The summary sits under the headline on the news index page and is usually the opening paragraph of the release
The family home is still the most significant asset of the Australian family, while superannuation, with an average balance of $21,000, is ranked in second place1.
However, paying off the family home should no longer be the only financial priority. It’s important to consider a number of financial strategies when planning for any future plans, retirement or otherwise.
"Home ownership is an important investment strategy but you have to be willing to sell the family home to actually reap the financial benefits," comments Shaun Williams, general manager, group business development for Aviva. "It’s important to consistently pay off your home at the same time as paying additional super – it’s about ensuring your retirement income doesn’t cost your home."
The great Australian lifetime dream hasn’t really altered in years, even decades – and traditionally ends in the sale of the family home and the purchase of a smaller home for retirement. Many people then plan to live off the remaining proceeds of the original sale.
"This might have worked in the past but ballooning property costs in coastal and regional areas match, or even surpass, their city counterparts," said Shaun.
"This means that most, if not all, of the funds from the sale of the family home are needed for the purchase of a ‘retirement home’ and there is nothing left for anything else."
Taking Victoria as an example, median house prices in several regional locations have outstripped the growth in metropolitan Melbourne. The trendy town of Daylesford, and its surrounds, has seen the median house price grow over 60% in three years while Melbourne witnessed growth of 43% in five years2.
"It’s important that people actually assess their retirement plans and ensure they have sufficient savings to fund their dreams, rather than compromising their lifestyle at the end of their working life. By contributing to your superannuation you are ensuring you have the income you need during retirement," said Shaun.
"It is still possible to have your dream home for retirement but you need to ensure that your superannuation is adequate as well. It’s all about living well in your new home during retirement," added Shaun.
"Just an extra $20 per week will mean a big difference to your retirement super. Over 20 years, with an average compound interest of 4.5% pa (net), this $20 a week will be worth over $30,000 - which will mean an extra $45 per week to spend for the next two decades of retirement.3"*
A professionally prepared financial plan can ensure that all ‘dreams and plans’ are catered for. By working with a financial adviser people can balance their superannuation needs along with their desire to pay off their own home – it’s all about being informed before it is too late.
-ends-
1 Australian Prudential Regulatory Authority, Superannuation Trends June Quarter 2003
2 Foley, B, Sea change in regional prices, The Australian Financial Review, Melbourne, November 2002, Melbourne.
3 For 20 years: Life expectancy at age 65 - males 16.21 years; females 19.88 years - Source: Australian Life Tables 1995-97. * Contributions from your "after-tax" pay are not taxed when paid into super and when you get them back. The treatment of "salary sacrifice" contributions is more complicated - talk to your Adviser!
For further information please contact:
Simon Morgan
(03) 9829 8892
0407 966 632
Notes to editors:
- Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners, the Australian funds management arm of Aviva plc, is a sister company. Through these companies we provide products and services in the areas of wealth creation, wealth management and wealth protection for more than 300,000 customers throughout Australia
- Globally, Aviva Australia is part of Aviva plc, the world’s seventh largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc
- Aviva is the world’s seventh-largest insurance group and the biggest in the UK. It is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$66.08 billion, and more than A$472 billion of assets under management (as at 1 January 2004). The group has more than 59,000 employees and 25 million customers worldwide
- The information in this document reflects Norwich Union Life Australia Limited's (NULAL) and NULIS Nominees (Australia) Limited's ("NULIS") understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The securities advice or information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances
- Applications to invest in a financial product issued by NULAL and NULIS or any of its related entities must be made by completing the application form attached to the applicable Product Disclosure Statement ("PDS"). A PDS is available from Aviva or your financial adviser. Investors should consider the PDS before making an investment decision or deciding to continue to hold a product.