Worrying about tomorrow, today - Money Works
Oct 4, 2017

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Worrying about tomorrow, today

It’s a rarity to meet with clients who are excited about their superannuation before they retire. Many people see it as something far-off, just a piece of their paycheck they’d rather have in their bank account to pay bills with today. Really, though, it’s so much more than that. It’s a little bit of the future within your control.

Try reflecting on words from a Domain article with the not-messing-about title of “Most Australians will run out of money before dying“: “More than 60 per cent of retirees face a looming crisis of running out of money before they die, with the Turnbull government on notice to encourage older Australians to take up retirement income products.

Research from global wealth and retirement consultant Mercer shows most people only have enough savings to last 14 years beyond retirement and will, on average, outlive their savings by five years.”

It’s not a pretty future to imagine. Those who like to use complicated words call this superannuation/pension funding gap “longevity risk.” The above-linked piece is a bit of a spruik for Mercer’s LifestylePlus product, which is, at first blush, innovative and exciting. Mercer’s product is a pooled investment product and is actually a new twist on an old theme, and basically a blended tontine and asset-restricted pension.

Never heard of a tontine? They were invented centuries ago and would typically start out meaning well, but fell into disrepute as a last-man-standing style lottery.

Imagine 10 Imperial soldiers are about to go to war and put in £100 each, and after 1 dies then their £100 would be distributed to the surviving 9, and the next one dies and their share gets portioned among the surviving 8… you can see where moral hazard among a small pool of people may have led to mischief. For a quick history and economics lesson, good old Wikipedia has some more examples.

Now we aren’t saying here that Mercer’s product is at all nefarious like this – it’s just the most recent among a wave of new products coming out to avoid future penny-pinching.

So to bring things back to our main point: the future is uncertain. While many younger people naively say “I’ll work until I’m dead” – that principle is only safe so long as one is surely able to work. It’s not impossible, but even that mentality require planning in at least some Income Protection and Total and Permanent Disability insurance for when the inevitable body grumbles set in.

It’s nicer, I think, to take an active approach to your superannuation and where it’s invested. There are many, MANY options available. While the intent for each product is to make life easier, choosing between them can feel harder and harder. A financial adviser’s job should be to hold your hand and help you feel confident that what you’re investing in and how you’re investing will be suitable for you when you need it.

Stuffing money in the mattress or sitting in a cash account usually costs you money in the long term because it doesn’t earn a dollar and inflation eats away at the value of your money without you spending it. Rather than letting it rest in bed, we like to help you find ways for your money to work for you.

Please feel welcome to call 08 8304 8088 to book a free 45 minute consultation with a financial adviser to see what your future may look like and how we can help you prepare for it. In the meantime, we also encourage you to check out our e-book Baked Beans or Steak: Your Retirement, Your Choice.

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