The fact that a large number of millennials will reach their retirement with inadequate capital due to not being engaged with their super or have limited financial knowledge is a growing concern. The most basic financial knowledge is at times lost in the younger generations and this causes some concerns not only for the everyday Australian but for those having to ‘pick up the bill’ when millennials reach retirement.
What are millenials?
A millennial is someone born into Generation Y (born between 1982 and 2004). ‘Millennial’s’ have been named this because they are born near, or come of age during the dawn of the 21st century.
In order to fully appreciate the importance of superannuation one must have the most basic understanding of compound returns and the effect additional contributions to super can make over one’s working life. Superannuation Guarantee Contributions (SGC) are not enough to fully fund a person’s retirement. Therefore, its vitally important to first consider how your retirement will likely be funded. In most cases, this will be superannuation. It begs the question then as to why we are all so disengaged from superannuation in the first place? We’re all likely to utilise super monies in funding our retirement expenditure once we cease employment, so why not make the most of these funds?
The spotlight in recent times has been fixed upon the $1.6 million transfer balance cap for pension accounts and the associated impacts it will have on older Australians at or near retirement. Those with large sums amassed in superannuation are now facing the issue of juggling assets in order to stay within the cap threshold, or transfer any excess funds outside of pension into accumulation and pay 15 percent tax on future earnings within the fund.
At the present time much of the industry is concerned with this Transfer Balance Cap so the focus has been turned away from this bigger issue. In eight years’ time, millennials will comprise two-thirds of the Australian workforce. Quite simply though, at this point millennials view retirement as being a long way off and they are considering more pressing financial matters as a priority before reviewing options for their retirement.
Education & Statistics
A joint report by the FSC and Deloitte Access Economics noted that a key issue of superannuation education is the lack of understanding and knowledge of the superannuation system by millennials, which will have serious financial ramifications down the track.
More than 30 per cent of people under age 29 have more than one super account; and 10 per cent have three or more. This is one area where utilising the services of a financial adviser can assist in ensuring your superannuation benefits are structured and invested in line with your goals and objectives in the short, medium and long term. Contact us to discuss your superannuation in more detail.
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