You're aware that your superannuation balance is growing. You knew it would because your employer has been contributing to it for some years now. But for most 30-somethings (or so), retiring is still a blur on the horizon. After all, you've got the mortgage and/or the kids to worry about. Adding more to super just isn't a priority.
But have you thought about how you want to live your life in retirement? You're probably thinking the 9 per cent compulsory contribution your employer is paying into your superannuation will be enough, and you don't have to worry about it.
Think again. Our research shows that the 9 per cent compulsory superannuation guarantee (SG) will provide only enough retirement income for a high-earning couple with no kids to maintain just over half (57 per cent) of their pre-retirement standard of living. Scenarios for other income levels are a little better but are no reason for complacency.
Single male
| Income level now |
Retirement lifestyle |
| Low ($34,339) |
92 per cent |
| Average ($51,509) |
76 per cent |
| High ($77,264) |
64 per cent |
Single female
| Income level now |
Retirement lifestyle |
| Low ($29,933) |
98 per cent |
| Average ($44,899) |
81 per cent |
| High ($67,349) |
65 per cent |
Couple (no children)
| Income level now |
Retirement lifestyle |
| Low ($64,272) |
82 per cent |
| Average ($96,408) |
67 per cent |
| High ($144,613) |
57 per cent |
Couple (with children)
| Income level now |
Retirement lifestyle |
| Low ($64,272) |
137 per cent |
| Average ($96,408) |
120 per cent |
| High ($144,613) |
101 per cent |
*If you've had kids you may think an increase in your standard of living is good but it's only because it's being compared to the lower standard of living you've had while bringing up the kids. In reality, the living standard in retirement is similar or slightly lower than that for a couple without children.
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're a Gen Xer, that's unlikely, as the compulsory super was only increased to 9 per cent in 2002. What's more, you may not plan (or be able) to work full time for 40 years, so the amount you'll have saved for your retirement could be pretty disappointing.
Maybe it's time to engage a bit more actively with your super and learn to appreciate its good qualities. A little more love can go a long way, and the sooner the better. It's all about compounding interest.
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 maintain your lifestyle.
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 fund. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges and investment options available. 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.
It's also worth checking out life insurance cover. There can be real benefits in purchasing life insurance through your superannuation, as most super funds offer some form of cover. Provided you have accounted for estate planning needs, insurance cover through your fund may include life insurance, total and permanent disability (TPD) insurance and income protection which can be paid for from your contributions, potentially saving you hundreds of dollars each year.
A financial planner can help you evaluate whether buying insurance via superannuation will meet your needs.
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.
If you have the means to make lump-sum contributions to super, there are generous allowances for you to maximise top-ups. You can contribute up to $50,000 (per person, per year) for contributions paid before tax (either by your employer or via salary sacrifice). In addition, there is also a $150,000 limit on undeducted or non-concessional (personal) superannuation contributions. Both are taxed at 15 per cent.
Just remember, the longer you wait to contribute extra, the more you'll have to contribute. If you waited until you were 45 to make additional after-tax contributions, you might have to contribute an extra 9.5 per cent to get the same retirement benefit as contributing an extra 5 per cent more from age 35.
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.
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