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by Richard Hill
 
With an ageing Australian population, the Government has been justifiably concerned over its ability to provide income support for the baby boomers once they reach retirement. The first baby boomers will turn 65 on 1st January 2011.
 
Recent research conducted by Access Economics for AMP (The AMP Superannuation Adequacy Index) has produced some interesting results as to how well Australians are working towards being able to provide for at least part of their income in retirement. The research describes an adequate retirement as being 65% of a person's pre-retirement living standard. Many may argue that this is not adequate but for the purposes of the research this was the benchmark used.
 
The good news arising from the research is that around two thirds of the workforce are on track for an adequate retirement based largely on significant capital gains made in recent years and the recent surge in voluntary superannuation contributions.
 
However, 3.5 million Australians (around one third of the workforce) will need to increase their savings over time if they are to maintain their targeted standard of living in retirement. In fact, many of those falling behind are under the age of 40. Even if they contribute more to super later in life, it is estimated that 35% will not meet the target to enable them to have a comfortable retirement.
 
The report stated:
 
“If the Australian super system is to meet the challenge of an ageing population, today's younger workers will need to at least match the significant voluntary contributions being made to super by the (baby) boomers.” In fact, the research clearly illustrates that the 9% compulsory contributions will not be enough to secure adequate retirement income for Australians.
 
With superannuation offering very favourable tax concessions, the opportunity for Australians to make additional contributions under a salary sacrifice arrangement may prove to be one of the best investment decisions they can make. The following table illustrates the amount that needs to be saved to provide a modest income in retirement. The table assumes no Government income support:
 
Years to
Retirement
Income
required
2007 $
Indexed
income
Retirement
Future $
Capital
required
$
Annual
contribution
required
$
5
10
20
30
40
40,000
40,000
40,000
40,000
40,000
46,370
53,756
72,244
97,070
130,481
800,000
900,000
1,200,000
1,600,000
2,000,000
130,000
60,000
27,500
16,000
9,500
 
Assumptions:
  • No existing superannuation savings
  • Inflation of 3% pa
  • Investment earnings of 7% pa after fees, charges and taxes
  • An indexed income paid for a period of 25 years
  • Funds exhausted over that period
This article was submitted by Richard M Hill CA(SA), Taurus Financial Services,
with contributions from The AMP Superannuation Adequacy Index Report and Professional Investment Services, July 2007.
 
 
 
Posted in business |
Posted by Richard Hill
27 Nov 2007



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