Is your super fund performing as best it can for you?
The super fund investment returns for the 2014-15 financial year are in and, despite a poor June run-in to the end of the year, leading ratings agency SuperRatings, reported that the median return for Balanced investment options across the industry was a respectable 9.7 per cent (after tax and investment fees).
While the Equip investment option’s one-year 10.5 per cent return to 30 June 2015 was substantially better than the SuperRatings Balanced survey, Equip are asking their members to start thinking about the performance of their super fund in a different way.
Instead of absolute returns, Equip believe it is much more meaningful for fund members to set a retirement income goal to aim for and use online calculators and, from time to time, other tools to track how they are performing against that retirement income goal.
Why does Equip think this is a better approach?
It’s important to remember that the main purpose of superannuation is to provide you with an income when you have stopped working and retired.
It enables you to establish in your own mind how much income you think you will need when you stop work and are retired. The Association of Superannuation Funds of Australia (ASFA) publishes the annual income it calculates is required for a “comfortable” retirement, $58,444 p.a. for a couple in the March 2015 quarter ($42,569 for a single). However, your needs or lifestyle aspirations might be different and it is usually better to consider what percentage of your current take-home pay you will need and start your calculations from there.
The benefit of this approach, is it renders short-term investment cycles less important to achieving your overall objective. Not saying that investment returns are not important, just different if looked at from the perspective of whether you’re on target to hit your income goals. Taking this view also removes some of the temptation to try to jump in and out of the market, often at the wrong time.
How has Equip gone about changing the conversation?
Most of Equip’s members now receive annual statements that place retirement income projections front and centre. However, providing the majority of fund members who do not make their own investment decisions or seek professional financial advice with the right products for achieving financial adequacy in retirement has also been an important part of our focus.
Equip’s MySuper and MyPension products are designed with a retirement income focus – respectively providing members with an appropriate balance of risk and return that makes for a smoother ride and steady growth towards building their super benefit, and an income and investment strategy aimed at making their money last longer through retirement.
Steps towards reframing your thinking about income in retirement
- Make a realistic calculation about how much income you will need in retirement compared to the take-home income you have today. You can work in today’s dollars, as the best online calculators take inflation and other things into account.
- Jump onto a good online calculator and input your current information, including your super balance, to see how much income you’re on track to receive. Preferably, use a calculator that can take into account your partner’s likely income and super benefit, if applicable, and one that will include any government Age Pension that you might be entitled to.
- Change some of the variables – current contributions, investments and retirement age to see what a difference these make. It may even identify some things you can do immediately to improve your income projection!
- Once you have set your course, take less notice of the various investment performance league tables published in the media. Obviously, your fund should deliver consistently strong returns, but does not necessarily have to “shoot the lights out” at the top of the league every year in order for you to achieve your goals.
- If you’re older and well on track towards achieving the retirement income you need, you might consider taking some risk off the table and investing more conservatively. If your income will meet your needs, how much risk do you really have to take to earn more?
If these are challenging ideas for you, it might be best to talk to a professional financial planner about working out how much you need and how best to get there. A good financial plan is often the best investment you can make!
Setting retirement income goals is embedded in the financial planning culture at Equip, so if you want to talk to one of their expert planners, you can click here to request an appointment, or obtain more information on what they have to offer here.
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