The Hidden Cost: The Impact of Australian Expats Overlooking Superannuation – Superannuation is a key component of Australia’s retirement framework, designed to ensure that Australians have enough money to retire comfortably but for the hundreds of thousands of Australian expats, managing super effectively can often fall by the wayside.
The opportunity cost associated with not paying attention to superannuation balances and, more crucially, not having the appropriate asset allocation selected, can be substantial.
The Power of Asset Allocation
Asset allocation is the process of dividing investments among different kinds of assets (like stocks, bonds, and cash) to achieve a desired return based on a specific risk profile.
The two most common portfolio options are the balanced portfolio and the growth portfolio.
- Balanced Portfolio: This includes a mix of both fixed income and equities. While it tends to provide more stability, the returns might not be as high as those from a growth portfolio.
- Growth Portfolio: Typically heavier in equities, this portfolio aims to achieve capital appreciation over the long term. The risk is higher, but the potential returns are also much higher.
The Cost of Inattention: A Hypothetical Scenario
To truly understand the implications of asset allocation, let’s consider a hypothetical example of an Australian expat named Alex.
Alex moved overseas for a lucrative job opportunity in her 30s. She had approximately $100,000 in her superannuation fund, which she left in a balanced portfolio.
With the average annual returns of balanced portfolios being about 6%, over a period of 30 years, her super balance would grow to approximately $574,349 (without any additional contributions).
On the other hand, had Alex opted for a growth portfolio with an average annual return of 8%, her super balance over the same period would be approximately $1,006,266.
The difference is a staggering $431,917.
Broader Implications
The scenario above outlines just the direct monetary implications. There are other broader ramifications as well:
- Lifestyle in Retirement: A more substantial superannuation balance means a more comfortable lifestyle in retirement. This could translate to traveling more, pursuing hobbies, or providing financial support to family members.
- Medical Expenses: As we age, medical expenses tend to increase. A more robust superannuation can provide a cushion against unforeseen medical emergencies or prolonged treatments.
- Peace of Mind: Knowing that you have a sizable nest egg can alleviate anxiety related to financial security in the golden years.
What Can Australian Expats Do About Their Super?
- Stay Informed: Regardless of where they live, expats should stay abreast of the current performance and composition of their superannuation.
- Regularly Review Asset Allocation: Investment goals and risk tolerance evolve over time. Periodic reviews can ensure that the asset allocation aligns with one’s financial goals.
- Consult with a Financial Advisor: An advisor who understands both the Australian superannuation system and the complexities of living abroad can provide invaluable advice.
Superannuation is more than just a mandatory retirement fund. It’s a tool to secure one’s future.
For Australian expats, overlooking the intricacies of super, especially asset allocation, could have profound implications.
The difference between a balanced and a growth portfolio could mean the difference between a good retirement and a great one.
