The $1 million super fallacy
Those talking about people needing $1 million in superannuation to fund a comfortable retirement are needlessly skewing the argument, according to new analysis published this week which suggests the focus should be on income delivered by superannuation assets, rather than the quantum.
The analysis has been issued by fund manager, Martin Currie and is contained in a white paper published this week which states that people needing super balances of $1 million sent the wrong message to people approaching retirement.
"We should be looking at actual income delivered rather than just superannuation balances," the white paper authors, Reece Birtles and Will Baylis said claiming that, additionally, "the $1 million assumptions completely ignore the role of alternative asset classes that produce income".
Further, the two authors have directly questioned the rationale of former Cooper Review chairman, Jeremy Cooper and pointed to his current role with Challenger.
"In 2010, the Government's Cooper Review into superannuation stated that we needed around $500,000 in superannuation for a comfortable retirement. Today, Jeremy Cooper, the chair of the review, claims that $1 million is not even enough to reach [the Association of Superannuation Funds of Australia] ASFA's standards," it said.
"Mr Cooper's figures assume that the entire lump sum is invested in low-risk government bonds. He proposes that an annuity stream (such as what Mr Cooper's employer Challenger provides) is the only way to generate income in retirement."
"What has changed? Have prices in Australia gone up that much? Have life expectancies increased dramatically in five years? No, the reason for the sudden change in his figure is that the yield on government bonds has fallen dramatically since 2010 to around 2.6 per cent," the authors said.
The white paper said that a $1 million retirement balance was out of reach of most ordinary Australians and pointed out that in August 2015, the Australian Institute of Superannuation Trustees (AIST) estimated that the typical balance of those approaching retirement is just $100,000.
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