Are we thinking about retirement income all wrong?

Whilst only 35-40% of Australians today are self-funded in retirement, many more are living off part-pensions, and trying to stretch their savings a fair way.  But have you ever stopped to consider how funding ones retirement really works and where the money you live off comes from?

It has become clear this week with the pre-budget jawboning that there is only one way to make it through coming years in comfort, and that is with adequate, well-planned and well-invested superannuation in retirement. But how many of us actually have that and what does it mean?

I, like many I imagine, have been under the impression for many years that you work, save into your super fund then start spending it when you retire.  But this is not the case.

David Gall, the head of Banking and Wealth Management at the National Australia Bank pointed out to me yesterday that 60% of the average person’s income on their superfund will be earned AFTER they retire.   Yes, AFTER!   It blew me away.  I never stopped to think about this potentially little-known fact.  So if we retire at 65, and live to 80 or 90 years old (or in all likelihood even longer) the way my money works for me in its investments AFTER RETIREMENT is the key to my retirement comfort.

The realisation I had is, I simply couldn’t afford not to understand how my money works post retirement.

In our discussions, we talked at length about what this means.  Mr Gall was passionate about the fact that many retirees are limiting their ability to earn and live comfortably in retirement by moving their retirement funds to cash, and getting too conservative too young.

“How do you deal with people living longer and longer in retirement?” he asked aloud, answering the question himself with “You don’t get too conservative too early.  In fact many retirees could benefit significantly from thinking about their retirement assets as growth assets, because they still have a long time to live and a lot of money to earn from them.”

We all know the hangover from the GFC has left many with a fear of losing their retirement funds altogether.

But did you realise that a result there are new ways to gain leverage and protect yourself from downside risk? Did you know you could insure your income in retirement?  Indeed, you can invest in growth assets and insure your risk.

Mr Gall, said that the products and services being sold across the retirement industry will likely need to change over coming years to account for the length of time people will spend in retirement, dependent on the income from their superannuation.

And so I ask, as we whinge about the changes the Government wants to make to the budget and the economy… Are we thinking about it all wrong?   Do we need to stop, count our money and work out how we can earn the 60% we need to IN retirement to make ourselves more comfortable and stop blaming the government for our problems?