When we are young, it can feel like our retirement is a lifetime away. So why even bother with super? Whilst, we may not be able to spend on our superannuation until our retirement decades into the future, the best time to boost our super balance is right now.
Many of us are building our savings whether that it’s for an emergency spend, a holiday or towards our journey towards financial freedom. According to the Association of Superannuation Funds of Australia’s Retirement Standard, $545,000 in retirement savings is needed for a comfortable single retirement which does seem like a pretty large sum but you have to factor in that this figure is to last the rest of our life. Australian women retire with $92,000 less in retirement savings than men. According to ING, 40% of single Australian women will retire in poverty and economic insecurity.
Superannuation can be difficult to think about because it is so removed from our present and day-to-day life. However, thank yourself now by investing in your super and your future now.
Check for lost super
In 2020, there was more than $13 billion of lost or unclaimed superannuation according to the ATO. Save yourself pain by checking now if you do have super funds in other accounts and consolidate them into one account.
This can happen especially when you’ve worked multiple jobs and not looked too carefully into super.
To search for lost super check the ATO website here.
Consider salary sacrificing
Salary sacrificing is the arrangement between yourself and your employer to forgo more of your salary into super. It can be beneficial for two reasons.
- You’re contributing more to your super. One of biggest lessons we can take away from Warren Buffet is the significant impact of compound interest/investing. Therefore, by contributing more into super now in your 20s, this will likely equate to a far larger sum when nearing retirement than if you didn’t.
- It is a tax benefit. If salary-sacrificing, you are only paying income tax on your reduced salary. The amount you salary sacrifice into super is generally taxed at 15% which for most people will be less than the tax you may pay on that income personally if it was paid to you as salary. For most Australians, this will be at 32.5% ($45,001 – $120,000) which can be a significant reduction in tax.
However, unfortunately salary sacrificing has its disadvantages. The most important takeaway is to see if salary sacrificing is appropriate for your financial situation. By putting in more into your super, you are forgoing money that you can spend now. You will need to assess if a reduction in salary will still meet your expenses and needs.
Check your super’s investment options and download the product disclosure statement (PDS)
Have a look at how your super fund plans to invest your money and see if it is the right strategy for you. Most investment options in super funds have a mix of growth and defensive assets. If you prefer higher returns, you may want to consider a fund that allocates more of its portfolio on growth assets. There are also funds that will adjust your investment mix based on your age with more exposure to growth when younger and more defensive once nearing retirement. Look to see the 10 year return on the fund and compare this to other funds in the market.
A PDS will also disclose associated fees to the fund such as admin fee and management fee. If you have super funds in multiple accounts due to having a mixture of jobs, you may be losing thousands of your super fund on these fees.
Save anyway and financially educate yourself
I’ll admit I didn’t know much about superannuation until only a few years ago. One of the best things we can do for ourselves and increase our wealth is to improve our financial literacy. Whether that’s budgeting, reading financial articles and listening to podcasts, all of these activities can help us improve our financial position and set ourselves up for a wealthier future.
And don’t forget to keep saving! Except for today, the best time to invest is tomorrow. It may be corny but it is the whole-heartened truth.