It’s no secret that the GFC gave us all quite a scare. In fact, it seemingly shook us out of the imbalanced “debt is good” mindset we had started to embrace, and turned many younger Aussies back to the more diligent savings path their parents and grandparents had walked before them.
Now though, experts fear Gen-X’ers in particular have gone too far the other way, with an obsessive type focus on paying off their home loans getting in the way of important future financial planning.
According to new research findings released by REST Industry Super, reducing property debt is the number one priority for those aged between 35 to 49 years.
About 71% of respondents to the REST survey said paying down their mortgage is at the top of their “to do” list, while only a third cited long term savings as their primary financial objective.
So what happens as these X’ers, with the majority currently right in the middle of their most productive working years, edge ever closer to retirement?
Will Super be enough?
The bottom line is no. The minimum required employer contributions of 9.5% will in no way provide anything near an adequate post-work income for today’s Gen X’ers in retirement.
When you consider factors such as inflation, the propensity for human beings to live longer than our grandparents’ generations and the various political influences that can change how and when we access our Super Funds, the idea of having your future savings entirely geared to Super products is downright scary.
Essentially, it means many people will be forced to continue working well beyond the current recognised retirement age of 60 to 65 years. And with governments having the power to amend legislation around how and when we can unlock our Super, including increasing the legal preservation age, well you’re really just handing your financial fate over to a bunch of politicians.
What’s the alternative?
While aiming to own your home sooner and taking advantage of today’s reduced interest rates to get ahead on your mortgage repayments is a good idea, in isolation it’s unequivocally not a way to maximise your post-work income.
Owning assets is important, but given the relative illiquidity of real estate, the only way your home could provide any type of retirement income is if you sell it, or borrow against it.
Neither of these options is ideal for retirees. The first means you might gain some short-term cashflow that could last maybe five to ten years at a stretch, with top-ups from your Super and perhaps a small part pension (if the aged pension still exists in twenty years!). And the second alternative means committing to further debt when you are no longer earning a consistent income. Definitely not advisable!
Think about the best baskets for your nest eggs – plural!
Given that a firm specializing in Superannuation products published these research findings, their answer to the Gen-X fiscal conundrum is to put more of your money into a select Super fund. But again, this super-centric approach means less flexibility around how your retirement will look and when you cease full time employment.
So what’s the answer? Well, I would advise any of our clients who find themselves a couple of years ahead on their mortgage to seriously consider leveraging that extra equity and investing according to a well thought out strategy, based on their personal circumstances and objectives.
For Gen X’ers particularly, this is a critical time as the accumulation phase of their investment journey will be a lot narrower than if they had started a portfolio in their twenties or thirties, with most now at the 40 plus stage of life where they have the added expense of raising a family.
But the bottom line is, making a late start on your future savings is far better than never making a start at all.
The first step is to work out what you would like your retirement to look like. Remember to keep your goals within the bounds of reality and aligned with your current situation in order for them to be attainable.
Then it’s about determining who you are as an investor and from there, what type of investment strategy will be most successful in guiding you to that end destination. Whatever you do, just do something!