Busting the $1million super myth

Scott Pape has had to deal with his own life-defining moment and, as a result, he’s keen to help people tackle their financial hang-ups.

Scott, your story is inspiring, but did you ever think that rebuilding your life and home would be too difficult?

When the fire came through that day in February 2014, everything was lost – our house was burned to the ground and nothing was retrieved. My wife was incredibly emotional – we had our baby son who wasn’t yet one and we were safe, but her wedding dress, our photos, particularly those of her dad who had died the year before – all gone. We didn’t even have a change of nappy for our son, but we were safe.

Such an experience is naturally life-changing but has it actually made you view things differently?

Not really. We’re taught to believe that the more money you have and the more stuff you accumulate the better. But in reality, you just want to be safe and secure and look after your family – that’s certainly all I’ve ever wanted.

In your book, you refer to the Don Bradman Retirement Strategy – and this will intrigue many – so why Don Bradman?

I use the Don Bradman analogy, ‘Strap your pads on. Grab your bat. It’s time to take a swing at the biggest fear people have’, to simplify the premise of how you can live well in retirement even if you don’t have millions in super. There are so many awesome people who are aged 50 or above: teachers, policemen, factory workers, who might be divorced and don’t have a lot of money in super. They think they’re right royally screwed and don’t want to see a financial planner as they think they don’t have enough money.

If you own your home, you can live a very comfortable life with $250,000. The strategy outlines a clear and simple picture to explain that everything will be okay for the average person.

Only one per cent of the population will have $1 million in super when they retire, so 99 per cent won’t.

$1 million is often quoted as the minimum amount needed for retirement – I guess you don’t agree?

The $1 million figure quoted as being needed in retirement is just bullshit. Most people have a hazy idea of what retirement is. It’s not about making as much money as you can and then just sitting back and doing nothing for the rest of your life. I couldn’t think of anything worse than doing nothing; it’s unhealthy. People who struggle the most in retirement are those who have worked all their life and have no social contacts. One or two days of work per week is actually quite a reasonable way to live in retirement.

Psychologists report that the magic figure when it comes to income is $70,000, anything over that won’t make you any happier. Generally, older men in their 60s believe that having one or two million in the bank means they’re sorted. So they think they’ll quit their job and have fun, but the reality is often that once they’ve done the big trip, they come back and are more miserable than when they were at work.

You quote $250,000 as being enough if you fully own your home. How important is it to own your home in retirement?

No one will ever say you’ve got too much money in retirement, but a major factor in having enough is to own your own home – if you don’t, then you really don’t have the security.

If you wake up in your 50s and realise that retirement is upon you and you don’t own your home, then funding retirement will be difficult, unless you have access to a large income.

So, what do you do if you don’t own a home?

There are things you can still do, and one of the most important is to get rid of your debt. Basically, you’re not ready to retire if you still have debt. Australia’s household debt is one of the highest in the world.

People have a lot of comfort in fully owning their home and there’s often an emotional reason for holding on to it. If you have your own home but are in debt, then you might want to think about downsizing and clearing as much of what you owe as you can.

When trying to get your finances in order, don’t do 100 things. Do a few and do them well.

Financial planners get a bad rap, so do people need to look past the headlines?

There are a lot of doom and gloom newsletters that are just there to scare people with their headlines – ‘if you don’t have $1 million in super then you’ve got no chance of a successful retirement’– that kind of thing. This is just designed to agitate, to get you to read their newsletter or, in many instances, to pay for a subscription so you can find out how to ‘fix’ your situation.

People typically don’t want to see a financial planner because they think they’re too expensive or they don’t trust them, especially bank financial planners.

There are options if you don’t want to see a financial planner. Centrelink’s Financial Information Services officers (FISO) are the real unsung heroes of the financial world and more people should use them.

FISOs are truly independent and can offer help with aged care, Age Pension, and access to free resources to help you manage your money.

When it comes to super, it’s worth hopping onto the Moneysmart website and using its calculator to work out the best option for you. The difference between being charged one per cent and 0.02 per cent in fees is vast.

Too many people are also being sold SMSFs (Self Managed Super Funds), but the reality is that they’re difficult to manage and really are a pain in the arse. Industry super funds are a no-brainer really – they offer the lowest fees, often have higher returns, and you can also buy shares if you choose.

What tips would you give to someone planning their retirement?

1. Reframe your understanding of what retirement will be – consider transitioning to retirement – many of the happiest retirees all work in some shape or form.

2. Prepare for retirement by keeping yourself really busy and active.

3. When it comes to the financial planning and services industry, no one cares about your money more than you do. Go and see some of those offering free information before you sign up – teach yourself what you need to know, and save yourself money.

Is there one lesson from your experience that’s surprised you?

This is the reason I decided to write the book. It’s as much about making you think of the important things in life as it is about planning your finances. Losing my house taught me money doesn’t make you happier and that the greatest shortcut to happiness is having enough set aside for emergencies.

I wrote the book like a father talking to his son at the bar, telling him ‘here’s what you have to do’. What I really want is for the book to be accessible to everyone in the family – for one person to read it and pass it on to their parents, children, single parents, those who really need help understanding the value of taking control of their finances. I want it to give people hope and the understanding they’re not the only ones struggling to get to grips with their financial future.

Scott Pape has been voted ‘Australia’s most trusted finance expert’ and his book, The Barefoot Investor: The only money guide you’ll ever need, is now on sale. RRP: $29.94, with 10 per cent of the royalties going to not-for-profit counselling service, Financial Counselling Australia.

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Written by Debbie McTaggart


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