Most people have some money saved for their retirement. Whether this is in superannuation or across other investments, they have generally thought about their retirement and are preparing for it. The issue is that many people are not proactive about their super. Each year, or each month, they get a balance statement, and if they see it has gone up, they are happy and think ‘I’m on track’. Unfortunately, that is not enough. The fact that the balance has gone up is actually irrelevant to whether or not it will be enough for them to retire with.
To make sure you’re on the right track, the first step is always to work out what you want your retirement to look like, and then work out how much you need based on that. If you draw a line from now to the next ten years, you can see whether you are ‘above’ or ‘below’ the line in terms of your savings. We often help our clients with this ‘line of best fit’. The comparison of your super balance from 12 months ago to now proves nothing alone. It’s easy for people to think they’re on track as long as the balance goes up. But unfortunately, that is far from the truth.
When we see clients, who are above the line, we know they have stuck to their plan, and stuck to it well. Sometimes clients have a lot more than we anticipated, and we can often put that down to the share market’s rate of return being higher than the projected return. Sometimes clients are below the line, which we often saw in the middle of COVID-19, for example – and again we know that this is because of the market. But if people have stuck to their strategy and done everything they can within their control, they are still essentially on track.
As an example, we met with a client in December 2019 who had a super balance of $1 million. When we met with them again in June 2020, it was down to $900,000 due to the pandemic. But our clients left the meeting happy, and we were happy too, because they had stuck to their strategy and done everything they could within their control. Had they not stuck to their plan, they may have made some hasty decisions and ended up in a worse situation financially. During this time many people panicked and sold shares at 63 cents on the dollar. Having stuck to their strategy, these particular clients are now back over a balance of $1 million.
During times of volatility, people often make bad decisions – and it’s always based on their balance having gone up or down. As always, it’s important to have a plan and think long-term. You need to ask: what are my goals and what kind of life do I want in retirement? Once you work that out, you have choices you can make – such as how much you spend now versus how much you save for your retirement.
We find that some people worry about their super when in reality, they don’t need to – and likewise, some people are confident about their balance when they are far off the mark.
The key? Work out exactly what you need, and then make a strategy to get there. Personalisation is key. And if you need help with that, give us a call.
Dallas Davison, Michael Hogue and Ali Hogue.