It’s hard to think about something as abstract as retirement and superannuation when you’re still thinking about how to buy your own home and go on that round the world trip, but younger people probably need to think a lot harder about their future than the generations before them.
In bygone eras, many people held the same job for life, owned their own home, inherited their parents’ assets, retired on a full government pension and died many years earlier.
Today job hopping is the norm amongst Millennials and Gen Xs; we live in ‘Generation Rent’, where many young people may never be able to afford to buy their own home; parents spend their children’s inheritance; the government pension doesn’t cover a comfortable lifestyle in retirement and to top it all off we live longer, so that means the dollars have to go even further than ever before!
If it sounds a bit depressing when you add it all up, don’t panic. There’s certainly plenty of hope for those who take a little time to think about how they can set themselves up for retirement.
“The key to comfort in your old age is to start planning for it while you’re still young,” says Vision Super CEO, Stephen Rowe.
It’s far easier, and more tax-effective, to put away a little bit over a long time than wait 10-20 years and then start saving really hard. You probably won’t want to curb your lifestyle at that age and you’ll be wishing you started earlier.
Super is a savings plan where your employer contributes 9.5% of your salary to your future ‘retirement fund’. To make sure you’re not tempted to spend it, the rules are you can’t access the funds until you reach your ‘preservation age’, which is currently 60 years of age if you’re born after 1964.
Having enough super
“Although your employer’s contributions to your super are a good start, it’s widely recognised that this may not be enough to provide a comfortable lifestyle in retirement. You also need to take into account breaks from the workplace, like gap years, further study and maternity leave. Part-time and casual workers also won’t have the same kind of balances as full-time workers, which means less money for those people in retirement,” says Stephen.
So what’s the answer? Setting a budget and mapping out a financial plan might sound like hard work, but when you consider that you may spend a third of your life in retirement, it’s definitely worth taking a few hours to work out where you are now and where you want to be in the future.
To give yourself a comfortable lifestyle in the future, it’s also worth thinking about topping up your super with additional contributions from your salary. Why? It can help to meet any shortfall that might come up between your employer’s contributions, the government’s Age Pension and what you actually need to maintain a good lifestyle in retirement. It’s also a great way to save money at a really low tax rate.
Unlike your regular savings (bank account, bonds, shares, etc.), super is taxed at only 15% while you save and it becomes tax-free once you get to your preservation age and transfer it into an ‘income stream’ (where you get a regular payment, similar to a government pension, but it’s money from your own super). You can read more about the benefits and ways to contribute here.
For those who decide it’s easier to stay oblivious to their finances, it’s important to note that if you plan to spend now and save later, there are limits to how much you can put into your super in any one year. These limits could hinder your super savings drive if you leave it too long. You’ll also miss out on the benefits of the rate of return usually expressed as a percentage, that represents the cumulative effect that a series of gains or losses have on an original amount of capital over a period of time. To know more about the rules for tax and topping up your super click here.
If you'd like help getting your super sorted and cutting through the jargon, please call Vision Super’s Member Services team on 1300 300 820.