Many Gen Ys are counting on an inheritance to fund their lifestyle in retirement.
Despite people living longer and having to dip into their kids’ inheritance more often, 33 per cent of young men are hoping for a windfall to either partially or fully allow them to financially cope after work, only slightly more than women (27 per cent). It’s a risky strategy and one that most should reconsider says REST Industry Super chief executive officer Damian Hill, who commissioned the research.
“Kids often eat into their inheritance by staying at home longer,’’ he says. “(And) home ownership for Baby Boomers is starting to diminish and more of them are entering retirement in debt so when they get to retirement they are having to use their super for debt.’’ Rather than counting on someone kicking the bucket and leaving you with a windfall, start planning a better retirement strategy.
The Association of Superannuation Funds of Australia (ASFA) recently found Australians will need to bolster their savings more than ever to cope with rising living costs. “(But) with the magic of compound interest, every dollar you put away before you hit age 30, could be worth seven dollars to use in retirement,” says ASFA chief executive officer Pauline Vamos. “Superannuation is a long-term plan and the earlier you start saving, the more you will see your super grow,’’ Vamos says.
If a 30-year old person put an extra $10 per week into their super, it would boost their balance by about $12,000 at age 50, and $31,000 at age 70 in today’s dollars (taking into account inflation). Members should also contact their super fund and find out how much they are paying in fees and whether they can be reduced.
Super comparison sites including SuperRatings are also a good way to compare funds but MoneySmart warns to always look at fees, investment options, extra benefits, performance, insurance and service before signing up to a fund. REST also found many gen Y’s are relying solely on their compulsory employer super contributions (65 per cent) despite widespread concern in the super industry that this would leave a significant shortfall.
Australian couples over 65 hoping to live a ‘comfortable” retirement will need a joint superannuation balance of about $510,000 or about $58,330 per year, according to ASFA. Singles need about $430,000 or about $42,600 a year.