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.