Gen Ys! Learn to love your super

Have you ever thought about how you want to live in retirement? It's a long way off but will you have enough to maintain the lifestyle you're used to when you retire? You're probably thinking the 9 per cent compulsory contribution your employer is paying into your superannuation account will be enough, and you don't have to worry about it — it's so far away.

Think again. Our research shows that if you earn an average income, the compulsory superannuation guarantee (SG) will provide you with only enough income to maintain a standard of living in retirement that's 76 per cent of what you enjoyed before you retired if you're male and 81 per cent if you're female. Strange as it may seem, the more you earn, the more of a lifestyle downshift you'll experience in retirement if you rely on the SG alone. It's all about relativities, as the table below shows.

Single male

Single female

Could you manage such a big lifestyle change? That's up to you to decide. You may not need as much money in retirement as you do now. But keep in mind these figures are based on the assumption that you've accumulated SG contributions over your whole working life from age 25 to 65. If you don't plan (or are not able) to work full time for 40 years, then the amount you'll have saved for your retirement could be pretty disappointing.

Maybe it's time to engage with your super and learn to appreciate its good qualities. A little more love can go a long way, and the earlier you start the better. Such is the power of compounding interest! By saving a little more now, you can enjoy a lot more later on.

Three keys to a super relationship

1. Learn

How much money do you have in super now? Your fund will send you an annual statement telling you how much super you have. Your statement will also tell you the investment option your money is in, and any fees and taxes that have been deducted.

How much should you have? It all comes down to your personal circumstances — how you live now and how you want to live later in life. The first step to working out how much super you need is to decide when you want to retire and the kind of lifestyle you want in retirement.

The earlier you retire the more money you will need to stretch throughout your longer retirement. There are a number of calculators online which can help you to plan by giving you a projection of what your super will be at retirement age based on your current super and salary.

• Check out the Fido website or your super fund may have a calculator on their website.

Get to know as much about super as you can. Check out your fund's website, and read the annual report and newsletters to get to know your fund better.

2. Love

How many super funds did you say you have? It makes sense to have your entire super in one place. You'll reduce the amount of fees you're paying, only receive one lot of paperwork and only have to keep track of one fund. When you change jobs, roll it over and take it with you.

Look to consolidate the super funds you have into one. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges, the investment options and life insurance cover. You can look at past investment performance as well, but it is no guarantee of how the fund will perform in the future.

Once you've chosen the fund you want to keep, contact them and they can help transfer the money from your other super funds.

• If you've moved around, changed jobs or think you've lost track of a super fund check out ‘lost super' at the Australian Tax Office's super seeker website.

3. Make it last!

To make sure you have enough for when you retire, consider tipping in extra contributions on top of what your employer is required to contribute. Depending on your personal circumstances and how much you earn, you can contribute from your after-tax income or salary sacrifice from your before-tax income.

You can make after-tax contributions from your take-home pay directly to your super fund at any time or have your employer deduct them from your pay and pass them on to your fund. Depending on your income, these contributions may qualify for the Government co-contribution.

If you earn less than $28,980, the Government will contribute $1.50 for every dollar you put into super up to a maximum of $1,500. Just $20 a week will give you the maximum co-contribution. If you were to contribute an extra 3 per cent of your income into super you could improve your living standard in retirement by 17 to 25 per cent if you're a guy or 20 to 28 per cent if you're a woman.

The other option, particularly if you're a higher income earner, is to ‘salary sacrifice' contributions from your before-tax income. Having your employer take contributions out of your pay before they deduct the tax means you'll have more going into your super and you'll reduce your income tax.

Salary sacrifice contributions are taxed at 15 per cent when they go into your super fund but this can be considerably less than the income tax you would have paid if you took the money home each pay. By salary sacrificing 3 per cent of your income into super, you could improve your standard of living in retirement by 11 to 22 per cent.

Early contributions enjoy the benefits of compound interest much more than later ones. Put just 3 per cent of your take home pay into superannuation from age 25 onwards and you will typically increase your retirement income by a quarter. But if you delay your superannuation top-up plan until you are 35, you will need to contribute up to 7 per cent more to get the same retirement benefit if you had contributed 3 per cent from age 25.

Once you've got money in super, you can usually choose how it's invested. Most funds will have a default option that the fund trustee has chosen to suit most fund members. Super is a long-term investment so when you're young you can afford to look at more growth-oriented investments — such as shares and property — instead of sticking with balanced or more conservative options. The returns from growth options will fluctuate more and there is a greater risk of short-term poor performance but over the longer term, growth options tend to outperform the more conservative options.

It's complicated. Where do I go for help?

If you're not sure which is the best way or how much to contribute to super, or which investment option is right for you, it pays to get professional advice from a licensed financial planner. Your fund may be able to provide you with access to a financial planner or you can find one using CPA Australia's find-a-planner service on our website.

• Find a financial planner 

PDF downloads

• Super fact sheets

Case studies

• Kim from the video
• Single young male

Questions and answers

• Super 101
• How to contribute more
• Funds 101
• Boring things you want to know

This page is available online at:
http://www.cpaaustralia.com.au/cps/rde/xchg/cpa/hs.xsl/27874_25156_ENA_HTML.htm