Superannuation: New Studies Show That A Small Investment Now Makes a Huge Difference Later

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Australian superannuation balances are facing their worst year since the Global Financial Crisis as markets slump due to rising interest rates.

The extraordinary spike in inflation over the last 32 years has severely weakened growth-focused investments.

SuperRatings research shows balanced options are projected to see a 2.7% decrease in returns by 2022.

If this prediction proves true, it would be the most devastating outcome since the Global Financial Crisis of 2008, when superannuation returns plummeted by a staggering 19.7%. Compared to the 1.9% dip during the Greek debt crisis after the Global Financial Crisis, 2022’s economic downturn is expected to be more severe.

Kirby Rappell, SuperRatings executive director, foresaw a much darker picture for 2022 had it not been for the current state of affairs.

“If the typical balanced option yields a slight loss or even an equal return for 2022, that would be more favourable than what we expected only two months ago — depending on how December pans out,” he said.

“Despite the difficult market conditions this past year, funds have seen a turnaround in their performance over recent months.”

Even with a blend of more volatile growth assets and cash, balanced super funds have outperformed the S&P/ASX200 index, tragically dropping 5.3% in 2021 alone!

Since the beginning of October, the benchmark index has been on an upward trend and has risen 10%, from 6,456.9 points to a high of 7,107.7 points!

In 2021, super balances experienced an incredible 13.4 per cent boost – more than twice its two-decade average despite the Reserve Bank of Australia’s record low interest rate of 0.1%.

SuperRatings predicts that superannuation balances could be unpredictable in 2023, with the Reserve Bank of Australia potentially raising interest rates more than usual next year. 

Currently, at a 10-year peak of 3.1%, there is potential for further rises to occur throughout 2021.

“As we move through the upcoming months, members should anticipate fluctuations in their super balances to remain,” it said.

From September 2020 to 2021, inflation sky-rocketed by 7.3%, reaching a 32-year high. The Reserve Bank anticipates it will further soar and gain 8% close to 2022 – an unprecedented level since 1990!

How much money is required for a comfortable retirement has ignited discussion in the superannuation sector.

According to the Association of Superannuation Funds of Australia, if you want to retire comfortably and receive the aged pension by 67 years old, you should save up to $535,000.

Super Consumers Australia says that if your mortgage is paid off, $258,000 will sustain you.

Compared to other benchmarks, the Australian Taxation Office (ATO) data for 2019-20 provides a more realistic picture. It showed that those aged 60 to 64, close to retirement age, had an average balance of $323,871 in the most recent financial year.

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