Boomers' retirement plans busted

Baby boomers, it is said often, are redefining what it is to retire in the same way they have revolutionised every other stage of life they have passed through.

Whether it's anti-war protests or being at the forefront of gender equality, boomers have always left their mark.

Yet the evidence suggests boomers have not been preparing themselves for retirement in a way their track record would have suggested. If you are a boomer reading this and feel financially unprepared for retirement, you are not alone.

Big super funds regularly put out surveys on how people are preparing for retirement. The latest in the genre, a survey by industry super fund REST of 1200 people aged over 50, confirms that those not all that far off retirement are unprepared. Just 14 per cent feel ''financially prepared'' for retirement; a further 51 per cent say they are ''somewhat'' prepared financially. Thirty-five per cent say they are ''completely unprepared''. That's surprising given the efforts this generation, born between between 1946 and 1965, has taken to make sure they miss out on little.

There are several likely reasons for this. First, compulsory superannuation only started in 1992 and boomers have not had the benefit of the superannuation guarantee for the whole of their working lives.

Second, the younger boomers have had what economists call delayed household formation. They married or partnered later in life, had children later, and took out a mortgage later. Thus, many boomers in their 50s still have a big mortgage and children at home. They do not have the cash to top up their superannuation as their parents had at the same stage of life.

Third, there was the global financial crisis (GFC) that left all boomers with a smaller retirement nest egg than they were expecting and a diminishing number of years to make up for the losses. The GFC was particularly deleterious for older boomers and those who have just retired.

As to the solution, it is hard to go past salary sacrificing into super. Each dollar of pre-tax pay put into super is taxed on the way in at 15 per cent instead of the investor's marginal income tax rate, though the tax is higher for those earning more than $300,000.

Yes, there's a limit for everyone of $25,000 a year on how much can be sacrificed, and it includes the 9 per cent superannuation guarantee. The complaints over the lowering of the cap (it was $50,000 for over 50s) is coming from the high-income earners - most people with a mortgage and children at home will not come close to the cap.

The risk of investing inside super have to be managed. As people get closer to retirement, they should lower their exposure to risky investments such as shares. Super funds have a range of diversified investment options, with a range of risk-versus-return tradeoffs. And most super funds can give members advice over the phone on appropriate asset allocation, given members' goals and attitudes to risk.

The story Boomers' retirement plans busted first appeared on The Sydney Morning Herald.

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