Superannuation: 3 Things you need to consider

Value Collector · 15 April 2023

So, over the Easter long weekend I traveled to visit my wife’s side of the extended family. Some how the topic of super came up and it lead to 4 members of the family asking me to take a look at their super settings and fee structures. What I saw shocked me.

Out of the 4 people that got me to look at their super accounts, 3 of them were in a terrible condition and have balances far, far lower than I would expect for the wages they have earned and the years of contributions made, one only has $50,000 after over 25 years of contributions from a full time worker. I felt sick when I saw that balance.

The reason for the very poor performance of 3 of the accounts I looked at was the same in each case.

1. A large chunk of contributions was going towards insurances that wasn’t necessary, by my calculations the insurance had lowered the possible balance by over $200,000.

2. Investment settings far to conservative, all 3 of the poor performers had their accounts set too conservative, with large amounts in cash and fixed interest, this had stunted their growth.

3. High fees, all 3 seemed to be paying fees which amounted to a higher percentage of their total balance than what I thought was reasonable.

Super is such an important part of must people’s retirement plans, please make sure

1. you aren’t paying for in unneeded insurance, if you do require the insurance pay in extra each month equal to what your insurance costs are.

2. You have the investment settings set up to make the most of your long time frame, and don’t be to conservative.

3. Pick a low cost fund.

Belli · 16 April 2023

Both frustrating and disappointing isn't it? I have had similar conversations with others and mostly encountered a block as they view anything but cash as being too risky. Come the retirement stage and the meagre amount available for retirement is seen, the statement then shifts to "Superannuation is c@#p."

And it doesn't matter if they have had many life experiences or some education about money. It all goes out the window and while you can talk yourself blue in the face attempting to convince them otherwise about the disadvantages of having only cash, it's essentially futile. I have seen it happen so many times over the years I no longer bother expending my energy on the matter.

Fingers crossed your relatives have seen the light so's to speak.

basilio · 16 April 2023

Value Collector said:
So, over the Easter long weekend I traveled to visit my wife’s side of the extended family. Some how the topic of super came up and it lead to 4 members of the family asking me to take a look at their super settings and fee structures. What I saw shocked me.

Out of the 4 people that got me to look at their super accounts, 3 of them were in a terrible condition and have balances far, far lower than I would expect for the wages they have earned and the years of contributions made, one only has $50,000 after over 25 years of contributions from a full time worker. I felt sick when I saw that balance.

The reason for the very poor performance of 3 of the accounts I looked at was the same in each case.

1. A large chunk of contributions was going towards insurances that wasn’t necessary, by my calculations the insurance had lowered the possible balance by over $200,000.

2. Investment settings far to conservative, all 3 of the poor performers had their accounts set too conservative, with large amounts in cash and fixed interest, this had stunted their growth.

3. High fees, all 3 seemed to be paying fees which amounted to a higher percentage of their total balance than what I thought was reasonable.

Super is such an important part of must people’s retirement plans, please make sure

1. you aren’t paying for in unneeded insurance, if you do require the insurance pay in extra each month equal to what your insurance costs are.

2. You have the investment settings set up to make the most of your long time frame, and don’t be to conservative.

3. Pick a low cost fund.

Scary... Would you be willing/able to identify which super funds were represented by 3 particularly bad outcomes ?
Is there any indication that recent changes to super legislation have improved the outcomes ?( Or was that too difficult to check/assess )

Value Collector · 16 April 2023

basilio said:
Scary... Would you be willing/able to identify which super funds were represented by 3 particularly bad outcomes ?
Is there any indication that recent changes to super legislation have improved the outcomes ?( Or was that too difficult to check/assess )

Two were in colonial first state, and one was in Australian super.

I have now changed them all over to Australian Retirement Trust and stopped the insurances and put them in more appropriate investment settings.

(in the case of Australian Super, the fees weren't to bad, but it was the insurance that was killing the savings rate and also they had her in the conservative feature. She said she had once talked to a financial advisor recommended by the super fund who asked her if she would feel bad if her super balance fluctuated, and she said yes. So they put her into the conservative setting for the past 10 years, she isn't the most financially literate person, but the advisor should have done a better job of explaining the risk vs rewards of a more balanced approach, not just tick the boxes)

basilio · 16 April 2023

I have had similar conversations over the years with friends who have been "sold" super and have ended up with high cost/low value deals. In almost all cases the financial advisors, the funds and and the various ancillary rent seekers were the major beneficiaries.
This was particularly the case with the retail funds.

Macquack · 16 April 2023

Value Collector said:
I have now changed them all over to Australian Retirement Trust and stopped the insurances and put them in more appropriate investment settings.

I know you are a very financial savvy person VC, but aren't you asking for trouble giving free financial advice?

I come across many people for whom good free advice is never good enough.

Warr87 · 16 April 2023

Value Collector said:
Two were in colonial first state, and one was in Australian super.

I have now changed them all over to Australian Retirement Trust and stopped the insurances and put them in more appropriate investment settings.

(in the case of Australian Super, the fees weren't to bad, but it was the insurance that was killing the savings rate and also they had her in the conservative feature. She said she had once talked to a financial advisor recommended by the super fund who asked her if she would feel bad if her super balance fluctuated, and she said yes. So they put her into the conservative setting for the past 10 years, she isn't the most financially literate person, but the advisor should have done a better job of explaining the risk vs rewards of a more balanced approach, not just tick the boxes)

In a lot of ways I'm not surprised. A lot of people can't handle seeing -10% or -20% in their account. Especially if it's going to be for their retirement, like super. Those of us here can handle that just fine, but we realise the short term loses come with the investing and the long term CAGR we are aiming for makes it worth it. This is, coincidently, why I wouldn't want to manage ppls money. I know as soon as things got to -10% they'd all liquidate and freak out. Some family have asked me, in passing, to help with their super but I am reluctant for the listed reasons (would need very clear boundaries).

I actually tell most ppl to just read The Barefoot Investor and use the index tracking funds. Or send them to some youtube clips (of those who are pretty solid, like Ben Felix).

RE your first post. I don't know what friends have. I've personally felt very far behind as I worked a lot of shitty labouring jobs and then studied postgrad overseas for a while. This means my super balance was very small and non-existent for years. I've only added proper money to my super in the past 5yrs or so. I feel very far behind. Though I've checked the average balance for my age and I'm right at the average despite being in a drawdown. So maybe I'm doing better than I give myself credit for. I have 30yrs of super left -- hopefully my account gets out of its very long drawdown by that point! lol

Value Collector · 16 April 2023

Macquack said:
I know you are a very financial savvy person VC, but aren't you asking for trouble giving free financial advice?

I come across many people for whom good free advice is never good enough.

I didn’t actually give “financial advice”, I just took at look at their supers and asked them questions, and explained what different things mean.

Their decisions were their own. I just pointed out the facts eg exactly how much of their contributions were going towards insurance and simply asked if they actually wanted the insurance, and they were shocked at the amounts.

I also just explained some basic facts around what the different asset classes mean, but let them make their own choices.

divs4ever · 16 April 2023

Macquack said:
I know you are a very financial savvy person VC, but aren't you asking for trouble giving free financial advice?

I come across many people for whom good free advice is never good enough.

one of the hazards of ( family ) life , do you step in and help ( and risk relationships later ) or do nothing ( and risk relationships later )

luckily i was a black sheep so was rarely listened to ( no relationships to damage later )

as long as VC sleeps well , that is a pretty good outcome

Value Collector · 16 April 2023

divs4ever said:
as long as VC sleeps well , that is a pretty good outcome

I feel great now that I have helped them right there ships, and plug the leaks, I wish we had of had the chat 10 years ago though.

divs4ever · 16 April 2023

i can't bash the ( super ) fund managers too much because i hold shares in several ( as opposed to getting them to manage my money )

my relatively short ( 12 years ) participation in an employer-run super fund left me very aware to various anomalies ( like fees and insurance drain on modest incomes .. might have been fine for for upper management , but not so hot for the minions ).

so like my gambling hobby i bought shares in the 'house ' ( TAH and TTS ) and fund managers , ( and insurers )

but unless the client knows which questions to ask ( and what half the jargon means ) they are very much a passenger on a raft in a fast-flowing river ( hoping it isn't the River Styx )

they should really teach this stuff at school ( say in the grade 8 math classes ) so the worker has some chance to build that nest egg

Belli · 17 April 2023

Value Collector said:
I didn’t actually give “financial advice”, I just took at look at their supers and asked them questions, and explained what different things mean.

Their decisions were their own. I just pointed out the facts eg exactly how much of their contributions were going towards insurance and simply asked if they actually wanted the insurance, and they were shocked at the amounts.

I also just explained some basic facts around what the different asset classes mean, but let them make their own choices.

Good approach @Value Collector. It's their money and their decision so they need to accept responsibility for the outcome.

As for the "teach them this stuff in school" get a grip. As if students haven't enough of a workload and, in any case, apart from a few it is unlikely they will be engaged with the subject. Plus they have other matters to contend with such as will they even get a job or that girl/boy they fancy. It'll be merely another subject taught at school and it'll be dismissed and forgotten about once they finish.

Jesu, like a number here, even today with adults who may be highly educated and/or have dealt with money issues over a number of years, many display little interest in or knowledge about superannuation. It's just not exciting and day-to-day matters are paramount.

Value Collector · 17 April 2023

Belli said:
Good approach @Value Collector. It's their money and their decision so they need to accept responsibility for the outcome.

Here is a list of talking points I made as I was looking through their super, of topics I wanted to make sure they understood (it appears as a text message, because I made the note in my message app)

I was trying to think of leading questions to get an idea about exactly what they wanted from their super and how much they knew about the different asset classes. It actually lead to a pretty good conversation and hopefully I hoped to expanded their financial literacy a little bit.

I am in the camp that thinks we need to teach atleast the basics in school, we are expecting people to be financially literate, but without teaching some of the basic ideas in school I am not sure how the avergae person will learn it.

Belli · 17 April 2023

Value Collector said:
Here is a list of talking points I made as I was looking through their super, of topics I wanted to make sure they understood (it appears as a text message, because I made the note in my message app)

I was trying to think of leading questions to get an idea about exactly what they wanted from their super and how much they knew about the different asset classes. It actually lead to a pretty good conversation and hopefully I hoped to expanded their financial literacy a little bit.

I am in the camp that thinks we need to teach atleast the basics in school, we are expecting people to be financially literate, but without teaching some of the basic ideas in school I am not sure how the avergae person will learn it.

View attachment 155866

Good stuff.

I have been involved in organising superannuation seminars in workplaces where a superannuation provider was conducting the show. Run over a number of days to allow people to attend at various times.

The age groups which attended? Late 40's +. Rarely did those in their 20's or 30's show up. Maybe one or two.

Since retiring I have also attended similar presentations usually run in the evening or weekends. It's the same age cohort who attend. I really do feel younger people are not interested at present. Retirement planning is an issue way, way in the future for many. Not a current concern of which there are many which take a higher precedence.

Again on the matter of teaching in schools, I'd have a few doubts on whether there would be sufficient educators with the necessary level of competence even at a basic level.

SirRumpole · 18 April 2023

Belli said:
Good stuff.

I have been involved in organising superannuation seminars in workplaces where a superannuation provider was conducting the show. Run over a number of days to allow people to attend at various times.

The age groups which attended? Late 40's +. Rarely did those in their 20's or 30's show up. Maybe one or two.

Since retiring I have also attended similar presentations usually run in the evening or weekends. It's the same age cohort who attend. I really do feel younger people are not interested at present. Retirement planning is an issue way, way in the future for many. Not a current concern of which there are many which take a higher precedence.

Again on the matter of teaching in schools, I'd have a few doubts on whether there would be sufficient educators with the necessary level of competence even at a basic level.

I think school is maybe a bit early, but certainly there is a place for workplaces to offer seminars and other training.

Young people just don't think of the future (most) want to enjoy themselves NOW, I was the same.

It should definitely not be left until retirement age. How do you motivate the young to take superannuation seriously ? Getting a few OAP's who didn't take it seriously to come along and say how tough life is for them these days.

Belli · 18 April 2023

SirRumpole said:
I think school is maybe a bit early, but certainly there is a place for workplaces to offer seminars and other training.

Young people just don't think of the future (most) want to enjoy themselves NOW, I was the same.

It should definitely not be left until retirement age. How do you motivate the young to take superannuation seriously ? Getting a few OAP's who didn't take it seriously to come along and say how tough life is for them these days.

Like you and others, @SirRumpole I am all for education on the subject but it's complicated.

The issues I have with raising it in school is that most focus is on investment returns. Unfortunately, superannuation has more facets to it than that due to the legislation underpinning it. It would be remiss not to raise matters such as insurance (eyes start to glaze over) which may lead to conversations about death benefit nominations (eyelids commence closing) and possibly Wills (sonorous sound of snoring reverberates around the room.) On the last aspect, I doubt many 20 year old's care about that issue nor would they have a spare two or three thousand floating around to get a properly drafted Will prepared.

Sadly, the families of some young people find out too late about superannuation matters. There was a case last year I think where a young woman in her 20's died. She had indicated she wanted her assets go to her Mum and Dad. Badly advised as her superannuation went to her boyfriend who the Trustees determined was entitled to it as the de-facto spouse. See what I mean about it being complicated?

I do favour employers organising seminars and allowing employees time off but it could depend on the size of the workplace. Then there is the gig economy and those in trade occupations.

It's a vexed issue and I admit I do not have the answers.

divs4ever · 18 April 2023

Belli said:
Like you and others, @SirRumpole I am all for education on the subject but it's complicated.

The issues I have with raising it in school is that most focus is on investment returns. Unfortunately, superannuation has more facets to it than that due to the legislation underpinning it. It would be remiss not to raise matters such as insurance (eyes start to glaze over) which may lead to conversations about death benefit nominations (eyelids commence closing) and possibly Wills (sonorous sound of snoring reverberates around the room.) On the last aspect, I doubt many 20 year old's care about that issue nor would they have a spare two or three thousand floating around to get a properly drafted Will prepared.

Sadly, the families of some young people find out too late about superannuation matters. There was a case last year I think where a young woman in her 20's died. She had indicated she wanted her assets go to her Mum and Dad. Badly advised as her superannuation went to her boyfriend who the Trustees determined was entitled to it as the de-facto spouse. See what I mean about it being complicated?

I do favour employers organising seminars and allowing employees time off but it could depend on the size of the workplace. Then there is the gig economy and those in trade occupations.

It's a vexed issue and I admit I do not have the answers.

i wasn't talking about CPA level , but you could still weave in a fair amount of basics into the math curriculum , risk v. reward , the concept of compounding ( interest and returns ) , definitely a brief lesson on insurance ( stuff like who gets insured in mortgage insurance , and loan insurance ) .

enough to work out what sort of risk level to take ( and ask the risk ratio to be changed when needed ) enough to realize your super is either accumulating or leaking cash , through fees , charges , inferior performance and when that inferior performance is general market conditions or fund manager decisions ( when some fund managers go heavy on some new 'wonder product ' like recently in the UK )

but in essence enough confidence to ask correct questions ( and understand the answers ) when concerned about the nest-egg ( or the economy going forward

Dona Ferentes · 18 April 2023

Very pertinent, Belli. ?

Belli · 18 April 2023

divs4ever said:
but you could still weave in a fair amount of basics into the math curriculum

You haven't bothered to even look. Cease displaying such ignorance - although I strongly doubt that will occur.

Structure of Essential Mathematics

The Australian Curriculum

australiancurriculum.edu.au

divs4ever · 18 April 2023

i guess time will tell then

Belli said:
You haven't bothered to even look. Cease displaying such ignorance - although I strongly doubt that will occur.

Structure of Essential Mathematics

The Australian Curriculum

australiancurriculum.edu.au

Superannuation: 3 Things you need to consider

Value Collector

Have courage, and be kind.

Belli

basilio

Value Collector

Have courage, and be kind.

basilio

Macquack

Warr87

Value Collector

Have courage, and be kind.

divs4ever

Value Collector

Have courage, and be kind.

divs4ever

Belli

Value Collector

Have courage, and be kind.

Belli

SirRumpole

Belli

divs4ever

Dona Ferentes

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Belli

Structure of Essential Mathematics

divs4ever

Structure of Essential Mathematics

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