SMSFs putting retirees in control of there retirement funds: RaboDirect

When it comes to being ‘super’ happy in the future, having control of their retirement funding is putting those with a Self-Managed Super Fund (SMSF) ahead of the rest.

This is according to the 2013 RaboDirect National Savings and Debt Barometer which shows that respondents with an SMSF were not only happier but were in better health than those with another form of superannuation.

According to Greg McAweeney, Group Executive Manager of RaboDirect, being in control of their financial future is clearly a big driver for respondents with an SMSF. Noting that SMSFs are a rapidly growing segment of Australia’s retirement savings pools; Mr McAweeney said that the health and wellbeing benefits as suggested by the NSDB results are a compelling reason that many are turning to this option.

“While a Self-Managed Super Fund isn’t for everyone – you need a certain level of knowledge, money, time and interest to do it well – there is clearly a keen interest and appetite among Australians for this hands-on control of super and ultimately their retirement. In fact, our research shows that 14% of the nation researched SMSFs online last year.

“Regardless of where people currently have their super invested, we could all take a cue from SMSF investors by taking a more proactive approach to our financial outlook. By actively taking control of our finances, we may get some of the peace of mind and health benefits that SMSF investors enjoy. Whether that means simply starting a budget, or moving your money from a low interest account, to a true savings account, there are steps to take to be more in control of our financial future.”

“When it comes to getting your super under control, start by consolidating any super accounts and tracking down any lost super via the Australian Taxation Office. Then look at your total superannuation balance and how much you are currently contributing. Once you know this, you can also consider how your super is being invested and whether you can contribute more to your account each year. And if you are happy leaving your super to the professionals, you can apply the same suggestions to your savings account and overall savings goals.”

Mr McAweeney went on to say that with the cash hub being central to any SMSF, there are a number of key considerations that apply to those with an SMSF as well as to everyday consumers looking to make the most of their savings. Not least of which is ensuring you use the right vehicle or product to make the most of your hard earned savings.

“Just as most people have a savings account as a core financial product, the cash hub remains central to any SMSF. When interest rates are historically low, as they are now, it is even more important that investors get the most from that cash hub account. This means doing the adequate research to find a product that will ensure they are maximising returns.”

“A typical SMSF holder is attracted by choice as much as control. They should look for market-leading online savings and term deposit options or other high-interest accounts that offer flexibility and no fees. At the end of the day, being in control often means making decisions – so arm yourself with as much information as possible to ensure you make the right financial decisions.”

Key findings

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Saving for Christmas starts early and budgets expected to be lean.

It may be a common gripe that Christmas comes earlier each year but new research has revealed that Christmas budgeting has already been underway in around one in five households since October.

The research comes from the 2013 RaboDirect National Savings and Debt Barometer (NSDB), an extensive study of Australians’ attitudes towards money and savings. The findings of the latest NSDB point to a lean Christmas for many with budgeting, bargain present shopping and agreeing a giving and receiving strategy between family members a key part of the planning process.

The survey found that Gen X were most likely to be planning for Christmas in October (22%), followed by Gen Y (16%) and Baby Boomers (15%).

The most common way of planning for the festive season was to set a budget ahead of time (58%). Additionally, 42% of people who started their planning early have already made a start on their Christmas shopping. For one third of people (32%) already planning Christmas, agreeing the giving and receiving strategy between family members had already been addressed back in October.

With Australians already expected to spend an estimated $42 billion this Christmas[1], planning ahead will be crucial to avoid a last minute impulse overspend during the holidays, says RaboDirect Executive General Manager, Greg McAweeney:

“As a nation, we will be spending upwards of $40 billion this Christmas. That is a vast amount of money – in fact; it would be enough to end world hunger for 12 months if it was instead donated to charity. Or if you break it down further, this estimate amounts to about $1,800 per person – which could buy 20 Christmas turkeys; or an overseas airfare; or 90 trips to the cinema. With that in mind, it is heartening to see that one in five Australians are proactively planning to spend consciously and avoid impulse purchases during the festive season.”

Mr McAweeney commented that this trend reflects a change in sentiment that has been observed through many facets of the RaboDirect NSDB research. “This year we have seen a trend for Australians to be more engaged with their money – whether that means planning a budget or knowing their rates on accounts. A lot of people have been lacking confidence in the economy and as a result, their own financial circumstances. This has led to people taking greater financial control, and having a plan for Christmas is one such example of how people are becoming more engaged with their finances.”

Key findings amongst those who have started planning for Christmas:

• Gen Y was more likely than Gen X or Baby Boomers to set expectations with family members about gift giving (40% versus 28% for Gen Y and Baby Boomers).
• Gen X was most likely to have started their shopping early (46%) compared to Gen Y (40%) and Baby Boomers (38%)

Mr McAweeney concluded, “Having a plan in place helps people to keep their finances on track, whether this is a savings goal or setting spending limits. This is particularly important at a time like Christmas where it is very easy to fall victim to impulse spending. If you haven’t started thinking about your Christmas gift buying yet, it’s never too late to start. The cost of entertainment, presents and hosting Christmas quickly mounts up so establishing spending plan will help ensure that Santa is the only one in the red on Christmas day.”

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Few boomers have confidence recent changes will have positive outcomes for super.

Only 19% of Baby Boomers say recent moves to increase super contributions will give them more confidence in their ability to fund their retirement dreams according to the 2013 RaboDirect National Savings and Debt Barometer (NSDB), launched yesterday.

The survey of 2,322 Australians aged 18 to 65 also revealed the extent of the gap between average current superannuation pot ($180,467) for Baby Boomers and what they anticipate they will have at retirement ($316,666). And this latter figure falls worryingly short of the amount people feel that they would need to live 20 years in retirement ($749,824).

RaboDirect’s General Manager Greg McAweeney commented, “The retirement shortfall is worsened by the fact that, generally, people aren’t planning for the improvement in life expectancy. For instance people who are now 65 are expected to live until 85 for a man and 87 years for a woman and this equates to 20 years in retirement. And if you are younger than 65 you will live even longer than 20 years in retirement.”

The NSDB also found that almost one third (29%) of the Baby Boomer generation expect to have a mortgage when they retire. A large proportion are banking on super to repay this debt (25%) and for a further 33%, downsizing will hold the key to clearing their current mortgage and allowing them to enjoy their retirement mortgage free.

Levels of concern around mortgage debt post retirement are also high according to the study – more than half of Baby Boomers (54%) report that they are ‘quite’ or ‘very’ concerned about the prospect of retiring with a home loan.

While these findings may paint a seemingly bleak picture for retirees, Mr McAweeney says that awareness is necessary to encourage action and for people to think about how best to address the problems they are facing.

“It’s only with planning ahead, and having a clear understanding of their financial position heading into pre-retirement and retirement, that people can then start to think about solutions. Those who are a number of years away from retirement still have time to consider alternative savings strategies so they can avoid selling their homes or dipping into their super unnecessarily,” he said.

In other findings from the study released today, close to half of Baby Boomers (48%) expect to run out of money during retirement and say they will need the Aged Pension.

“For those who are facing the probability of drawing an Aged Pension later in life it is particularly important to look at ways of making their savings work as hard as possible now and really preparing for their retirement date,” Mr McAweeney commented.

Key findings:

The study found that many Baby Boomers are already living on a tight budget. More than seven in 10 (72%) Baby Boomers are reducing their power usage to save money and 68% are doing their own odd jobs rather than employing a tradesman.
Despite high levels of concern amongst Baby Boomer mortgagees, a significant proportion does not know what the rate is on their mortgage (16%).

In the current study 48% of Baby Boomers said they expected to run out of money during retirement. This is down from 57% last year, indicating an increase in confidence for this group.

Mr McAweeney concluded, “We conduct the National Savings and Debt Barometer to encourage people to become more engaged with their money so they can plan ahead and make the most of what they’ve got. For example, we know that Aussies are losing out on billions of lost interest by leaving their money in low interest accounts – the survey this year found that the average balance sitting in Australians’ transaction accounts has increased by 42.9% (from $1,396 to $1,995). By moving some of this excess money from a transaction account into a true-to-label savings account, Australians can make their money work harder for them and can truly experience the benefits of compound interest. This will give people greater financial freedom and more options in retirement.”

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And that is, that far too many of us are spending more time planning our next celebratory meal than planning for our financial futures.
 
The Huffington Post recently published the results of a survey of 11,000 Americans who were asked about their levels of savings and debt, and the results made sobering reading.  Nearly half of all Americans have no safety net at all, and of those that do, 41% have less than $500 to fall back on.

According to Renee Amor from RaboDirect, these figures may sound surprising, but when it comes to Australians, the situation isn’t much different. 
 
“The recent RaboDirect National Savings and Debt Barometer (NSDB) revealed that 46% of working Australians have less than one month’s savings, and 20% have no savings at all,” she said
 
What’s more, in the case of both Australians and Americans, planning for their financial futures appeared to take a backseat to other concerns.
 
Of the Americans surveyed, 54% said they had not set up an emergency cash savings strategy and that as a result felt they would be stuck in their current situation for the foreseeable future.
 
Ms Amor said the NSDB had found 66% of Australians admitted they had no long-term financial plan, with 23% saying that they felt that nothing they could do would make a big difference to their financial situation.
 
“What a lot of people don’t realise is that not only are regular savers preparing for unexpected events as well as a more comfortable retirement, they also tend to be happier with their life and in better health that those that don’t save,” she said.
 
“It is always better to use savings rather than debt for emergencies if you possibly can,” Ms Amor explained, “but even if you have no savings now, it is never too late to turn the situation around and start securing your future financial well-being with a regular savings plan.
 
“Be sure to put your savings into a true high interest savings account.  Keeping your excess cash in a transaction account can mean missing out on interest which helps you build your savings more quickly.”
 
The RaboDirect NSDB revealed that Australians are missing out on around $3.5 million in lost interest every year by keeping their money in no- or low-interest accounts.
 
Ms Amor concluded by saying that with the NSDB showing a clear correlation between regular saving and health and happiness, she would encourage all Australians to start a regular savings plan, no matter how much they earned.
 
“You work hard to earn your money, make sure your money is working just as hard in a high interest saving account,” she said.

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