Boost your super – taking steps to meet your retirement needs
May 14th, 2018
When thinking back to words of advice that you may have heard from your parents, or have even passed on to your children, what sticks in your mind?
“Start saving whilst you are young,” is one of those recommendations that comes to mind and is one that is still used ad nauseam.
Why is it important to start saving whilst young?
This advice is solid and still relevant when creating savings for the future. Planning for retirement is no different, it is better to start as early as possible rather than having to catch up in your later working years.
According to the Retirement Standards issued by the Association of Superannuation Funds of Australia (ASFA), to live a comfortable lifestyle in retirement, a couple will need $640,000 in ‘today’s’ dollars (as at September 2017).
So how can you tell whether your superannuation will accrue to provide such funding? The table below shows the projections if members relied only upon the current 9.5% Superannuation Guarantee (SG) Contribution – employer contribution.
| CONTRIBUTIONS | AGE/ ACCRUED TOTAL SUPER BALANCES | |||||
| SG | PER WEEK | PER ANNUM | 20 | 45 | 55 | |
| OPEN BALANCE | ||||||
| SG Cont. | 9.5% | $109.62 | $5,700 | $346,296 | $271,161 | $238,311 |
| Plus | SALARY % | ADDITIONAL | ADDITIONAL | |||
| Salary Sac. | 12.0% | $28.84 | $1,500 | $437,427 | $307,994 | $@52,327 |
| Salary Sac. | 15.0% | $63.46 | $3,300 | $546,783 | $353.194 | $269,147 |
| Lifestyle | ASFA | COMFORTABLE | SINGLE PERSON | $545,000 | ||
| COUPLE | $640,000 | |||||
Assumptions:
Salary $60, 000: SGC 9.5% + salary sacrifice contribution until age 65
Concessional contribution cap: $25,000
Retirement Age: 65, Age pension Age: 67
Investor Profile: Moderate, Total Return 5.5% p.a
The table above shows that the current SG contribution for a 20-year-old is not enough to retire on comfortably over a 45 year working life. The Government acknowledges this and as a result the SG contribution is set to increase to 12% by 2025.
Still this will not be enough as shown by the table above. The total super contributions need to be increased to 15% of as a percentage of salary.
It should be remembered that the projections are based on a single person and their own accumulation of super. The difference between what they accrue and what funds a couple require for a comfortable lifestyle, may be addressed by what their partner has accumulated in super. This will depend on how long the partner is or was within the workforce and their wages, with consideration to career breaks to raise children, where applicable. Every family situation is different in this respect.
So what is the solution?
Instead of waiting for the SG contributions to be increased, one option is to make additional contributions via salary sacrifice. You will need to ensure that the SG and salary sacrifice contributions remain below the current Concessional Contribution cap of $25,000 per annum. You must also ensure that your take home pay meets your living expenses.
So why salary sacrifice contributions?
Not only will these contributions boost your super but there are also taxation benefits and these contributions count towards the First Home Super Saver Scheme.
A key attribute of salary sacrifice contributions are their flexibility. As your financial situation and cash flow changes, you can increase the contribution (subject to the concessional contribution cap), reduce the contribution, cease and even recommence at a later stage. You are in control. Keep in mind however, that not every employer can accommodate salary sacrifice contributions.
So the sooner you start, no matter how much or for how long, the effect of compound interest over the longer term should put you ahead compared to if you had done nothing at all.
Some people who are further along in their working life may also be considering boosting their super. The salary sacrifice strategy offers the same benefits but over a shorter period of time.
If you have reached your preservation age, there is the Transition to Retirement strategy available to you, which has tax advantages when a member has significant tax free component or is aged 60 years or older.
To find out more about salary sacrifice, the First Home Super Saver Scheme or the Transition to Retirement strategy, refer to the links below or call the First Super Financial Advice team.
ATO: First Home Super Saver Scheme
*Disclaimer:
The information provided in this article is of a general nature only and does not take into account your personal circumstances or situation. We recommend that you seek qualified financial advice before making any investment decision.
Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice. You can obtain personal financial advice by calling 1300 360 988. Financial advice will be provided by Industry Fund Services Ltd (ABN 54 007 016 195, AFSL 232514).