Rely on super or control your investment strategy?
From July, your boss’s compulsory super contributions are set to steadily rise from 9.5% of your base salary, to 12% by 2025. On one hand, that means more money going into retirement nest eggs. The downside is that right now, some businesses aren’t in a financial position to pay extra super contributions, and a rise in compulsory super could see wages growth slow even further.
The issue can boil down to whether we want more money in retirement – or more to live on today?
Here’s my take. First up, I understand that changes to super just deepen reform fatigue. In the almost 30 years since the Keating government introduced the Superannuation Guarantee, the rules around super have been continually tweaked and fine-tuned.
That said, I have always maintained that super is good for us. It’s a form of compulsory saving, which has seen the value of Australia’s retirement savings reach $3 trillion in 2021. And according to Industry Super Australia, a backdown on the rise in employer-paid super contributions could see a 30-year-old couple on median wages miss out on an extra $170,000 in their final retirement nest egg.
However, super is not the only way to save for retirement. Along with superannuation and the age pension, voluntary savings (which includes paying off a home) form the so-called ‘third pillar’ of retirement income.
Growing a portfolio of investments outside of super can provide a greater sense of control about how and where your money is invested. It pays to choose wisely though. A rental property may be familiar turf, but the yields can be low. You can’t just sell a bedroom or two when you need extra cash. And while long term capital growth can be strong, you need to sell the property in its entirety to tap into these gains.
This is why I’m a big believer in the value of adding share-based investments, in particular exchange traded funds (ETFs), to a long term portfolio. ETFs charge low fees, can pay regular returns, and provide instant diversification to help shield investors from downturns in a particular industry or sector.
Let me stress, I have always been a fan of super. But the disconnect between ‘me today’ and ‘future me in retirement’ means lots of people have limited interest in their super savings. Growing your own portfolio of investments can provide an incentive to build wealth for tomorrow without worries about shifting super rules that can force a last minute change in your retirement income strategy.