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Baby Boomers: It’s not too late to grow your super

Published 03 July 2019

A smart retirement plan can yield more than you might think, writes Ben Hurley.

For younger generations, planning for retirement happens whether they like it or not. The superannuation guarantee – which makes it compulsory for employers to contribute to their employees’ super funds – has been in place for most of their working life.

Not so for the Baby Boomer generation. Those born between 1946 and 1964 – now aged 54 to 72 – spent much of their careers without this watershed workplace benefit. So now, as they approach or enter retirement, many fall well short of the amount they need to be comfortable.

This is no doubt a cause of anxiety for many Baby Boomers – but it doesn’t have to be. Experts say putting in place a level-headed strategy even in the final years of a working career can yield more than people might think, particularly if the mortgage is paid off and the children have moved out.

Why Baby Boomers fall short on their super

The Australian Bureau of Statistics (ABS) estimates that around two-thirds of all retirees still depend on the government’s age pension as their primary source of income. The maximum weekly age pension payment for those eligible (including the maximum pension supplement and the energy supplement) is just $463.10 for a single and $698.10 for a couple.

The Association of Superannuation Funds of Australia (ASFA) recommends retirement savings of $545,000 for an individual and $640,000 for a couple, in order to support a comfortable retirement lifestyle. But ASFA figures show that Baby Boomers, on average, fall well short of this.

Around 58 per cent of total superannuation assets are held by those aged between 50 and 69, according to ASFA. The average super balance for people aged 50 to 54 during 2015–16 was $135,290, ASFA found. For people aged 60 to 64 this figure increases to $214,897. For 65-69-year-olds, it drops to $207,105 as people start drawing down their super.

When balances are compared by gender, it becomes clear that women are, on average, worse off than men. Around 45 per cent of women aged 65 to 69 reported having no super at all.

In addition to missing out on years of the superannuation guarantee, there are other reasons many Baby Boomers’ super falls short, says Susan Thorp, professor of finance at the University of Sydney Business School. Divorce can have a significant impact, particularly for women coming out of an era when women’s workforce participation was lower than it is now. Being a renter rather than a homeowner is also a major determinant of retirement wealth.

“Neither of those are things that people generally volunteer for,” Thorp says.

Consider retiring later to boost your super

Thorp emphasises that with the vast disparity between peoples’ accumulated retirement wealth, there is no one-size-fits-all strategy to build super.

For Baby Boomers concerned they don’t have enough, the single biggest thing they can do to boost their retirement wealth is to work a few years longer.

This isn’t always possible, of course. Health reasons or carer responsibilities can make this option untenable. But when it can be done, working longer increases a person’s super balance on the one hand, while delaying the commencement of drawdowns on the other – giving a double win.

In particular, avoiding drawing down their super balance until they are eligible for the age pension at age 65-and-a-half will significantly impact the amount of super they have.

"Delaying your retirement is easily the most productive thing to do in terms of wealth management," Thorp says.

What people should avoid doing is exposing their retirement savings to risky investments in the hope of quickly making up the shortfall. We are currently experiencing one of the longest periods of market growth on record, and that will come to an end at some point. It’s worth assessing the risk profile of investments to ensure these can weather a market correction or a period of volatility – in other words, remaining level-headed about retirement planning.

A level-headed plan

A sensible, well-planned retirement strategy can yield more than some might think in the remaining years before leaving the workforce, says Gordon Schauer, director and founder of Financial Planners Inner West. The trick is to assess current finances and look for small ways to make a big difference.

While money might have been tight when Baby Boomers were paying off a mortgage as well as covering the living expenses and education of their children, these things may no longer be the case, Schauer explains.

“Along the way they’ve spent most of their incomes and didn’t have enough money to actually save, but all of a sudden the Boomers are in a position where they have more to put into savings and are maybe 10 or 15 years from retirement,” he says.

Salary-sacrificing at a low tax rate can have an outsized impact with another decade of compounding interest, Schauer adds. And assessing insurance settings for unnecessary cover and amalgamating multiple super accounts into one could also yield extra savings.

Schauer’s final word on the issue is that most people with super balances below the range deemed to be “comfortable” ($545,000 for an individual and $640,000 for a couple) will still live fulfilling retirements.

Some of his clients are retiring with $300,000, but by adding in the pension and with one partner working part time, they can enjoy a good life.

“A lot of those clients are saving up for overseas holidays and things like that,” Schauer says. “It’s not a bad life.”

To discuss your retirement plans, contact your financial adviser.

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