Don't press the button yet if you're an amateur at super
So you've "taken control", got your self-managed super fund set up, the administration sorted by either a platform or your accountant, you've done some broad-brush asset allocation, decided to put X per cent into equities, decided to do it yourself rather than seek professional advice, opened an online trading account and are ready to start pressing buttons and playing with your retirement.
Well done, you have just done exactly what every professional financial product seller wants you to do: put your substantial retirement funds in the hands of a complete amateur. Now we can have our way with you.
And this is half the problem with modern superannuation. I don't know about you but when I joined my first company, in 1982, I wanted to know what their retirement scheme was. It was a time when people expected to remain loyal to their employer and, much like the Japanese who were advertising jobs for life in the motor industry, the Western working culture was to join a company and work your way from mail room to chairman.
It was a time of gold watches for 50 years' service. It was also a time when you expected to retire on a company-funded pension and your loyalty and time invested in the company was rewarded through that structure. Job hopping meant compromising your retirement benefits, so you rarely did it, and if companies wanted to attract the top employees, their retirement scheme had to compete. After the salary it was the first section everyone wanted to read in their new employment contract.
And so it was that my dad retired on a Mercedes-Benz pension scheme based on a factor of his final two years' salary, and so it is that his rather younger wife will spend the rest of her life on a similar formula on his demise. (And so it is that Daimler-Benz almost went bust.)
And that's what I expected when I joined Buckmaster & Moore in 1982, to retire on their pension. Fast forward 32 years, two countries and numerous employers, and rather than retire on a formula related to the success and position we achieve in our employment, the government, in its wisdom, has reinvented the structure, taken it out of the hands of the corporates (which can obviously be a good thing) but in so doing has dangerously made the total superannuation asset, all $1.576 trillion of it (and it's going to quintuple to $7 trillion by 2030) available to the individual.
They have put the retirement of Australia in the hands of, in many cases - let's be honest - people who, despite their best intentions, have never been in control of large sums of money, have never invested in their lives, are not responsible, have no investment skills, are financially naive and are completely vulnerable to their own human weaknesses (gambling, hope, emotion and fear) and are a target to a growing hoard of financial predators who will convince you that trading forex "on the move" is normal.
So bear that in mind as your thumb hovers over that "Trade" button for the first time. How did you get here and are you equipped to be here? And for all the spouses and dependents out there, are you sure your spouse or willing relation can be trusted with your retirement?
It sounds grand and clever, but in the hands of an enthusiastic amateur the outcome is all too obvious. Already 50 per cent of over-65s are on the full pension in Australia - that's $31,700 per annum for a couple - and 85 per cent are on a part pension. Apparently you need $56,000 to be comfortable. The average Australian retires on just $170,000. That'll earn you $6800 per annum in term deposits. It's not enough and unless you want to join them I suggest you don't leave your retirement in the hands of a well-meaning newbie, which in most cases, of course, is you.
OK, you've been told. Let's plough on as your life as an amateur fund manager begins. Exciting stuff, but tempting as it is, just keep your finger off that Enter key a moment longer because there's no rush, and for the budding betters out there I'm going to step you through the Newbie's Guide to Not Cocking it Up and after that the Newbie's Guide to Doing a Half-Decent Job of It.
We'll start next week with "How not to cock it up".