Joshua van Gestel: Earlier this year, I actually had a milestone birthday; I turned 50. Like for many of us, that caused me both to look at my superannuation balance and start thinking about whether that was enough.
Now, in checking in on my own balance, I could see the benefits of starting to contribute myself 20 years ago and the investment choices and decisions I've made along the way. But we know for many people, you may not know how much you need in your super. You may not know how it compares to others. To assist me in talking about this further and unpacking some of the things that you need to think about, I'm joined by Ruth Weaver, the Team Leader of Key Client Education at Australian Retirement Trust. Hi, Ruth. How are you?
Ruth Weaver: I'm really well, Josh. Thank you.
Josh: Thank you for being here. Today's podcast is of a general advice nature, and this means that you should consider what we talk about when applying it to your own needs or circumstances.
I think the first thing I want to ask you is, let's say, unlike me, you are perhaps that person who has no idea what your balance should be or where you should be aiming. How do you start to think about your super?
Ruth: It is a big question, and it's one we get a lot working in the education space. What I think we need to be aware of is that there is a lot of research out there for people to check in with as a starting point. The one that is probably more often used in superannuation is the research from the Association of Super Funds of Australia, or ASFA, as we tend to call it. That's a great starting point for someone who has really just tapped into this conversation for the first time. ASFA shares with us some benchmarks around what somebody might need in their superannuation if they wanted to achieve a comfortable retirement, for example. It's based on current retirees and their spending habits.
What we know from the current numbers is that, if you're a couple retiring in Australia at the moment, they would suggest that to achieve a comfortable retirement you probably need a combined super balance of about $700,000.
Josh: What does that ‘comfortable retirement’ mean, though?
Ruth: A comfortable retirement is not luxurious, but it certainly gives you a lot of freedom and it gives you choices to be able to do things that aren't always meaning you have to consider budgeting every single penny.
Josh: Yes.
Ruth: It gives you the ability to consider your overall wellbeing. It's really about making sure that your physical/emotional wellbeing, connection to community and being able to do things are all considered and looked after.
Josh: And that you can financially support that?
Ruth: And that you can financially support your wellbeing, yes.
Josh: That gives you an idea of where you may want to end up, that point at retirement. But what about, for example, I said I turned 50 this year and that gave me cause to reflect on a lot of things, including my super. Is there an approach that people can take in thinking about milestones like their birthdays, for example? How do they start knowing if they're tracking towards that number you talk about from ASFA, for example?
Ruth: The beauty of the ASFA research is that they don't just tell you, as a single person or as a couple retiring, ‘This is how much you need.’ They also give you numbers based on particular ages.
Josh: Yes.
Ruth: If you have a look at their website, or even on our own website, there are benchmarks there for the types of balance you should have at 30, 40 and 50, for example. It's a really nice touchpoint for people to say, ‘If I just work off that very generic standard that ASFA has released, this is how I'm tracking compared to that.’
Josh: That's a really good way to start if you've got no real idea or no ‑‑
Ruth: Yes.
Josh: ‑‑ point to compare against. But what about why are we having this conversation in the first place? Why are we saying to people they have to go to a place like ASFA to actually determine what they should have?
Ruth: I think a lot of it is because we don't have great context ourselves as to how we're tracking with superannuation. We know, as people who have worked in the education space and spoken to thousands of members, we're seeing a significant improvement with people recognising where their super is and also recognising how much they have.
Josh: Yes.
Ruth: I think the digital capability of many funds has made that better for Australians. We're all on the apps or on our accounts online, so we know where our super is and how much we have, but then we fall off because we don't have context on what we should have and what other people have, and that's because we don't really talk about super very much.
Josh: So, on talking about it, you've before talked to us about having a super buddy. Do you want to explain that a little, because it's a concept I love actually?
Ruth: Yes. A super buddy is somebody you can benchmark off who is in your orbit or in your personal life. It really gives you an idea of being able to sit with somebody who you trust and who you feel comfortable to talk about money matters with. An example might be a sibling or a friend, for example, you're very comfortable with, and just touching in with each other every now and again and comparing balances. I've done this myself. For the past 15 years I have had a super buddy. We're at similar ages, we had similar starting balances, and both earn a similar income, so we're both very good buddies in that regard; we should see our superannuation tracking similarly. The reason that's a really good idea, I think, is it gives people an early red flag. If you're comparing your super balance with someone the same age as you and you're lagging behind, if you can identify that early, that gives you an opportunity to maybe have a look and see what's going wrong for you and what kinds of steps your friend or sibling is taking that you're not.
Josh: Was that an easy discussion for you to start engaging in? There’s a bit of awkwardness in saying, ‘How is your super tracking?’, or things like that. But did you find that actually -- obviously, it's been valuable for you over the last 15 years, but that initial discussion, was it a bit ‑‑
Ruth: Yes, I think anyone listening will probably relate to the fact that when you catch up with a group of friends or a group of mates, you'll cover a lot of topics. If I'm catching up with my girlfriends, we'll talk about our careers, jobs, kids and spouses. We do talk about finances a little bit more now, but it tends to be restricted to maybe the interest rates that we're paying on our mortgages, what we're paying for mortgage repayments, and we might talk about the cost of living or the cost of groceries. It is very rare that we will enter into the superannuation territory. That being said, as soon as you enter into that space, it does actually become something that people do start to get excited to talk about or engaged in, because they haven't had opportunities to talk about it or haven't been invited to talk about it before.
Josh: We know it's an important discussion to have so you can start seeing how you're comparing with others. Why is it more important that that's a conversation women are having, do you think?
Ruth: I think for women in particular we know that the gender gap still exists. We know that the super gender gap exists. When we look at the benchmarks ‑- I'll give you an example. If you were a 40‑year‑old ‑- and I've not long turned 40 -‑ and if you were a 40‑year‑old, you should have roughly $150,000 in super if you're wanting to achieve the ASFA retirement standard. Yet the average Australian is probably more likely to have about 90. If you're a female, you've got less than that again, which means you've got a bigger mountain to climb if you are wanting to achieve a comfortable retirement. There are just extra obstacles sometimes there.
Josh: We'll talk about that mountain to climb and the obstacles in a moment, but I think we've covered off that you can go to a website like the ASFA website to see whether there's a benchmark or a goal you should be aiming for. You've talked a little bit about having it as a conversation in comparing yourselves with trusted others or friends. Another approach might be in actually determining your own benchmark. How would you go about actually thinking about, ‘Where should I be tracking?’
Ruth: This is where it really gets interesting. When we look at ASFA and those numbers, there are a lot of assumptions behind it, and not all of those assumptions will apply to you specifically. Firstly, you have to ask yourself what role your super will play for you in retirement. There will be many Australians who might say, ‘I’m going to have various sources of income, and the super is only one. So, I'm not too concerned if I'm lagging on that.’ But in the same breath there will be lots of Australians who might say, ‘Super is my only source of income in retirement, so I need to be really on the pulse here about figuring out what kind of income I might be able to generate from that super if that's the only thing I'm relying on.’ Then you'll have a huge cohort in the middle who might have a blend of income sources, where super is one source of income. Maybe you're able to use it as a top‑up to the government safety net, which is the Age Pension.
Josh: So, would you think in determining how you go about that yourself you'd use something like, for example, every super fund has a retirement forecaster or tools? Would that be the way you would go about maybe determining what your own benchmark or path should be?
Ruth: Definitely. Those retirement forecasters and calculators are so important. It doesn't matter if you're 30, 40, 50, 60; you should be using them, because what it will do is give you a reality check and explain to you and show you, if you continue doing what you're doing now, this is what the end result will be. Then it allows you to manipulate some of that and it allows you to change some of the scenarios. For example, it will show you the difference making an extra contribution would make. It would show you the difference maybe switching your investment options might make, changing your retirement age or changing the income you think you want. It just allows you the ability to see what kinds of things are an option for you.
Josh: So, really, we're talking about whichever method you choose in trying to find that benchmark for yourself -‑ and for me, I actually use that forecaster; I find it's more appropriate to my needs ‑- but we'd like to think that any one of those will either make you go, ‘Yes, I'm okay. I've checked in and I'm on track.’ Or it could, like you actually said, shock you a little bit into going, ‘Actually, I need to do something here.’
Ruth: Yes.
Josh: I think, as educators, we've seen both occur. I've loved those experiences, and I actually think about a few years ago when I presented to an audience in Adelaide. It was actually a factory site. A person there realised in that moment for the first time in her life she had enough; she could retire. She was blissfully unaware of that and thought she'd be working for many years. You started alluding to some of those things, but what about the people who aren't on track, who do need to do something? Let's maybe think about, especially if you're younger, where is there opportunity and where do younger people have an additional opportunity that others wouldn't?
Ruth: Yes. I'm glad you pointed out if you're younger; it does depend on how close to retirement you currently are. If you are younger, you have one of the most magic ingredients at your disposal and that, of course, is time. If you think about a younger person, they are in a situation where every dollar that goes into superannuation will have earnings upon earnings upon earnings, and so they get to benefit from that powerful compounding. It really means they don't have to do an awful lot.*
If you look at those numbers and you think, ‘I'm 30. I'm already behind the benchmarks here’, what you need to do to get back on track will be very subtle compared with somebody who might be 50 or 60, for example.
*Investment earnings can go up and down and be negative at times.
Josh: It could be those things, like you said, making a small additional contribution?
Ruth: Yes.
Josh: Checking in on your investments?
Ruth: Bringing your superannuation together and making sure you're not paying multiple unnecessary fees or insurance premiums, and just being a little bit tidy, I guess, with the administration of your super.* And then, of course, thinking about whether you can afford to put a little bit in or consider your investment portfolio.
* Before you consolidate, think about whether it’s right for you. You could lose access to benefits such as insurance or pension options, and you need to consider tax implications.
Josh: So, how about someone at the other end of the scale?
Ruth: Yes.
Josh: Like myself, you've turned 50, and you have this realisation of ‘I'm not where I need to be’. The steps you take have to be a bit bolder or they have to be a bit more decisive. Is there anything else that they should be or could be thinking about?
Ruth: Yes. If you're a 50- or you're close to being a 60‑year‑old, and you've used the forecaster and you don't like what you've seen, I think it is important to remember that the forecaster will allow you to also include Age Pension. Remember, the government has the safety net there for everybody who doesn't have much superannuation or any to fall back on. The Age Pension will go a long way, if you like, to meeting your basic needs. It will keep the lights on and put food in the belly, as I say, for a lot of Australians, and currently does. We know that the vast majority of Australians who are in retirement now are receiving some, if not all, of the Age Pension. You are then in a situation where you say, ‘My superannuation serves a slightly different purpose now. My superannuation is allowing me to top up what I'm getting from the Age Pension.’ So, it doesn't have to do all the work. It only needs to be that source of income that allows you to have a little bit more freedom and a little bit more peace of mind during retirement.
Josh: That's an important thing we talk about a lot in our education, isn't it, that you might have a very high dependency on the Age Pension ‑- which that's fine; that's what it's there for -‑ but any small amount of super just gives you some ability of freedom or choice that you otherwise wouldn't have? So, when you think about everything we've talked about, having benchmarks to look at, like the Association of Super Funds Australia (ASFA), having forecasting tools and things like that, and also having maybe a super buddy you can talk about super with, do you find yourself, or the way you talk to our members, that people are doing mixes of all of those? Are there some you find that you tend to talk about more than others when you're out providing education?
Ruth: The biggest influencer on the type of conversation you will have with someone around their superannuation will be their age.
Josh: Yes.
Ruth: Very much that will determine the way we tend to frame our conversation. So, if they are closer to retirement, as we've said and they really don't have the ability to make those bolder steps and to put money into superannuation, we need to shape their thinking around what a modest retirement would look like.
Josh: Yes.
Ruth: Going back to ASFA, for example, they also recognise that not everybody is going to reach that comfortable retirement lifestyle. So, they do show as well what a modest lifestyle looks like. A modest lifestyle would only require a combined balance of about $100,000 for a couple. Even that alone allows you to lift your retirement standards from the Age Pension, which is very basic, up to something a bit more modest and give you a bit of freedom. I think it's important that that's the type of conversation we would have with someone close to retirement who might be feeling quite anxious about their situation. And, of course, then with somebody who is feeling quite confident about their situation and is on track for comfortable retirement standards we would be talking about access, and when they can access, and how they might structure that. So, obviously very different type of conversation from what we'd have with a 30‑year‑old.
Josh: There were a couple of bold steps that you talked about, especially for those people who might be closer to retirement and really thinking now about getting that magic number they want. Can I just ask you: we again talk about the ASFA standard and things like that, but a lot of times we have people come to us and say this number of a million dollars or whatever it may be. How is it that you actually frame to a person what they need? Forgetting about benchmarks and everything else, how do we have that conversation with people individually?
Ruth: Firstly, we have to acknowledge that, no, you do not need a million. You might want a million, but you don't need a million dollars. Some will, depending on the kinds of things they want to do during retirement, but the majority of us won't need a million dollars. So, forget about the million and just have a little think about what you need your super to do. That will be thinking about your personal situation, around whether you're part of a couple, whether you're entering retirement with debt or still looking after dependants or whether you're paying a mortgage or rent. All of those things will be different for Australians. And then thinking about your financial situation, are there other sources of income? Is it just super? Will you qualify for the full Age Pension? In which case that will do an awful lot of the heavy lifting for you and super is just extra money on top. There are lots of different things to be mindful of when you're thinking about how much super do I need. If you're young, though, I think it is important you're a little bit more aware of the standards and that you are tracking what the average 30-, 40- and 50‑year‑old has. That's going to mean that when you get to retirement you have far more freedom to determine how you retire, when you retire, and what that retirement will look like.
Josh: I think probably the starting point is to get a bit more competitive about your super.
Ruth: I think so, yes. Have a race with your buddy. That's what I do.
Josh: Yes. I even found there was satisfaction, as I said, in thinking about my own milestone, in knowing where I was against that.
Ruth: Yes.
Josh: And actually, starting to see the reward for decisions and work I've done on my super over the last few decades. For those, though, who might be thinking about ‘I need to take some action’, that first step, if you could sum up, after listening to this podcast, what do you think they should start to do?
Ruth: Firstly, find out how you are tracking. Is there a gap? Is there actually work you need to do? If there is, then I would say talk to your super fund or get on to the forecasters or the tools and have a little play around with some of the strategies at your disposal. The biggest strategy and the most influential one for a young person might be the ability to get a little bit of money in there.
Josh: Yes.
Ruth: That's quite a motivation, if you like, for young people to contribute. So, just talking to your fund, connecting with your account, knowing whether there is a gap that you need to bridge or not.
Josh: Wonderful insights. Thank you for those insights, Ruth. It's been wonderful to have you here. Thank you to all of you for listening to this podcast. We hope this does help you in thinking about your own super journey and where you're tracking and whether there's anything you need to do to really awaken your super.
This transcript has been edited for length and clarity.
