Yesterday the Abbott government rescinded the mining tax with the help of the Palmer United Party (PUP) and Independents in the Senate. Included in the legislation was a delay until 2021 to an increase in the Superannuation Guarantee Contribution (SGC) from the current level of 9.5 per cent to 12 percent. This change to super rules is significant for individuals trying to be self reliant in retirement. Industry Super Australia (ISA) predicts that an average income earner, aged 25, will lose around $100,000 over their working life ($36,000 in today’s dollars) due to this delay.
Under the deal the Low Income-earners Super Contribution (LISC) will also be abandoned on 30 June 2017. Said ISA Chief Executive, David Whitely, “The scrapping of the LISC is plainly unfair. Over 3 million workers – 2 million of whom are women – will lose $500 per annum as a result of this change. The economic implications are significant. Taken together, national savings will be hit by a staggering $150 billion by 2025.”
So once again ordinary workers see their hopes of a self-funded retirement dealt a blow by super legislative change. We can’t change this policy, but we can avoid the five classic retirement errors. Do you know what they are?
1. Think that your financial situation is the most important thing.
It’s not. Your health is. And this means mental and physical health. One of the largest causes of early and unwilling retirement is unexpected medical issues. So if you are nearing 50, or are older, and looking forward to an active and energetic retirement, make sure your first step, even before calculating your likely income, is to have a full and thorough health check with your GP. Pay particular attention to your weight, your BMI, family medical history, alcohol consumption and any likelihood of developing a lifestyle disease. Work out the regular health checks you need, and make sure you attend them. And if stress, depression or anxiety are of concern, talk to your GP to see if you can me referred to a mental health professional who can help you avoid long term and debilitating conditions.
2. Think doing nothing at all will be bliss
It won’t. A lifetime of Saturdays soon loses its appeal – some last six weeks, others take three months, but sooner or later even the beloved golf becomes predictable and, disillusionment and lack of purpose sets in. The solution? An old fashioned print diary, a week at a glance, with structured activities including work (paid, unpaid, volunteer, it doesn’t matter), social events, family catch-ups, home maintenance, exercise, a movie or concert, walking, reading and other favourite hobbies. Giving back to your local community can be one of the most fulfilling things you can do – yet how many of us simply forget to take the time to find out how to get started? If you’re stuck for ideas, visit your local library or council noticeboard; you’ll be amazed at the need out there.
3. Think giving your adult children a helping (monetary) hand and leaving a sizeable inheritance is very important.
It’s not. In fact sometimes it can be the worst. Sooner or later most of us have had to stand on our own two feet. So do your grown-up kids a favour and let them shoulder responsibility for their own financial wellbeing. Far from supporting the media myth of greedy baby boomers spending the kids’ inheritance, most retirees are giving substantial sums of money to their children and grandchildren, helping them to buy their first car or home or to fund increasingly expensive secondary and tertiary education. It’s nice to give, but if it means your children remain dependent and you live a life of penury in retirement, it’s time to get with the program and zip up your wallet.
4. Believe that accessing large lump sums from your superannuation is a fun way to start retirement
Whoa! Stop right there. This is one of the silliest things any retiree or person who is transitioning to retirement can do. And why our legislation still allows us unfettered access to our hard earned savings, is hard to fathom. Most of us will live far longer than we imagine. Converting superannuation into an annuity which will cover your main household expenses is a very sensible strategy. With this amount safely tucked away, you can then make smarter decisions on how much discretionary income your really will have, and whether you really need the big ticket items or luxuries as much as you previously thought.
5. And last, but perhaps the biggest retirement mistake is to think the Age Pension will provide a handy cushion should your own savings run out.
It won’t. YOURLifeChoices recently surveyed its members to check how many knew how much the single Age Pension paid. Almost 76 per cent admitted that they did not know. And of those who thought they did, a staggering 80 per cent were wrong. The people who do know how much the Age Pension pays are those who are on it. And it’s not much at all - $842.80, including supplements, per fortnight for those on a full single Age Pension. When the proposed change to indexation kicks in, in 2017, it will become even worse in relation to other forms of income.
So if you think you can always fallback on the pension if you overspend in your 50s and early 60s, then here’s a sobering exercise. Put your credit cards in a plastic bag and bury them under the chops and frozen peas in the freezer. Confirm the current full payments for singles and couples pensions in Australia. Withdraw this amount in cash, and try to live on it without cheating for four weeks. To further sober yourself up, click this link and check your expected longevity. Most Australians underestimate their prospects. Now imagine living with this degree of penny pinching for the next 20 or 30 years or more. Get the picture?
Your years in retirement can prove to be the best time of your life. But it takes good health, a positive attitude, strong social connections and sufficient funds to maintain both choice and independence. Make sure you’re a winner, not a whinger, in the later part of your life.
What do you think? Have you made any of these mistakes? Or have you avoided them? Have we missed some? What do you think are the worst things people do when they retire?
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