Is the fate of your future in someone else’s hands?

Is the fate of your future in someone else’s hands?

Usually, we love what Scott Pape, the Barefoot Investor has to say. It’s simple, actionable advice, presented in a way that can help many people to take control of their finances. However, as is the case in many relationships, we occasionally disagree!

In the recent article “How to comfortably retire – you don’t need $1m to live well,” Scott makes the claim that the only number you’ll ever need to aim for in retirement is $250,000. We can agree on one thing; this figure is a crowd pleaser! However, it is far from the one million dollars often touted and at OYOB we don’t necessarily agree.

Let’s have a look why:

Scott’s Rule 1: You must have the banker off your back

This means having no mortgage. We have no issues here. This is a good common sense goal we believe everyone should aim for by the time they retire.

Scott’s Rule 2: Nail your number

This is where we start to differ.

The article suggests Superannuation of $250,000 for couples and $170,000 for singles. Why? This is the maximum dollar amount of assets (excluding your family home) that you can have and still get close to the maximum rate of age pension.

Yes, the age pension is one form of income in retirement, but it begs the question “How much annual income constitutes a comfortable retirement?” This will vary greatly from person to person, but lets say that the Association of Superannuation Funds of Australia (ASFA) figure is a good figure for the average Australian to target.

That is, $59,000 a year for couples, $43,000 annually for singles.

At the time of writing, the maximum rate of age pension is $34,252.40 per year for couples and $22,721.40 for singles. So, based on the ASFA average required income, it will get you 50-60% of the way towards your comfortable retirement number on its own.

Now it’s fine to think of this pension as your safety net; it’s guaranteed by the government, it’s indexed twice a year to keep up with inflation and it will be paid until the day you die. That’s great, but what about the rest of the income you’ll need to live comfortably?

In addition to leaving a shortfall, this pension strategy only works if the government continues to maintain the same pension and pension eligibility throughout your retirement years. If you’re 60 now, that could mean for the next 40 years! Not to mention that only recently the government debated raising the pension age to 70, that’s just one change on the horizon.

To put this in perspective, the pension is already our system’s largest welfare payment estimated at $44 billion per annum. Even more startling is that this will only grow with the number of Australians aged over 65 expected to increase from 3.5 million in 2014 to 8.4 million in 2054.

How certain are you that the Australian government will be able to maintain the current pension system indefinitely for a growing population?

We certainly aren’t.

Scott’s Rule 3: Never, ever retire

Well, ok.

We fully support the idea of living “with purpose” in retirement. It’s about the freedom to work those one or two days a week, or not at all. It’s good for the soul and for your health and it will almost certainly extend your longevity and ability to enjoy your retirement.

That being said, we wouldn’t count on it! How realistic is it to expect there will be a job for you into your 70s and 80s… or 90s? There’s also the issue of our ageing, at some point, many of us just want to let our hair down and relax, travel and not have to rely on a job to lead a comfortable life. You’ve worked hard, and now deserve to relax without worrying about a job.

In summary

Whilst Scott’s article has some smart, creative planning showing you how to make use of the current pension system in retirement, we wouldn’t bet your financial future on government support. The outlook over the next 10, let alone 30 or 40 years is that our government will continue to look for ways to cut expenditure to reign in a growing deficit, meaning reducing the population’s reliance on our most expensive initiatives like the pension.

If you really want to be in control of your own future, the only person who can really guarantee you a comfortable retirement is yourself. There are many ways of investing that can set you up for a very comfortable retirement, utilising assets you already own, not to mention new game changing initiatives collaborating with other investors.

It is always worth speaking to the experts an exploring your options on how to best set yourself up and secure your financial future.

OYOB is an Australian-owned Property Development group based in Melbourne, who provide a holistic investment and property advisory service to clients. OYOB empower clients with the knowledge and education to make their own investment decisions, as well as providing genuine wholesale property development opportunities to realise wealth creation.

Find out how collaborative investment can help you achieve your property investment goals.

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