Everyone can benefit from making small contributions into super, which — over a period of time — can make a big difference to your future. It’s never too late to start putting something extra aside for the years ahead.
Here’s how three different people — all in similar jobs — approach their super and the different type of retirement years they can each expect.
Take the case of Tom, Jill and Sue
All three started working at age 25, earning a gross annual salary of $45,000, to which their employers added the Superannuation Guarantee (SG) of 9.5%.
- Fresh out of university and paying rent for the first time, Tom chose not to make any extra contributions to his super. Jill found herself in the same position, but decided she could afford to put aside an extra $20 a week.
- Over the course of his working life, Tom will have saved around $368,000* in super, while Jill will end up with $483,000* — that’s $115,000 more!
- Meanwhile, Sue waited until she was 45 to start saving more, but contributed $40 extra each week from her take-home pay to make up for lost time. She’ll retire with $454,000* — that’s still $86,000 more than Tom.
Three people, three different super strategies. You can clearly see the benefits of starting early. And even though Sue will retire with almost $30,000 less than Jill, she’ll be able to pursue more of her dreams in retirement than Tom, proving that it’s never too late to start saving.
Still unsure whether you’ll top up your super? Here are five things that might change your mind.
- You could enjoy a more comfortable retirement lifestyle
So what’s ‘comfortable’? The Association of Superannuation Funds of Australia (ASFA) Retirement Standard outlines how much money retirees need to fund either a comfortable or modest standard of living. A ‘modest’ lifestyle is considered better than one funded solely by the Age Pension, allowing for costs such as one or two short trips near home each year, plus the occasional restaurant meal and paid leisure activity. For a single person aged 65, the annual amount required at retirement for a modest lifestyle is $23,000 ($34,000 for couples).
A ‘comfortable’ lifestyle, on the other hand, provides much greater spending freedom: an annual holiday, for example. Making voluntary contributions to your super while you are working will go a long way towards helping fund such a lifestyle.
- Could you live on the Age Pension?
The current weekly rate for the full Age Pension for singles is around $435, which takes care of most of your day-to-day essentials. However, supplementing this with your super savings will help you pay for anything extra.
- You’ll be able to live well for longer
We’re living longer than ever before, with Australia ranked seventh worldwide in terms of life expectancy. With men living to age 80, on average, and women to 84, it’s important to have enough money to fund all of your retirement years.
- You could make a tax saving
By making a contribution to your super from your before-tax pay (known as salary sacrifice), you’ll be taxed only 15%. It makes sense to make contributions this way, rather than from your take-home pay after you might have paid a higher income tax rate.
- The government could help your super, too
If you earn less than $51,000 a year and make an after-tax super contribution, you may be eligible for a bonus of up to $500 from the government, known as the government co-contribution. Contact the Australian Taxation Office (ATO) to find out more.
There are so many benefits to be had by setting something aside for your super from your weekly budget. Contact your super fund to find out how you can start topping up your super today — plus, industry super funds have financial advisers who can discuss your individual circumstances.
* Assumptions: Investment earnings of 6.5% net per year and employment is constant until age 67. Inflation of 2.5% per year and figures are in today’s dollars (i.e. the final value is discounted for inflation). Figures include SG contributions of 9.5%. Calculated at 01/03/2016. This example is an illustration only and is not guaranteed. Actual outcomes may differ. Investments may go up or down.
Issued by H.E.S.T. Australia Ltd ABN 66 006 818 695 AFSL 235249, the Trustee of Health Employees Superannuation Trust Australia (HESTA) ABN 64 971 749 321. This information is of a general nature. It does not take into account your objectives, financial situation or specific needs so you should look at your own financial position and requirements before making a decision. You may wish to consult an adviser when doing this. Before making a decision about HESTA products you should read the relevant Product Disclosure Statement (call 1800 813 327 or visit hesta.com.au for a copy), and consider any relevant risks (hesta.com.au/understandingrisk).