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Financial independence

Financial independence – the responsibility is yours!

Chris Morcom
Partner/Private Client Adviser
17 Mar 2015

Following the recent debate around the Federal Government’s suggestion to allow access to superannuation to purchase a first home, as well as comments relating to access to the Age Pension, it could be argued that some individuals are looking for an easy way out when it comes to taking responsibility for their financial future.

Dipping into super to buy a house

As a financial adviser, I argue that attacking our long term retirement nest egg to fund a house purchase doesn’t make financial sense. It reduces the ability of a person’s superannuation to compound earnings, reduces the future income that could be provided by that superannuation asset and reduces the responsibility that the individual has to save for their own home through traditional methods.

The chronic under-provision for retirement funding that Australians currently face will only be exacerbated if access to superannuation is granted prior to retirement.

I would argue that if you cannot afford to save a house deposit, perhaps you cannot afford a home loan. While it may not be popular in Australia, renting is commonplace in other well developed markets.

If it is not possible to save a deposit for your first home as quickly as you’d like, you could use your savings to accumulate an investment portfolio in the interim. Give yourself more time, there is no rush.

Instead of tampering with a superannuation system that has not yet matured, the Federal Government could consider other options that would enable easier access to affordable housing for Australians.

One possible option that could be reviewed would be to only allow neutral gearing, where the rental income equals the loan interest, on investment properties for tax purposes. 

The purpose of a pension

Government pensions and concessions have an important place in the social welfare system. They are in place to provide a safety net for those who do not have the opportunity to accumulate sufficient wealth to fund a basic lifestyle once they can no longer work. I believe in assisting those who are either less fortunate or have been unable to fund their own retirement.

What people need to understand is the Age Pension is not there to provide individuals with a comfortable lifestyle in retirement. The Age Pension is intended as a safety net.

The full Age Pension for a single person is currently just over $22,000 per year – by no means will this enable the individual to ‘live large’. Further, this pension will reduce when that individual’s income exceeds $4,160 a year, or their assets (not including their home) exceed $202,000.

Compulsory superannuation was introduced in 1992, therefore by now we all should understand the need to accumulate wealth to fund our retirement years.  Australians are currently incentivised, via the tax breaks given to the superannuation system, to accumulate assets to provide an income for retirement.

But we should not need that incentive to look after our future financial wellbeing, it is our future therefore our responsibility, not the responsibility of the Government.

The above information is general information only. Individuals should consult their financial adviser for tailored advice specific to their circumstances.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.