Superannuation: retirement savings or paying chidren’s dental bills?

Barefoot Investor Scott Pape drills down on a reader’s question asking about accessing superannuation to cover dental costs.

My seven-year-old son was having a bad day.

Not only was it the last weekend of the school holidays, but his little sister was hosting her fifth birthday party — a princess-themed party with dress-ups, sparkly shoes, and lots of fairy bread.

“The party is all girls, Dad!” he cried.

“Well, we’re having a princess-themed piñata, and with your cricket skills you’ll absolutely dominate that, champ”, I said, trying to cheer him up.

Yet it was no use. He huffed and puffed, and buried his head under his pillow.

“Trust me, mate, in ten years’ time, you’re going to love hanging out with all those girls”, I assured him.

At that point he looked up from his pillow and scowled at me like I was Cinderella’s Wicked Stepmother:

“No way, Dad. Girls are BORING!”

Okay, so my son was doing what we all do: extrapolating the recent past well into the future.

And, financially at least, last year kind of sucked.

The Reserve Bank yanked interest rates by 3 per cent (and they’re still yanking), and both the share market and property prices dropped by over 5 per cent, with homes falling at their fastest pace since the GFC (and they’re still falling). Bitcoin was absolutely mauled, falling over 60 per cent.

So the sixty-four-million-dollar question is: will things continue to suck in 2023?

You probably have a hunch.

Scott Pape suggests making your own predictions for 2023. Picture: David Geraghty

And that hunch about the future will likely guide the decisions you make today.

Here’s the thing though, very few people ever put their predictions under the microscope … and those that do are shocked at how bad they are at it – even highly-paid investment managers.

So right now I want you to make — and track — your financial predictions for the year ahead. Specifically, spend a moment now thinking about where you think housing, shares and Bitcoin will be at the end of the year.

Then take out your phone and repeat after me:

“Hey Siri/Hey Google/Hey FBI,

“On the first of January 2024, at 9am, remind me of the following predictions I made today:

“Aussie shares will go up/down XX%.

“The Aussie housing market will go up/down YY%.

“And Bitcoin will be trading at $ZZ.”

It’s easy to be a hero in hindsight (“I knew 2023 was going to turn out like that!”), but much tougher to do it in real time. So go on, do it now!

Oh, and to his surprise, my son ended up having a great time at the party. However, 24 hours later we received some grim news — it turned out that one of the princesses had the dreaded plague. The day before their very first day of school! Who would have predicted that?

Tread Your Own Path!

You’re a Joke, Barefoot

Barefoot,

You are a joke. Telling people to put their money into a savings account while the fake CPI numbers are off the charts with inflation! The real CPI would be unimaginable. Inflation is blatant central banking and governmental theft. Case closed. If you really want to help people, teach them about sound money, like the gold standard. You’re only slightly better than the fake news financial pundits on MSM (mainstream media). Our currency is completely manipulated by the RBA and government policy. FIAT is garage. Stop brainwashing the public with your Keynesian bulldust.

Luke

Hi Luke,

It sure is nice to be back at the crease … and the first ball is a bouncer aimed at old Barefoot’s head!

So I’m guessing you made a typo when you said “FIAT (as in government-backed currency) is garage”. I’m sure you meant to write “garbage” but I’m going to run with “garage”, because the savings strategy in the Barefoot Steps is all about having a getaway car ready for when life happens. It’s not about a financial return, but a psychological boost. And it works.

Now, let me take a swing at a few of your deliveries.

First, gold-bugs like you (and their children, Bitcoin bros) believe it’s only a matter of time before the world goes to hell and we end up with hyperinflation, like in the Weimar Republic in 1920s Germany.

And that could end up happening.

Some people believe gold will be the only financial winner. Scott Pape disagrees.

However, for me, the world is far too complicated to bet on any one binary outcome, much less waste what could be decades of your life waiting around for it.

Second, you can live your life believing that the powers that be are manipulating and lying to you.

Yet that’s not a worldview that equates to happiness, sunshine and cupcakes.

Finally, since the dawn of time capitalism has worked, and that is the driver of the Barefoot Steps: you systematically save and invest in profitable businesses and hold them for the long term.

Is that all too idealistic for you?

Maybe.

Yet which outlook leads to a more peaceful life?

Help, My Dentist Wants My Super!

Hi Scott,

We have been blessed with seven kids, some of whom have unfortunately not been blessed with straight teeth. Blimey, $7,500 for braces is no walk in the park, especially when you start multiplying it by three, four or more! Apparently, in some cases you can gain early access to your super for compassionate reasons. Do straight teeth fall into this category? Otherwise, unless I sell a kidney, there is no way I can come up with the cash. I’m 40 and have about $265,000 in super. Is it worth accessing my super early?

Dennis

Hi Dennis,

Right now I’ve got my mouth open and I’m saying “aaaah”.

The rules for a compassionate release of super are as follows:

• To treat a life-threatening illness or injury, or

• Alleviate acute or chronic pain, or

• Alleviate an acute or chronic mental illness.

That all seems fair enough, but I don’t know how little Benny’s braces would apply to any of these.

Children’s braces are expensive, but should super be sacrificed to pay for them? Photo: iStock

However, I spoke to the ATO (which administers the applications) and they told me that last year 9700 individuals applied for compassionate release of super for dental treatment expenses, and 82 per cent per cent were approved. Out of those approved, 9 per cent were for a dependent child’s dental treatment, which could include braces.

Uh-huh.

So what are my thoughts?

First, with seven kids you know you’re setting an expensive precedent: if one kid gets a Hollywood smile, they all do, right?

Second, each time you dip into your super, you’re killing off the power of compound interest (plus potentially paying tax on the lump sum). In the end, it’s not going to cost you $7500, it’s going to be something likely $30,000, or even more.

Finally, this question has given me a serious toothache.

Ultimately it’s your decision, but I’d look at every other option than raiding your super. And if you do, steer clear of these groups that have sprung up to help people access their super. Some of them charge as much as $800 to “help” you apply for the compassionate release of super. Yet it’s a basic friggin’ form that anyone can fill out in the time it takes to floss!

Keep smiling.

The Christmas Miracle

Hi Scott,

I bought your new book for my nine-year-old son. It was Christmas night, and putting him to bed was proving challenging. I thought I had tucked him in for the night, but he stayed up in his room reading your book. At 9pm he got up to “get some water” and renegotiated his weekly chores for more money. He came back out at 10.30pm to tell me he wanted to start a business making greeting cards and could we talk about supplies. I considered confiscating the book until morning, just to get a good night’s sleep. Still deciding if this was a Christmas miracle or nightmare!

Demmi

Barefoot Kids, the new book by Scott Pape

Hi Demmi

Oh, it was definitely a Christmas miracle.

On the one day that’s totally focused on getting, your son was learning about working, investing and (if he stayed up late enough reading) giving.

Let your son know that I think his greeting card business is a goer. Fact is, Aussies spend a mind-boggling $500 million on cards every year … we’re the third-largest purchasers of cards in the world. Yet most are lame, and cost way too much. Your son will make cool cards.

Congratulations on having a Barefoot kid!

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Barefoot Kids: Your Epic Money Adventure! (HarperCollinsPublishers) RRP $32.99

If you have a money question, email [e-mail].

Originally published as Superannuation: retirement savings or paying chidren’s dental bills?