How to stretch your retirement savings five more years


There is a painless way to add another five years to your retirement savings. It doesn't involve investing in riskier investments or winning lotto.

Nor do you have to slog it out in the workforce longer - though this can boost your nest egg and postpone drawing down on your super.

The failsafe way to stretch your retirement savings by another five years is relatively simple. It involves keeping fees low on your retirement savings.

how to stretch your retirement savings

Vanguard Australia, the index fund and exchange traded fund manager, has crunched the numbers on fees. It says if you can reduce your fees from the average amount of 1.1% pa to 0.5%pa throughout the accumulation phase then when you retire your money will last a further five years.

"Costs are even more critical in the retirement phase," says Robin Bowerman, head of market strategy at Vanguard Australia. Speaking about how to prepare for the future and important lessons from the past, Bowerman says costs impact on the quality of life in retirement.

If you cut your fees from 1.1% during the 40 accumulation years to 0.5%, you will have $58,000 more when you retire. That $58,000 invested throughout the retirement years will give you an extra five years.

Bill McNabb, chairman and chief executive of the Vanguard Group, who was in Australia to celebrate the group's 20 years of Australian operation says that the average fees Vanguard charges US pension funds is 0.5% and that includes all investment fees, administration, communication and telephone support. In Australia, superannuation fund members typically pay 1.1% in fees.

Vanguard Australia manages around $100 billion and worldwide Vanguard has $4 trillion in its investments.

When Vanguard started up in 1975, investment management fees averaged 0.95% but the group has used its economies of scale to pass on the savings to drop fees to an average of 0.125%. Last year Vanguard reduced fees on 50 of its US funds.

"We do it because it is the right thing to do," explains McNabb.

McNabb says one of the reasons why there isn't as much scale in Australia is because there are a lot of superannuation funds - even though there is $2 trillion in Australian assets.


Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
April 27, 2016 7.34am

Please bring back the Vanguard Personal Super Plan then!

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