Retiree Reality
Australian superannuation fund accumulation members who have the luxury of time in the market can turn a blind eye to the turmoil wreaking havoc on their portfolios, but for pre- and post-retirees, it’s a different story.
Reading the latest World Bank Global Prospects 2012 report, one could be forgiven for thinking that we are on the precipice of financial Armageddon, with GFC the sequel set for release in 2012!
It makes one pine for the good old days in 2007, back when the world economy was strong and young financiers bought Ferraris with their bonuses, while those reaching retirement were thinking to themselves “if my super keeps growing at these rates, I’ll buy a small island and retire there”.
However, times have changed, and for many of those 60-65’s closing in on retirement their plans to buy an island are now just a distant memory.
Here at burningpants we’re interested in what GFC 2 could mean for the average battler reaching retirement.
While we don’t profess to have a crystal ball (though we are hoping that politicians around the world pull their honourable fingers out, and that the harbingers of financial apocalypse are just crying wolf! What we can do is take a look back to the bad old days of GFC 1, and run some numbers on how the biggest Australian super funds fared during the financial years of 2008, 2009 and 2010.
We have looked at the top 50 Australian funds in terms of total assets at the end of financial year 2010. The largest fund had assets at the time of approximately $43 billion, while the 50th had assets of $3 billion.
The funds represent $538 billion in aggregate value, and have over 18 million members*. We have run some back of the envelope calculations to see how the average Australian would have fared if they had their money invested in these funds in early 2008.
For the lucky members of the top performing fund in this group the good news is they only lost a relatively small amount of money. However for the unlucky ones who had a fund ranging near the bottom of our group, it was a different story as the below tables demonstrate.
Top 5 Funds
| Assets 2010 (billion) | Compound return (2008 – 2010) | Net loss for average Australian nearing retirement age† | |
| Fund 1 |
$6.4 |
-1.1% |
-$2,086 |
| Fund 2 |
$3.3 |
-2.8% |
-$5,544 |
| Fund 3 |
$18.2 |
-3.4% |
-$6,792 |
| Fund 4 |
$3.4 |
-5.2% |
-$10,225 |
| Fund 5 |
$8.4 |
-5.5% |
-$10,938 |
Bottom 5 Funds
| Assets 2010 (billion) | Compound return (2008 – 2010) | Net loss for average Australian nearing retirement age† | |
| Fund 50 |
$5.9 |
-22.4% |
-$44,336 |
| Fund 49 |
$3.3 |
-21.3% |
-$42,180 |
| Fund 48 |
$9.3 |
-20.4% |
-$40,396 |
| Fund 47 |
$8.6 |
-17.4% |
-$34,468 |
| Fund 46 |
$3.7 |
-16.5% |
-$32,707 |
These returns highlight a striking reality. Not only did all of the many millions of members of the top 50 Australian super funds lose money during GFC 1, the results show super fund size is not necessarily an indication of safety, with those who had money invested in funds with tens of billions of dollars losing money along with those with smaller funds.
Let’s hope that GFC 2 doesn’t become a reality.
*High number a reflection of the fact that Australians of working age are members of over two funds on average, with the actual number of individual members hard to estimate.
†Average male (60-64) who has a super balance of $198,235.
3 Comments on “Retiree Reality”
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burning pants says:
Thanks Mark, you are completely right about the level of administration costs that these members would generate. Though they would also be providing some fairly substantial fees!
John Darwin says:
I appreciate that whist Superannuation funds have done poorly over the last period the reality is that most baby boomers did not start in 2008. If they had been consistently in similar assets allocated funds they would have had higher performance in the 10 years prior to 2008 so would have had a higher balance at the point at which the market turned. One might hope that growth assets might again return comparativly better returns in the next 10 years.
Some clients may have moved to a more conservative asset allocation in 2007 but that would be unusual.
Mark Maycock says:
Interesting that you choose the average male (60-64) who has a super balance of $198,235 when your sample is aggregate value of $538 bio for 18 mio members giving an average balance of just $29,889. This correlates quite closely with AustralianSuper who proudly advertise $41 bio in assets with 1.8 mio members. An average balance of $22,778. The administration costs must be absolutely staggering.