If you’re like many young people you work with, retirement is an impossibly far away horizon. Add to that the substantial debt if you’ve bought your first home, not to mention your lingering HECS debt, and it’s little wonder that it’s hard to get you excited about your super. It’s something that’s going to be locked away for decades.
Your super is your money
But, it is your money. The more you engage with your super, the more you’ll have in retirement. So, you should be actively monitoring and managing your super.
Like it or not, it’s incredibly important to consider how you will fund yourself in retirement because most people dramatically underestimate how much they will need to support themselves. And, one thing is for certain, those Superannuation Guarantee Contributions (SGC) that your employer makes on your behalf are simply nowhere near enough to fully fund your lifestyle when you retire.
You should be on top of consolidating your super accounts, looking at salary sacrificing to make additional contributions, and weighing up investment strategies; making sure you’re not paying overly high fees or doubling up on insurances. If you’re not switched on to your super, you could lose as much as one third of your retirement savings to fees. For more on this, check out our earlier post on getting to know your super fund features.
There are also generous tax concessions that make investing for retirement super attractive, so why not take advantage of them?
Learn from Baby Boomers
Ask any of your grey-haired colleagues about what they would do differently about retirement planning, and most of them will say that they wished they had put more money aside for super, knowing money makes money over time.
Unless you heed this advice, you and a large number of your cohort will reach retirement with inadequate superannuation. And this is despite ABS data showing that in 2016, Millennial Australians had higher incomes, between the ages of 25 to 34, than the preceding two generations. In fact, about 18% higher than those born a decade earlier.
Get clued into the magic of compound interest
It’s hard to get excited about the power of a long-term super investment without being clued in to the magic of compound interest coupled with time.
Compound interest has a huge effect on your super savings in the sense that the earlier you start saving, the exponentially higher your super savings will be. Time ahead in your working life is something all Millennials have in abundance. It’s also the primary ingredient in compounding.
For example, if you as a 25-year old employee, come into a windfall – say, you get a bonus at work or even a tax refund. Before you splurge on that ski trip to Japan, consider making a one-time $5,000 additional contribution to your super fund. It doesn’t sound like much fun, but if that investment earns an average 8% annual return, that $5,000 will grow to $160,000 by the time you retire at potentially the age of 70.
Compare that to going on holiday now, and waiting for years until you’re in the position again to make a one-off payment. Say that isn’t until you are 45 years old. That $5,000 lump sum would only have the chance to grow to $40,000.
Make regular pre-tax contributions
Of course, superannuation isn’t just about one-off investments, it’s about consistency. If you want to retire with more than $1 million in your super fund, you’ll need to start making regular additional contributions now.
For example, say you reach age 30 earning a salary of $120,000, with a superannuation balance of $50,000. Maximising your pre-tax contributions, by putting aside at least 10% of your income into super every month, means that by the age of 70, you’ll have a super balance worth more than $1.1 million.
Try ASIC’s super calculator for yourself. You can try all sorts of different connotations to work out the additional contributions you’ll need to make in order to reach your super goals.
Remember, your super is your money. With years of earning capacity on your side, the sooner you get interested in super, the better off you’ll be in retirement.
Take the first step today
Flare’s suite of Financial Wellbeing services empowers individuals to make financial decisions with confidence. With Flare, you can also access essential financial products, with attractive rates; all with the confidence in knowing that you are making informed decisions designed to improve your overall financial health.
Get started, by booking a free demo today.
Book a complimentary demo today.