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The Superannuation Dilemma for Baby Boomers

A recent Rabobank poll showed that baby boomers are retiring, on average, on about $200,000. That’s well short of the $800,000 they indicated they would like to have in retirement.

While most folks don’t know how much they need in retirement it’s generally accepted by the financial planning world that you need around $1 million in retirement to live comfortably. (I think you need much, much more!)

The way planners see it is that, assuming you live in retirement for 15 years with no extra income, a million dollars would give you an annual income of around $65,000.

So you can see retiring on $200,000 simply won’t cut it.

But the sting in the Rabobank survey came from what the baby boomers said they were expecting to retire on. That figure was around $400,000. That means their annual income has effectively now been halved.

What they didn’t count on though of course was the global financial crisis – or as the rest of the world defines it – the global recession.

Reality Check

In an article in Yahoo Finance David Taylor explains that what we are seeing is one of the great reality checks of our time.

The rubber’s hit the road.

Those mornings back in 2008 and 2009 when we were told over the radio or in the newspapers that the Shanghai Composite had fallen 5 per cent, or that the Dow Jones Industrial Average had plummeted, were the mornings that billions of dollars were about to be wiped off our market and hundreds of thousands of dollars wiped off folks’ superannuation funds.

It was hard to reconcile at the time because it all seemed so abstract and we couldn’t feel it in the hip pocket. But unless the market climbed back up again, it was going to be all too real.

What’s are our options?

Taylor suggests that if you’re staring down the barrel of retirement it’s vital you face reality now and not when it’s too late like many of the baby boomers.

He says there is always money to be made. The key is to be courageous and ask yourself where the yield is. It may mean thinking outside the box and moving away from the mainstream super fund managers but the outcome is likely to be rewarding.

Taylor suggests that we are living in extra-ordinary economic times, and it’s about time investors realised they need to execute or at least look in to extra-ordinary investment strategies.

While he suggests taking on more risky investments like commodities, I’d suggest you look at buying  property in your superannuation fund.

I don’t think most Boomers can afford to take more risks especially investing in things they don’t understand. On the other hand, setting up a Self Managed Super Fund and using this asset protection and tax effective environment to buy a property in it could be the way to go. Of course you should seek advice form your accountant before you do this.

Accountant Ken Raiss explains some common problems faced by investors purchasing in super in this article.

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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