Paul’s verdict
Paul’s verdict: The issue is not what you have now but what you will have in the future
My husband and I married in 2019 and are making plans for our future investments, housing and family. He is 29 and I am 28, and we have $50,000 in savings with no investments.
I recently read an article from ANZ bank which gave statistics on the average superannuation balance for
25- to 29-year-olds, which was $21,372. The recommended amounts for 28- and 29-year-olds are $52,000 and $59,000 respectively. My super is closer to the average amount of $20,000, whereas my husband’s is only about $15,000 due to various work circumstances.
Would it be worthwhile for either of us to make a voluntary lump sum contribution, particularly to my husband’s super, to boost the balances by $2000-$5000 for a better long-term outcome before we use our savings to invest in property? Kiara
As much as I like numbers, facts and statistics, Kiara, one of the most misused is “average”. At present, the average Australian family has, I am told, around 2.3 children and 11% of a golden retriever!
My industry loves “average returns”, even though these can be highly deceptive. An advertisement describing 12% average annual returns over 15 years sounds impressive, but it would have served investors better by saying the worst year was minus 32% and the best plus 55%. Here I am not knocking an average return of 12%, but looking at each year’s return tells me more about the risk level of investments in the fund.
So in your case, while I am pleased you have looked at the average in super for people in your age group and that it is encouraging you to invest more into super, its relevance to you is not high. I appreciate that your husband has had work circumstances that have held back his super contributions and yours is “below average”, but there are many reasons for this. Often those in their 20s with least super have spent more time studying, had time out for travel and all sorts of things.
So the big issue for me is not what you have now, but what you will have in the future. And what a great start you have made. Your $50,000 in savings tells me you have been spending less than you earn. This, done over many decades, is the most reliable indication of future financial wellbeing.
Please do read my In Your Interest column in this issue (page 10), which looks at housing and the inbuilt advantages it has in our society. With our strongly growing population, plus all sorts of constraints on building new properties and the ever-increasing cost of building, I remain biased towards home ownership. The caveat here is that it is important to buy in an area
where there is a growing population and not vast amounts of land set for development right next door. With our population set to be some 35 million in 30 years or so, I would argue that property located near public transport, schools, medical support, work, entertainment and leisure – not to mention decent coffee – is important.
At your age, which was many moons ago, Vicki and I focused strongly on home ownership. Even back in the early 1980s, we followed this logic and bought a small semi on a busy road in a suburb close to Sydney city. It was close to the railway with easy access to key facilities. We made this choice over a much larger home, much further away from the CBD. Even though the properties were selling for the same amount, we felt population growth would give us a better return closer to the city.
Critically, this also suited our lifestyle. Despite being country kids,
from Griffith and Coffs Harbour, we moved to Sydney for a city life and this still appeals to us. If I saw us returning to Griffith, Coffs Harbour or anywhere else to make a home, that is where we would buy. A home is a home; it is not just about money.
So in your shoes I would focus on building your home deposit. Start to check out your borrowing capacity and to research where you would like to buy. The more experience you get, the better.
Super is a wonderful investment for your future. But with some 40 years to retirement and many changes to superannuation rules to come, my view is that compulsory contributions for now will, along with compound interest, continue to see your retirement savings benefit from compound returns. Super is also more powerful as your incomes grow and you move to higher rates of tax.
In summary, I think property is your short- to medium-term goal and super a key part of your long-term planning.