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Why changing the superannuation age limit shouldn’t matter

Superannuation is a hot topic at the moment, with the Federal Government trying to make changes to the minimum amount paid to Aussie workers by their employers.

I’ve taken a look at what’s causing all the fuss around changes to superannuation and why any changes to the current age limits shouldn’t change your retirement plans.

What are the current age limits with superannuation?

One of the biggest reasons that make young people reluctant to make the most of the tax-advantaged status of their superannuation accounts is the liquidity risk involved in the super system at the moment.

As it stands currently, the preservation age, being the age at which super must be ‘preserved’ (i.e. remain untouched), varies between 55 and 60 years old in Australia, depending on your date of birth.

However, this has been slowly creeping higher as successive governments have become wary of the effects of Australia’s ageing population and the increasing burden on the Aussie government pension system.

The fears about the current system are two-fold: Aussies are locking away their money for a long time without being able to access it if needed, and there is the chance that the preservation and retirement ages will be increased by governments in the future.

But, just because there is a regulatory risk to superannuation, there’s no need to alter your contributions or change your retirement plans in the meantime.

Why any changes to age limits shouldn’t matter

The key to any retirement planning is to work backward from your target retirement age and predicted expenses, to calculate in present-day dollars just how much you’ll need.

For instance, if you need to spend $40,000 per year in retirement, and want to be sustaining your ASX portfolio nest egg, you’ll probably be looking at roughly $1 million in inflation-adjusted money at your retirement date (depending on your age).

The key here is that you can still invest in your superannuation, but it doesn’t have to be the be-all and end-all of your retirement plans.

By investing in the likes of BHP Group Ltd (ASX: BHP) or Afterpay Touch Group Ltd (ASX: APT) in your portfolio outside of superannuation, you can effectively create two wealth curves for your retirement.

By not over-investing in super, you can build up your ASX portfolio to the level it needs to be until you reach preservation age, meaning that even if it changes in the meantime, you just add extra to your outside-of-super investments to tide you over.

In this way, Fools can draw down on their outside-of-super ASX portfolio prior to the preservation age (whenever that will be) and still benefit from the tax-advantaged status of superannuation when it does eventually kick in.

All in all, with careful financial planning and some expert advice, you could be well on the way to early retirement and a strong investment platform in 2020.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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