If you consider the mandatory superannuation contribution of 9.5% over a 35 year career, earning $100,000 – $150,000 per annum, you will have a retirement income of around 50% of your pre-retirement income. According to welfare groups and income specialists, 70% is a much more appropriate level. So until such time as the Government mandates a rise in the employer superannuation contribution level, it’s up to you to ensure you will have enough in super for the lifestyle you want during retirement.
The Doran Financial Services team offers their top tips to make the most of your superannuation by the generations.
Generation Y (1980-1994 – 20s and early 30s)
Your 20s and early 30s is all about having fun but it’s also a great time to start planning for your future.
Take advantage of the Government – On a sliding scale up to $48,516 you can take advantage of the Government’s co-contribution scheme when they will contribute (up to 50c) for each dollar you contribute.
Salary Sacrifice – If you’re over the co-contribution limit you can still add a bit extra as a before-tax contribution which as the added benefit of reducing your taxable income.
Get the basics sorted – the average Australian had five superannuation accounts. That’s five lots of fees, charges and paperwork. There’s also billions of dollars of lost superannuation so now is a great time to find them and roll them into one. In your 20s and early 30s is also a good time to compare funds, keep track of fees and if you stop working for a while, try and maintain your superannuation contributions.
Generation X (1965 – 1979 – 30s and 40s)
By your 30s and 40s your superannuation should be a sizeable lump of cash (it’s usually here that is starts to look like real money). While retirement might seem a lot way off but the earlier you start preparing the bigger your retirement nest-egg will grow. At this time you might be more financially focused on eliminating debt, paying off the mortgage and paying school fees but your superannuation should not be forgotten.
Extra contributions – consider utilising government co-contributions, salary sacrifice, top up with bonuses, inheritances, tax returns, profits from the sale of investments. It can be as easy as putting one salary increase into your super and having compound interest working in your favour. You won’t notice it now but it will make a marked different to your future.
Be bold – your 30s and 40s represents an opportunity to park your money into high-risk investments that offer a high return – but also seek professional financial advice first. If there’s a major correction, you have enough time to recoup any losses. Keeping your super in the default balanced account can slow your growth so it’s time to understand the relationship between risk and return.
Setting up a solid foundation – if you haven’t yet done so, protect yourself and your family with products such as life insurance and income protection, close the baby gap by considering options such as spousal contributions or increasing contributions in the lead up to maternity leave and any time out of the workforce, eliminate debt, set your retirement goals, reduce superannuation account fees, evaluate your investments and have a Plan B in the case of redundancy or even just wanting a change of career.
Baby Boomers (1946 – 1964 – 50s and 60s)
When you hit your 50s, your superannuation becomes more important to you than ever before. Retirement is looming and the realisation that you won’t be working forever kicks in. By now most people have their mortgage paid off or at least under control so it’s time to rev up the super.
Maximise your contributions – You’ll save on tax, because super contributions are taxed at 15 per cent. Your income, in contrast, is taxed according to the bracket you fall into, with the top tier attracting a rate of as much as 46.5 per cent per annum. When you turn 55 the government provides tax benefits to help prepare for the end of working life so take advantage of that.
Take a whole approach – pay off any debt, pay down any mortgages, get some great financial advice, have an emergency stash, and review your investment strategy.
Work as long as you can – the average life expectancy in Australia currently stands at 84.2 years for women and 79.7 years for men. When you’re in your 50s and 60s you may still have decades left to live so the longer you can work (even part-time or casual) the less you have to draw on your superannuation.
Whether you are part of Generation Y, Generation X or a Baby Boomer it’s always a good idea to re-evaluate your superannuation on a regular basis to ensure you have enough to retire and live the life you want. Contact the team at Doran Financial Services to find out more.