Australia: Get rich sensibly!

With the recent regulatory focus on “get rich quick” schemes, now is an appropriate time to revisit more realistic ways to ensure you are financially comfortable in your retirement.

Paul Northey, General Manager Navigator Distribution says if a scheme to build wealth looks too good to be true, it usually is.

“Don’t get drawn into the ‘casino mentality’,” he said

“The desire to accumulate wealth in a short time is a normal human emotion, but people must understand that with the potential for higher rewards comes higher risk.

“One of the best approaches to accumulate wealth is to start saving early and let the power of compounding work for you.”

It is not beyond the power of an ordinary working Australian to grow a decent investment with a disciplined approach and the advice of a qualified independent financial adviser.

Typically, most Australians don’t start saving in a meaningful way until their forties, or later.

“Any extra amount on top of the 9% Superannuation Guarantee contribution will make a difference, and starting that bit earlier makes the effort much more worthwhile. Why not target 6% more, for a start?”

An additional five years of saving that extra for retirement in your thirties can mean around 8% increase¹ in your eventual lump sum – providing a significant boost to your retirement quality of life.

Australian Bureau of Statistics (ABS) data show a concerning trend – a progressive decline in the household saving ratio² over time. The ratio has fallen from 5.6% in 1996-97 to 1.3% in 2001-02.

With our ageing population³, more and more people need to consider funding their own retirement.

The government pension of $11,448 per annum for a single and $19,110 per annum for a couple is inadequate for the needs of many people who would like to maintain the standard of living they experienced prior to retirement.

While the Superannuation Guarantee will be of great assistance to many, it will not ensure an adequately funded retirement for many people.

With life expectancy at birth in 1999 at 76.2 years for men and 81.8 years for women⁴, and retirement for many occurring by age 60⁵, you may have to fund for 20 or more years of retirement.

The Workforce Circumstance and Retirement Attitudes survey⁶ identified that 64% of people planned to partly or completely rely on government benefits in retirement. The survey also identified that 30% of people had not taken any steps to ensure they had adequate retirement income before they retired.

To generate a modest $29,000⁷ per annum in retirement for 20 years, it’s estimated you’d need an accumulation of $400,000⁸.

This sum could be accumulated⁹ by saving $6,600 per annum for that last 30 years¹⁰ before retirement. This represents an extra 6% of average income of $44,000 for these years, instead of just the $3,960 a year from the Superannuation Guarantee’s 9%¹¹.

End

For further information, please contact:
Simon Morgan, Group General Manager
Public Affairs
(03) 9829 8892
0407 966 632

¹ Looks at additional 6% from age 30, 35, 40 to age 65 – other assumptions outlined in subsequent notes.
² Net household disposable income is the amount of income that households have available for spending after deducting from total income any taxes paid, interest and other property income payments, current transfers, and consumption of fixed capital. Household net saving is calculated by deducting household final consumption expenditure and consumption of fixed capital from household disposable income. The ratio of household net saving to household net disposable income is called the household saving ratio.
³ ABS statistics for 1999 identify 12.3% of the population as being 65+ years old, up from 8.3% in 1971. Predictions for 2021 are that this age-group of the population will reach 18.4% of the total.
⁴ Year Book Australia – 2003. Income and Welfare. Feature Article - An ageing Australia
⁵ Estimated average intended retirement age of those aged 45-54 was 60.5 - Household, Income and Labour Dynamics in Australia Survey (Wave 1 – 2001-02)
⁶ Commonwealth Department of Family and Community Services – 2000.
⁷ Gross paid from an allocated pension, 4% gross investment earnings per annum after fees, nil tax on investment earnings.
⁸ Nil “ETP tax” on accumulation, used to start allocated pension.
⁹ Assuming 4% gross investment earnings per annum after fees, before 15% tax on investment earnings.
¹⁰ Zero inflation assumed for all calculations.
¹¹ Assumes 9% Super Guarantee contributions for 40 years to retirement.

Note to editors:

• Norwich Union Australia is a group of two specialist financial services companies; Navigator and Norwich Union Life. Portfolio Partners, the Australian funds management arm of Aviva plc, is a sister company to Norwich Union. 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, Norwich Union 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 worlds 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$68.32 billion, and more than A$488 billion of assets under management (as at 1 July 2003). The group has more than 59,000 employees and 25 million customers worldwide.
• This document does not contain all the terms and conditions attaching to product benefits and options. For a full list of terms and conditions please refer to the current Offer Document or product disclosure statement. A policy for insurance cover or an application for an issue of an interest as described in this document can only be effected after completion of the application form contained in a current Offer Document or product disclosure statement for the product.
  
  The information in this document reflects Norwich Union's understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. 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.