits at just over 10%. What you must also consider is that you’re going to be retired for a long time. Modern medical science has done too good of a job of keeping us healthier for longer. Just look at how life expectancy has increased and is expected to increase in the coming decades. Doctors have done a fantastic job, but financial planners are still catching up. What this means is that you’re going to be old and frail and not able to work full time for about 20-30 years (or more!)
How are you going to pay your bills during that time?
Saving only the compulsory amount of superannuation will not be enough to fund your retirement, especially if you want to maintain your current lifestyle. You must remember that you are racing inflation and every dollar you have in the bank right now will be worth less in the future.
The other problem with superannuation is that you cannibalise your savings in retirement. What this means is that once you retire, you start spending it with no income going in to replace it. Your financial planner will likely ask you at what age your parents died to establish a probable life expectancy for you. They will then start drawing down a pension from your super fund balance that is due to expire at that life expectancy date.
They’ll make an allowance for inflation every year that you will draw from your pension fund and will increase that by 2-3%. They make an allowance for the returns on your investments from your super fund which is normally about 5%. But as you can see you’re racing the clock and you’re chasing inflation. The goalposts are always moving.
Superannuation is better than nothing, but it’s not enough. It’s absolutely essential that you do more. What’s really interesting about superannuation and financial advisors is that they will never teach you to invest in property nor will they teach you the principle of leverage. Financial advisors and financial planners are, in fact, prohibited from advising you to buy investment properties for two reasons: a) they don’t have a real estate licence and cannot share information with you about real estate opportunities, and b) they don’t get paid if you spend your investment money on real estate. They make their money from the commissions they earn when you put your money into shares or managed funds.
What you’ll soon find out is that the top two wealth creation vehicles are property ownership and business ownership. Neither of these will be encouraged by your financial advisor. You must do more than your super and you must seriously think about investing in property. It’s not optional unless you’re happy to live on a small pension in a caravan park when you’re 80.
Stay tuned for more daily insights from Daimien in Wealth Through Property.
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