When someone preaches about saving more for retirement, I usually think of my dear, dead mum, and decide to spend more instead. I buy a lotto ticket and waste hours dividing up the $4 million I have next to no chance of winning.
My mother was felled by cancer at 62, well before she got to spend her savings. Her truncated life presents a compelling argument in favour of spending now over saving for later, in case death defeats your plan for a life lived long and moneyed. There is no bankruptcy for the dead, live in the now.
Increasingly, however, I find myself agreeing with whoever is giving the warning, even if it’s someone whose livelihood depends on skimming a percentage of my money every year for “managing” it.
I start to fear an impoverished future of redeeming coupons at the supermarket, of worrying about the power bill, of never being able to follow the route Napoleon took from Paris to the gates of Moscow. (This is less of a nightmare for my husband.)
I resolve to pay the mortgage off faster, to cancel Netflix, to skip the dentist. I look up the annual cap on extra super contributions, only to find I’m unlikely ever to get close to it, despite the $8.99 a month I’m set to save on internet TV.
The indulgent devil on one shoulder pitches for more enjoyment now, the prudent angel on the other reminds me to have enough for later, the answer to which depends on guessing when you might die.
I doubt I am alone in approaching 40 and in a state of building panic about the wretched question of how much you need to retire. There are prudent answers, and imprudent ones, but without knowing how long you have, no clear answer. And a fat lot of good prudence did my mother.
There are, however, five things about retirement savings about which I am reasonably sure.
First, it is bonkers for the retired to spend much less than they receive, to go without in retirement only to leave a pile of cash behind for their kids, who by the time of their parents’ death usually won’t need it.
Scott Morrison observed last year that in the first five years on the age pension, most recipients either increased or maintained the value of their assets, some 57 per cent. In the last five years on the pension, 42 per cent were still increasing their assets. What for?
Second, the federal government should drop its ideological obsession with the default provisions which favour industry super funds when employees can’t be bothered to choose their own. Industry funds consistently outperform those run for profit by the banks and rest of the finance industry, whose returns depend on siphoning off more of your money.
There are far more important changes to worry about. As the Grattan Institute has pointed out, better to concentrate on reforms that would squeeze the fees to which fund managers help themselves from our savings. If fees were cut in half, we could collectively save $10 billion a year.
Third, the sooner the scheduled increase in the superannuation guarantee is implemented, the better. It’s set to go from an inadequate 9.5 per cent now to 12 per cent, but the Abbott government pushed back the completion date from 2019 to 2025. Malcolm Turnbull last week denied he planned to scrap the increase, and for the good of the country, let’s hope he doesn’t.
Compulsory super is one of the greatest policies of recent Australian political history.
It forces us to take the prudent option, to accept the statistical reality that most of us won’t die before retirement and we will need our own money if we’re not to rely entirely on the pension, $653-a-week for couples. Those opposed to compulsory super put too much faith in people making rational decisions about their money and their future.
Fourth, if there is one area of public policy in desperate need of political consensus, it is retirement savings. Tinkering with the system destroys our faith in it. The rorts favouring the rich at the expense of the taxpayer need to be fixed, but reform needs the long-term support of all major parties. It’s too important to leave to chances of political fancy.
And finally, we shouldn’t save too much. Life doesn’t begin at retirement.
Tim Dick is a Sydney lawyer. Twitter: dick_tim