It’s time to bust the worst retirement myth of all

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It’s time to bust the worst retirement myth of all.

Every day, another survey on retirement income appears. Most are created by those with a vested interest in getting their hands on your money. So, don’t fall for their so-called facts – particularly those on affordability.

We seem to be drowning in research, most of which is created by financial services organisations who have a vested interest in influencing your money decisions and persuading you to invest with them.

Sadly, many of these organisations will not actually help you increase your savings and subsequent retirement security as much as they claim. Often, they charge high fees, have been guilty of hiring rogue planners who commit white-collar crime and can rarely demonstrate the actual monetary value they say they deliver in the sphere of retirement income. So, when you read the next round of research claiming that a certain percentage of Australians are now retirement ready or are set to live a ‘comfortable’ life in retirement, make sure you challenge these statements rigorously.

Across the years, YourLifeChoices has surveyed its membership (currently 220,000) on various aspects of retirement and retirement affordability. As an independent publisher with no financial gain to be made, we ask and report without fear or favour. And by asking questions rather than assuming knowledge, we have learnt that the majority of Australians struggle to make their money last in retirement. While most wish they had saved more, many feel that the ability to fund themselves in retirement was denied to them by external factors over which they had no control. Such circumstances might include health, fragmented work history, lack of income due to caring for others, work in low-paid industries and other such factors associated with life-course disadvantage.

What is becoming increasingly apparent is that the single greatest advantage in retirement is not the level of your savings or superannuation but whether you fully own your family home, if you have a mortgage, or rent. And it is this fundamental aspect of home ownership which appears to be missing in action when it comes to the general perception and media reporting of retirement affordability.

So to take a case in point, the recently released CommBank Retire Ready Index states that 53 per cent of Australian households are expected to have enough for a comfortable retirement. But reading the fine print reveals that this survey, undertaken by Rice Warner, is based on the comfortable retirement standard as defined by the Association of Superannuation Funds of Australia (ASFA), which does not take into account whether the retiree is living in a fully-owned home, a home with a mortgage or is renting; nor does it consider debt repayments. The report does note this: “The data excludes the family home as this asset is not typically used for retirement income purposes”.

Of course, it is not – it is used to live in so the owner/retiree does not need to pay rent!

But more importantly, the home is now considered by most reliable economists as the fourth pillar of retirement income. Firstly, because the increasingly high rent costs will not need to be covered, but also because equity in the home can be released, the home might be downsized to improve cash flow and because it may ultimately contribute to what has become a user-pays aged care system.

So, owning a home is critical to your retirement affordability prospects and unless you have a cool million or two stashed away, will be the main difference between comfort and penury in covering expenses in the last two or three decades of your life. The myth that whether you own a home or rent is immaterial to your retirement readiness is simply false.

“No one will ever say you’ve got too much money in retirement, but a major factor in having enough is owning your own home – if you don’t, then you really don’t have security.”
~ The Barefoot Investor, Scott Pape, YourLifeChoices Retirement Update January 2017

So, when a financial institution tells you that the best thing you can do is to sock away more cash into your super, ask yourself the quintessential (Latin) question – Cui bono? – or who benefits? If your planner is part of a bank, ask about the bank’s charges for retail fund management versus those of other options. Ask them to show you a comparison. Still not sure? Seek an independent rating – for instance SuperRatings. Then ask whether your investment in this super fund will really return more than using the same money to reduce a mortgage so that you can enter retirement with less debt. And what about more money for household expenses? These are the really important questions you need to understand and ask if you are to make the most of the money you have – regardless of how much that is.

The law on financial advice in Australia is very clear. Only a licensed financial professional can advise you on how to manage your retirement income, and this advice must take into account your personal situation, your goals and it must be in your (the client’s) best interest.

What you read on this site and in newspapers, magazines, blogs or hear on radio or TV is commentary. It is extremely difficult to know how to get started when planning retirement or reviewing your financial situation in retirement. But a better understanding of the broad socio-economic trends is extremely useful as a backdrop to your own personal situation.

One such trend was revealed in 2015 by the Department of Treasury in the Intergenerational Report; a report released every five years. It noted that, by 2055, the proportion of Australians living in retirement on a full or part Age Pension will still be high – 67 per cent, compared to the 70 per cent in this situation today. The figure of 67 per cent is a projection, but from a reliable source.

To date, most retirees have entered retirement living in a home with no mortgage. This situation is changing rapidly, with those entering retirement today now carrying an average of $162,000 in debt. For the vast majority of retirees who are renting, the sums simply don’t and can’t add up. They cannot cover the rising expenses of energy, fuel, health insurance and rent.

For retirees with a mortgage, depending upon debt levels, it is also very challenging to try and maintain their pre-retirement standard of living – which is a hint why you are seeing so many traditional homes on the market, and new apartments and townhouses being snapped up by boomer downsizers.

So let’s retire the worst myth of retirement once and for all, the one that suggests retirement income has a ‘one-size fits all’ measurement. More than half the population is simply not ‘retire ready’ as the CommBank has reported – most of us are still struggling with how to cover the basics.

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Written by Kaye Fallick

98 Comments

Total Comments: 98
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    Yes owning your own home is the most important super investment of all. But it goes further. You need all the maintenance done before retirement. It is no good trying to find $10,000 for repairs, $10,000 for painting, & an other $10,000 for utility replacements after retirement, no matter what form of pension you are living on.

    Of course our local bureaucrats are getting very good at wasting our money, too. My rates are now $69 a week, just to live in my own home. Renters must also pay this rip off, via their rent.

    Then the fixed costs. By the time I’ve paid the rates, insurances on home & contents, car insurance & registration, phone & power bills, I’ve had to find $282 a week, $1128 a month .

    All this before any little luxuries like food, petrol or bus tickets, no wonder we watch the pennies. Still It’s not that bad, I wouldn’t be dead for quids, but I would like to keep a few less bureaucrats, & financial institutions in clover.

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      Well our Politicians have certainly put the cobblers on our youngsters being able to buy a house (if they can afford to) and have it fully paid up by the time they retire. What with the home ownership affordability going through the roof because of negative gearing, capital gains tax subsidies to investors.

      I owe my own house and I certainly couldn’t afford to live if I had to pay rent.

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      Spot on Hasbeen. I, too, wouldn’t be dead for quids 🙂 We just practice getting the best value for money in all aspects of our Survival Mode. Being retired and of (reasonably) sound minds we can take advantage of having the time to do our research thoroughly before undertaking anything, be it repairs, holidays etc. The Biggie for me, is to keep on being grateful for what I have, have had and with a little bit of luck will have in the future. Ignoring the Use By dates coming up on some bits and pieces I remember to be content with our life and be grateful. Luckily I have been able to minimise my Regrets to only three in number and pretty happy with that. Keep on enjoying it mate, it DOES beat the alternative doesn’t it ?

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      Wow Hasbeen your situation sounds very familiar to me, my weekly for rates as you said, is around budgeting 64 to 70 a week, when it comes to the little extras or even a visit interstate ( which isn’t a little extra I know) where half your family live, sometimes gets put back or put off as has happened twice in planning this year.
      I too wouldn’t be dead for quids either what a great saying that is. All the best in health to all of you folk. Yes Old Geezer you too.
      I find that the pricing of goods services etc is almost like a manipulated set up where by even utilities seem to revenue raise , for profit?? Like private health funds. This is really unfair , to everyone , what ever age. For private health funds there should be no limit if you have top cover, and house land car insurance they all have this excess thing, I think that should be illegal, I really do , it all contributes to harder living even in a small way when you must plan every year ahead , and prices for everything go up. It is of course profiteering or Pirateering perhaps? I think previous governments have cheated people with the fund that was set up, then transferred or stolen to go into consolidated revenue then lost to the people who it was for.
      A criminal thing for both major parties to do, and they should be ashamed , I don’t think shame is a word they understand. If that had have been preserved, a pension which good honest people worked for all their life would and should be available , it in my opinion is a right , not something you should have to beg for.
      But Heyybob, great quote too mate, it beats the alternative!

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      To each of the above,
      You are all so right in what you say, who would want to be dead at a time when you should be the most content and happiest in your life. My only regret as we near our use by date is that either one of us will go and the other be left to a lonely life. Having said this those others who are left I believe will continue to look after the one left to follow on.
      Still rock on whilst we can and we will enjoy life to the last breath and believe me we did not need finance advisers bludging off us and living well no matter what happened to our financial situation.

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      John – oh so very right… I absolutely cringe at the cost of rates, and for what? Rubbish removed once a week? Like you, mine are around $70 a week. As for insurance, I check mine every year – car, house, contents, health, caravan – and funny – the excess used to be always $300. Now most are $750 – one even quoted me $1000!! And if you want to lower the excess, the price increases quite a bit. Health insurance is an absolute rort – premiums going through the roof, yet rebates diving. Had to have a procedure recently – cost $485 – got back $121!! That’s only 25%. It’s not the health insurance premiums that worry me – it is the gap charges.
      But do agree – owning your own home when you ‘retire’ is the best thing you can do.

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      Just a word or two on insurances from our point of view. Just think how long it is since you had a substantial claim on an insurance company? If you add up all the excesses from all your policies (Home,contents, cars, boats etc) and you have that amount available in your emergency stash, then stop paying higher premiums! It’s much better having those savings in your pocket rather than theirs. If you add up all the savings in premiums by selecting the highest excess and then put say 20% of that figure into that emergency stash then you’ll find you will be way ahead. Although retired now I fondly recall words of wisdom I heard when I was a teenager on life insurance. (applies to all insurances) ” Here’s a company betting you that you’re going to live and here’s you betting them that you are going to die and you are paying them a substantial amount to think that way.” My insurances cover me for catastrophic loss where I couldn’t afford to replace those items from my bank book. We have a $5000.00 excess on our home. Small price to pay for replacing our most important asset.

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    When my wife and I were thinking we were nearing retirement we went to a retirement investment show, and I saw a so called expert advisor. We had a full discussion of what our assets were and what we wanted to do, and he took lots of notes. Sometime later I received a large folder with lots of boiler plate investment stuff, and a set of recommendations which looked nothing like our discussed plans, so I binned it and decided to do it myself. Many years later, deep into retirement we are comfortable with sufficient bluechip shares paying fully franked dividends for us to live in comfort.

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    Welcome to the New Oz…just an invisible star on the USA FLAG!
    Wholesale adoption of Failed US Policies of Greed is good ….De-regulation clears the red tape!
    What they really mean is…No checks and balance…free rides for the Ruthless and Corrupt…with no one checking on anyone! No wonder we are broke??? Duuuhh?

  4. 0
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    I stayed well away from “financial advisers”. I did it all myself. I boned up on superannuation in general, and then my own situation in particular. I made sure my home was freehold. For the last year I worked I salary sacrificed to the hilt. I took an overseas holiday before I retired. I put some cash in a sock for a rainy day (its still there). My car was updated. I figured if I couldnt manage, I could always get a boarder for a while. Im single with no other resources, but my planning has worked well for me. Financial advisers must hate people like me. But it can be done.

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      I did the same as you with salary sacrificing and now like you am in a good position, not a millionaire but I sleep easy. Some of the people I worked with don’t even know where their super goes never mind putting extra in. Check out the book i,ve mentioned, really good read and reference material.

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      When a financial adviser told me a few years ago that his hourly rate was $300 I decided I could do a whole lot of research and personal study for that sort of money and did exactly the same as you Jackie.
      With the market and government decisions changing so often even a financial adviser can’t guarantee he or she is giving good information.

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      I retired in the middle of the GFC, so I was on the back foot straight away, circumstance inside my family , saw things not work out as planned and I believe that the financial advisor we had not deliberately but by lack of whatever, led us down a losers path. We are on track again very slowly, but I think financial advisors need to be more strictly regulated not just for being decent/honest , but for having greater knowledge of what they tell you!

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      The day I meet a financial advisor that has done the hard yards themselves is the day I will take notice of what they have to say. I haven’t met one yet and doubt I ever will because why would someone that successful be a financial advisor?

      What I don’t understand if a person buys a house then they get too look at what they are buying, pay al sorts of professionals to make sure it is what it is and not going cause them grief etc. However this same person will just hand over their life savings without checking anything. When asked they have no idea where their money is invested. All they have is a few pages that say you may get x amount each year. The shit hits the fan when x doesn’t happen.

  5. 0
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    Great article I am 60 and retired with no links to centrelink at this stage and when i decided to finish work I undertook to find out as much information as possible. Noel Whittaker writes great books ,easy to read full of usefull information.But the best book i have read is called “Don’t panic why you don’t need $1,000,000 to retire well” by Nick Bruining from Perth. This
    is a great investment for about$38 delivered to your door [google it} It is up to date and very informative. It never ceases to amaze me why some people are just plain scared to look after their own finances. You must realise that you are in control and not someone else who is lining their own pockets with your money

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      I think the major point Nick Bruining brings to the table is that money required in retirement for discretionary funding declines over time. The ASFA retirement standard states income required for a modest lifestyle at 85 is $4,000 (single) to $5,000 (couple) a year less than for a retiree aged 70.

  6. 0
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    Bricks & Mortar. Bricks & Mortar!!

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      I made the mistake of taking ‘expert’ financial advice to put some excess money into a retail super fund. He actually told me ‘not’ to invest in ‘bricks & mortar’! After a year or so of paying ridiculously high management fees, I transferred that money into my industry super fund – a belated but wiser move.

  7. 0
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    Dont worry..Our Government is copying failed policies…it’s easier and quicker than coming up with their own!
    So be cool…if you haven’t a home…they will supply a tent for you…while the donate Billions to overseas aid!
    when you retire….you are useless to them!!!
    Why?….Well….ummmhhh…..let be frank eh!
    Your past ur use by date and you no longer pay any significant tax…okay!
    Your a burden…waste of space….too costly to provide health care….and basically your all a bunch of whiners!
    Quicker we legislate voluntary uthanasia via a pill the better….the we won’t have waste taxpayer’s money paying pensions!
    Another service delivered by your ever invisible and uaccountable free loading Party MP!
    Our motto is…We do nothing and You get to pay forit!!!

    • 0
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      Not quite. It should be “We Stuff Up and you get to pay for it.”

    • 0
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      That’s a bit harsh, Not Senile Yet!

      Retirees are definitely not useless to Govts:
      – They care for their ill or frail partners, and much more cheaply and better than a Govt institution could do.
      – They are irreplaceable child-carers to their grandchildren, again, much cheaper and better than most institutions. This frees up their children to do paid work.
      – They DO pay taxes very regularly (10% GST on goods and services).
      – They spend a lot of money, (hopefully in Australia), which stimulates the economy. Even if they are only on an OAP, they spend every cent of it. And more.
      – A burden? A waste of space? Oh come on, who’s whining now?

      Don’t underestimate the value and contribution to the economy of retirees.
      AND THEY VOTE, hopefully sensibly. If we voted as a block we would be incredibly influential. But if you heed the political views of those on this site alone, getting us to vote in a block would be like herding cats.

      There’s no such thing as a use by date – not until you’re dead and compost.

  8. 0
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    Not Senile Yet.you have it in one good post. Thank God for Industry Super Funds set up by the various Unions. We were in Fund run by a Bank and in bad times they were making more income than us.I feel for young people as most will never enjoy home ownership as long as this Government stay in power.Lets start again and try to limit our population this is our biggest problem but it will never happen as there is too much money in population growth.

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