When Averages Turn Mean and Steal Your Joy

It is very true that comparison is the thief of joy and that is particularly the case when it comes to superannuation balances.

It seems that every second day there is another piece of financial propaganda warning about how high average superannuation balances are at various ages.

The not so hidden meaning is it if you are below your age average, you are falling alarmingly behind the 8-ball when it comes to funding your retirement.

Nobody likes to be thought of as below average, so the take home message is you are in big trouble and you better do something dramatic to get out of it.

Most of Us Are Below Average

In reality, around two thirds of the population going to be below those average figures so that is a lot of comparison that will destroy a whole lot of joy.

To be meaningful, these numbers should really be looking at the mean or middle amount saved at every life stage so that a genuine comparison can be made rather than worry filled how to tech based on a statistically misleading number.

Whenever you look at incomes or savings data, it is always the case that a small number of very rich people can reliably skew the “average” far above where the more meaningful mean number lies.

The latest reliably Tax Office data shows the median super balance for Australians aged 60-64 is $219,773 for men and $163,218 for women. For people aged 50-54, the figures fall to $177,194 for men and $122,150 for women.

These figures are significantly lower than the “averages” being bandied around in scary stories about booming balances.

Admittedly, these are somewhat outdated figures from the 2022-23 financial year, but they nevertheless represent the real middle ground of Australian retirement.

Half of people have less than these numbers and half have more.

Get Involved and Make Super Personal

I’m not saying that people should not be trying to maximise their superannuation balances – far from it – but often people get discouraged when they think they are falling well behind the rest of the population and simply give up trying.

Instead, with superannuation the best result is to get involved as early as you can and ensure you are doing as much as possible to give yourself a comfortable retirement that suits your circumstances.

Some other things to watch for here include making sure you have the right risk profile when it comes to selecting how your superannuation is invested, with the general rule being that the younger you are the greater percentage of shares or other high return investments you should be holding.

I would argue that should also be the case until fairly close to retirement and often also the case after retirement, although there are a few years before and after retirement when it may pay to assume a lower risk profile to avoid the damage of a couple of bad years of investment performance reducing your capital – a problem known in the industry as sequencing risk.

Getting more involved in your super can also mean making sure your fund is well managed and has performed strongly over 10 years, that you have appropriate insurance will tend to the fund for your stage of life end that the overall level of fees for administration and investments is as low as it can be – hopefully less than 1% if the fund balance if possible.

Do You Really Need a Million Bucks?

The other comparison to avoid if you want to retain your joy are the warnings that you need a super balance of a million dollars or much more to have a proper retirement or warnings that the cost of retirement is rising rapidly and you are going to struggle to keep up.

The sort of warnings usually come from superannuation funds or fund managers who naturally benefit from increasing the amount of money put away into their funds.

You are in the best position of knowing how much many you will need in retirement and also what sort of lifestyle you want to lead once you get there.

In reality, even some people with quite limited superannuation balances may be able to enjoy a great standard of living if they find the right balance between qualifying for the age pension and using this super to top up their income.

There is a sweet spot of having enough supplementary income without losing too much of the pension payments that can actually see the retiree on a hybrid super and age pension enjoying a higher income than someone who’s relying solely on superannuation alone and has a higher balance.

Housing Is the Real Worry

If there is something to be really worried about with retirement it is that the system is built around a massive assumption that those retiring will own their own home and not be part of the rental market or have large mortgages that they need to service.

This is increasingly not the case as property prices become less affordable, leading some people to rely entirely on the rental market and others who still have large mortgages by the time they retire.

This can be a really difficult financial planning puzzle to try to solve because working out whether to pay down a mortgage with superannuation is a difficult decision.

If there is one requirement to worry about your future, this is probably it rather than getting too concerned about comparing superannuation balances at various times in your life.

When people quote averages for superannuation savings, just remember to look for the mean to find the true middle ground for retirement savings.

And don’t be too hard on yourself or get too caught up in joy-robbing comparisons.