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Friday, August 08, 2008

Superannuation - the assumptions

Regarding Super-man, below, commentator Tej writes:

"I guess this is what to expect when you get librarians to do financial calculations. If you assume a normal profile of earnings, 40 years in the work force, 15% tax on contributions, 12% tax on earnings which is typical of super funds, 1% fees, 6.5% real returns before fees (typical of the last 100 years), then a person whose only savings are the 9% super will have 35% of their peak income available to draw.

This is based on the fact that if you draw more than 3% you have a big chance of exhausting your money. I would be interested to see the librarians' calculations - I suspect they are assuming 10% plus investment returns which is unrealistic after taxes, fees and inflation.

So, what are the Parliamentary Librarian's assumptions?

The document is:

Richard Denniss, The Crisis of Cash or Crisis of Confidence - the Cost of Ageing in Australia, Australian Journal of Political Economy, July 16, 2007

Here's the table: (click to enlarge)

And here are the assumptions:

"An individual making 9 per cent contributions to superannuation for 40 years, living for 18 years post retirement and receiving a real rate of return of 3.5 per cent. The retirement incomes for low income earners include income from both superannuation and the relevant part pension to which they are entitled. The reasonable benefit limit has been ignored."