Australia’s superannuation funds may be the answer to America’s retirement woes. It has been estimated that roughly 28% of Americans over the age of 55 have no retirement savings beyond Social Security benefits. Beyond that, 26% of Americans in this age group have reported balances below $50,000 in their retirement fund, which is clearly not enough to sustain life for twenty-five to thirty-five years. With the average Social Security beneficiary receiving roughly $2,600 per month in 2015, it seems that many Americans will struggle after retirement.
Australia has implemented a superannuation system in order to help individuals save for retirement. A superannuation fund is essentially a portion of earnings invested in a range of assets that can be drawn upon at retirement. In 1992, the Australian government passed the Superannuation Guarantee, which forced all employees earning over $450 a month to place 9% of their earnings into a superannuation fund. Since the 1992, the required percentage has been increasing steadily, and by July 1, 2022, it will be locked in at 12%. Employees are allowed to choose the types of funds, ranging in risk profile and industry. Four of the most common types of super funds are: corporate, industry, retail, and self-managed super funds. These funds each have different costs and benefits associated with them, so it is up to the individual to research and decide which fund is most suitable. Generally, as employees age, they opt for the lower-risk, capital guaranteed funds in order to ensure at least some retirement savings.
The top performing superannuation fund “REST Core”. With an average annual return over the past ten years of 6.2%, it is a wonderful option for those who are looking to maximize their returns, while still keeping an eye on the risk. REST Core is deemed a “balanced” option, which is the third riskiest type of fund out of the four main options in Australia. Out of a twenty-year period, the fund estimates that only three to four years will yield negative annual returns.
While the superannuation fund does in some ways resemble America’s 401k system, it does have the compulsory component which forces most Australians to participate, unlike the American system, which is voluntary. The Australian government hopes that by 2050, over 50% of Australians will be able to live a comfortable lifestyle in retirement due to the success of the superannuation funds. This is drastically different from the future of the American retirement benefits, as Social Security has been struggling to make ends meet due to the overwhelming number of retiring Baby Boomers. If the United States government would adopt a mandatory superannuation system and slowly phase out Social Security, it could help citizens better prepare for retirement as well as further stimulating the economy. Essentially, the government could require Americans to put 10% of their earnings into a fund with yields similar to that of a Vanguard index fund, which could drastically increase the amount of retirement savings for many people. It would also eradicate the issue of generational size differences and erase the “social contract” that forces the next generation to support the previous one.