With stock markets around the globe in free-fall this week, we asked the Mozo community what advice they had to protect hard earned super and savings. Mozo Answers Guru Katie responded with a provoking question of her own. We thought it was worth sharing with our blog readers, and wondered what other Australians think…
Is superannuation a con?
Many people are starting to wonder. Nothing can really protect people from the uncertainty of the stockmarket in relation to superannuation. Unfortunately, unless you are one of the really lucky few who are reaping the benefits in retirement from a (now unavailable) superannuation scheme that is indexed against the CPI on DEFINED BENEFITS, you will join the majority of us punters on the “Super Roller Coaster”!
The tax benefits, whilst substantial if you are prepared to stick it out for decades, may not offset the severe losses experienced by many in a undulating market which has set some people back to the same level they were on five years ago!
If you do the math and invested $200,000 in a term deposit five years ago at the, then, available 8% you would be $80,000 better off even when you deduct tax. Whilst the gains MAY be made over 30+ years, the share market (forming the base of superannuation investment) is a gamble. Of course, one must NEVER change their options or attempt to withdraw Super when it is at its lowest as it will compound your losses severely. However, I really do believe that Super is over-hyped and under-performing.
The REAL danger with Super is that it is also subject to ongoing political interference. Don’t be surprised if, in the near future, the federal government will prevent anyone from taking LUMP SUMS and change the laws so that everyone will need to eke out a pension. As huge numbers of Baby Boomers are retiring, the federal government will be prodding and poking away at the methods of superannuation payments to ensure they will not have the burden of paying out massive lump sums over time.
Personally, I believe that it is preferable to invest in an investment property over time which, at least, will provide you with a steady rental income. Alternatively, take the lump sum as soon as you hit 60 (or 65) and put it in a Term Deposit. The HIGHS may not be as good as the occasional uplift in Super, but you can sit on the money (without worry) and sleep at night knowing exactly how much you are going to get each month.
That means a lot when you’re retired – who needs the stress?