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Super knowledge

Once upon a time I saw a Gary Larson cartoon which portrayed a range of dogs at a dinner party all looking bored. The caption, as I choose to remember it, read: “Everyone was having a great time until Sally brought up the subject of superannuation!”

As Larson’s work hails from the USA, it might have actually said, “pension funds” but the message is the same — super bores the pants off people. But how come? The answer does not lie in the boring nature of super but the pathetic nature of all of us, and yes I even include myself.

What? He is like us, you might be asking? No, I’m not, but I was. Thankfully, I have earned my income from making the so-called boring world of money and economics palatable to the normal person. That’s right, I have been paid to throw off the normal tag but we shouldn’t need payment to be super fans.

GST your life

I recently asked my head financial adviser, Peter Small, to go to the computer program and work out what would be the bottom line benefit of GST’ing your life! This is my take on someone being advised by a paternal or maternal mentor to always save 10% of every dollar you ever earn.

Punch in the numbers

We assumed your average income is $50,000 per annum and looked at it over 40 years of work and adjusted that wage for 4% inflation. We used 9%, as this is what compulsory super will give you. The end-result is $1,314,140!

But wait there’s something less. After we adjust this great number for inflation over 40 years, it’s only worth the equivalent of $284,670! That means this is the purchasing power of $1,314,140!

(Sorry about the exclamation points but this is shocking stuff to normal people.)

Okay, now let’s assume 9% super is a given and see what happens when someone gets gutsy and saves 10% out of their after-tax wage, so $5000 adjusted for inflation. That is, they dig deep into responsibility and save super.

If we assume you have a portfolio of assets that gives you growth of 2.33% and income of 4.45% each year, the sum of which is 6.78%, then the bottom line is a ripper. Your nest egg grows into $1,675,693.77 if the income is reinvested each year (returns are compounding).

This too would have to be adjusted for inflation and the outcome could be better or worse depending on your tax strategy.

Think about your future

The point is that with super, it can be really smart to do some homework, ask questions, talk to advisers, establish your goals and create a plan to make these goals come true. This is not boring stuff seeing your dreams come true.

I will tell you what is boring stuff — try working your whole life and not retiring with the money to enjoy not working. It’s boring to create a business that does really well and then be hit with a back-tax bill of over $400,000.

This happened to a friend of mine who had to sell his house to square up with the tax office!

Important information

Money knowledge is there for the normal person but they have to be interested enough in themselves and their loved ones to get engaged with their money life.

Here’s a classic piece of information that should get all super members thinking and acting. Jeff Bresnahan of SuperRatings, a business that tracks super funds performances, recently made a great observation: “Had two people invested the same amount in the best and worst balanced funds 10 years ago, the difference in their current benefit would be 68%!”

To put this in context or money terms. If your super fund 10 years ago was $1 million by being in the worst fund, you could be down $680,000! Even if you had $250,000 in your fund, then the potential loss would be $170,000.

Super not so boring

These massive losses could come about because the super member in question thinks super is boring. Well, I reckon an extra $680,000 or $340,000 or $170,000 or even $85,000 is worth getting a lazy butt up to get interested in super.

I have always loved the saying: “Anything worth doing is worth doing for money.”

The numbers in the story above prove conclusively that if someone chooses to ignore his or her super for the rest of their working life, they could be kissing goodbye a small to very large fortune.

Be a winner

To many who are reading this, the story confirms the good sense of going to the Yahoo website for some inside information of moneymaking, but it does more than that. The real headline is that the more you know or the more you rely on experts who can show you stuff you do not know, the greater the potential is to magnify your potential wealth.

Your greatest enemy is you. Learn to beat the little voice inside your head that holds you back and you’ll win in money, business and I reckon you’ll do pretty well in life as well. The starting point might be to get super excited!

For further help with your super click here to book a complimentary first appointment with Switzer Financial Services.


Published on: Friday, July 31, 2009

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