Is super really so smart?
Its smarter. Australia has an ageing population. The number of people who will be retired in the next few decades will be double what we have now. That means that the current pension system will not be able to support everyone in their retirement.
Super is designed to encourage you to save for retirement. Thats why the rules are framed to make it such a tax-effective investment. Your personal out-of-pocket contributions to super are not taxed, while contributions made by your employer, such as the SG, and by salary sacrifice are taxed at 15 per cent.
Any earnings on your super are taxed at a maximum of 15 per cent compared with your marginal rate up to 45 per cent outside of super. For most people, once you hit 60, you can access your super tax free whether you take it as a lump sum or as an income stream.
An investment in super will grow more quickly than the same investment outside super due to the tax benefits.
So for Gen Y, its perfect. No tax, no paperwork, no pain just long-term gain. While youre enjoying life, your super nest egg is growing, with earnings reinvested, practically without your even knowing.
By the time youre ready to retire, your super could have grown to be one of the largest assets you will have in your lifetime.
I already contribute 9 per cent. Why do I need more?
Our research has found that if you rely on compulsory employer contributions alone, youll have only enough to fund a modest but adequate lifestyle. But if you top up your super now, you can look forward to a much more comfortable retirement. It means that you can afford to do what you do now in retirement. Save now, spend later.
No-one wants to be worse off than they are now. If you like the lifestyle you have now and want to maintain it later in life, being super smart early is really important.
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