Dear Google, How much Super do I need?

To confirm the self seeking belligerence of BigSuper as we saw in Mary's Case, we Googled that question and the top entry was for a well known Telco Fund [name withheld for privacy reasons].

As expected the website was advising that a single retiree at 65 [Let's call him Terry of Tel----] needed an income of $50,000 pa to live "comfortably" and that that equated to capital of $700,000 in his Super Fund by 65.  They boast of an historical investment rate of 9.89% but we have cut that back to 8% to be conservative.

Firstly they of course mention the "impossibility" of living on the Age Pension

"The Age Pension is currently set at 29.4% of Average Weekly Earnings for a male (a maximum of around $427 a week for singles and $644 a week for a couple)."

What they don't say is Terry will have no mortgage/rent, tax, cost of raising kids or "employment costs", and may find $427 to be quite adequate for his retirement lifestyle.  Terry simply likes fishing and not taking 2 boring Rhine River Cruises per year [and risking being attacked by a ''gay divorcee lady'' after his hard earned money].

Now as you can see Terry is told to Drawdown $50,000 pa which is a bit more than the Minimum Drawdown of $35,000 pa, but not much.  At the conservative 8% Growth Rate figure, if he died at 85 [2 years past his Life Expectancy] he would still have about $800,000 left - ie more than he retired on.

So the Fund has him retiring on $960 pw, which just happens to be [only] double the Age Pension rate, ie the rate had he kept the whole $700,000 [not paid any Super] and put it into his home [which of course does not enter into the Centrelink calculations].  The big loser would be BigSuper as just for the years 65 to 85 their fee would be about $115,000, but that's not Terry's worry.

But if Terry came to us, having already retired with $700,000 Super we would suggest he actually USES it and would tell him that an income of $71,134 pa [$1,367 per week - more than THREE times the Age Pension] would exhaust his funds in 20 years.  Alas the Fund fees would drop by $47,000 but as for Mary, that is not Terry's problem.  Terry can now take 4 boring Rhine Cruises a year, but he really just wants to go fishing.

Of course the advisors have looked Terry straight in the eye and explained they are doing this in ''his own best interests'', citing ''market uncertainty'' as the bogey man.

So let's backtrack to see WHY Terry sacrificed ''leisure etc'' during his life to accumulate this huge $700,000 of Super.  The website starts by throwing up numbers as to why Terry will need this amount and if we just consider ''leisure, clothes, transport'' they are saying he needs $450,000 over 20 years to ''get by''.

The great irony is that young people of today are being convinced they can not afford to take that backpacking "Grand European Experience" that was simply part of  vital ''life experience'' in the 1960s and 1970s because they need to put the money into Super.  But then when they are old and perhaps in a wheelchair with no advantage to be gained from that Rhine Cruise, they are being told they must do it as they mortgaged their lives away to HAVE it.  And the Funds rub their hands in glee as another sucker takes the bait.

The bottom line is there is a happy medium somewhere between the Fund plan for Terry and simply the Age Pension, and as for last 30 years or so with compulsory employer contributions it is impossible to have no Super at all unless you lose the shirt off your back in the lousy Family Court.  So let's assume by paying nothing himself Terry ended up with the same $200,000 as in Mary's case [but now with 8% investment rate].  It is not important if he or the company paid the $200,000, but simply that it is $500,000 LESS than the Fund Plan.

We now use the LOPS once more to find that if Terry Draws Down $20,327 pa he will exhaust his capital in 20 years.  Doesn't sound a lot until we find that for Age Pension he goes from a big fat ZERO for the Fund Plan to $428,591 over 20 years, a massive 92.82% of the Maximum Age Pension.

So his total Income Stream is now $803 per week, which is 84% of what the Fund said he needed, or exactly one less boring Rhine Cruise a year [which Terry didn't want anyway].  But as for fishing, the extra $500,000 invested into his home would not only have given him a luxury swimming pool but a fully stocked barramundi pool as well.

And as you guessed, the fees to his Fund over 20 years are reduced by $86,846.

Terry may of course have ethical/ego reasons as to why he would not want to "resort to accepting money from the government", but in all our time helping retirees we have never found a person with such ideas, but rather the opposite in millionaires, indignant they are not "recouping their hard earned tax dollars".

So the message to those younger folk is simply plan YOUR retirement on YOUR needs and not those trumped up by greedy BigSuper.  You will probably find that the employer contribution is quite adequate.  Simply do the sums yourself.

Why we have TOO MUCH Super

We are hounded by BigSuper from the day we start work to sacrifice all manner of things [eg leisure] to build up a huge "nest egg" of Super for our retirement.

Then when we do retire we are scared out of our pants by BigSuper to not USE it but Drawdown the Minimum Amount to keep accumulating our asset, so we live "frugally" [as the Murray Report assesses] and die with more Super than we retired with.

In this instance I use the term BigSuper as including the major "stakeholder" of the Government itself, because as we will see the Super Industry and the Government work hand in hand to make your life a misery, and I will explain the numbers via the case of Mary, the latest casualty seeking help from agepensionsolutions.com.

Mary is 67 and has been caught in a Negative Gearing trap by her "Financial Advisors" whereby because of falling property prices she is unable to sell her investment properties at a reasonable price [to not make a big loss] so she must keep working full time to keep the NG myth going hence is missing out fully on Age Pension.  She is tired and sick and is obviously headed for an early grave if she can't get out of this vicious cycle.

Her only option is to sell at "fire sale prices" and cut her losses, but she is worried if she can possibly live on what she has been told by her advisors to be "insufficient income for her twilight years", but is code for "we won't make enough out of you".

Mary was looking at retiring with $300,000 in Super but was told she needed more and the NG plan was expected to boost that to $450,000.  So we have done the sums for her to either come out even from the NG fiasco at $300,000 or sell at "super fire sale" prices and come out with just $200,000.  Here is the Report.

This is Report #3 and explores the difference between having $300,000 in                  
Super and having $200,000.  In both cases the Allocated Pension Drawdown                  
is calculated so as to fully exhaust the capital at 20 years, without any CPI                  
increase/decrease used.  Page 4 shows result for $200,000 with an annual Total                  
Income of $35,459 (for Year #1).  The total Age Pension over 20 years would                  
be $431,534.  Page 5 shows results for $300,000 with an annual Total Income                  
of $40,237 (for Year #1).  The total Age Pension over 20 years would be                  
$387,475. The "bottom line" is therefore that by doing a "fire sale" of your                  
investment properties and retiring on $100,000 less in Super, your weekly                  
income would drop from about $770 to about $680.  So there would be a $90                  
(9%) per week drop in your total income but factored into that is the fact you                  
GAIN $44,059 in Age Pension, meaning your overall "loss" of $100,000 in                  
Super starting capital by virtue of the fire sale option is in fact reduced to                  
$55,941, because of the GAIN in Age Pension.  To complete the picture we                  
can revisit the "pipe dream" plan you were sold based on negative gearing,                  
promising to give you an extra $150,000 but in fact being a financial disaster                  
and albatross aroung your neck preventing your retirement. If it had worked                  
your weekly income (using the normal Min Drawdown of "advisors") would                  
have been about $590, and you would have LOST $270,155 in Age Pension.                  
Our recommendations are therefore to "cut your losses" and retire, because                  
even $680 per week is most adequate for a retired person with no                  
mortgage/rent or "cost of employment" expenses. 

Now you will be asking why on $200,000 she would get $680 per week and on $450,000 she would only get $590 per week?  As already explained above and in the Murray Report, BigSuper scares Pensioners into taking just the Minimum Drawdown, so even using a very conservative 6% investment rate Mary would still have $418,500 left if she reached her "batting average" of 87 [but more likely about $600,000].

So that answers the Government portion of BigSuper reason, ie she gets $277,155 less in Age Pension.

But of course the Murray Report was a Politically Correct "wallpapering" document so was not allowed to mention that aspect OR the fees charged by BigSuper so we added a fee calculator to the LOPS.  Of course most of the fees are based on a "per $1,000" basis so the last thing a Fund wants is for the Pensioner to REDUCE the capital.

And to put dollars to that scenario, for the $200,000 case the fees for 20 years would be $27,155, but jumping to a massive $82,276 for the $450,000 case - case CLOSED at $55,121 extra for the Fund side of BigSuper and a total of $332,000 or so LOSS to Mary.

And not to mention that as Murray says, Mary may have lost her "cognitive skills" by then and not allocated her capital to anyone, meaning $600,000 goes into BigSuper "Never Never Land", never to be seen again.

Now read the next post to see how this rip-off works for a typical BigSuper Agent.