Under 50 and ignoring your Super? Regret is in your future
SUPERANNUATION'S days of being ignored by millions of Australians aged under 50 need to stop now.
Recent rule changes for the nation's $2.3 trillion super system have made it much harder to quickly grow a nest egg later in life once the kids have left home.
And the growing numbers of young people being locked out of the real estate market are being urged to realise that their super is likely to be the largest asset they will ever own.
The Federal Government last July lowered the maximum level of tax deductible super contributions allowed each year to $25,000.
Financial strategist Theo Marinis said this was a long way from historical annual limits of $50,000 and $100,000, so people could no longer ramp up retirement savings in the decade before they stopped working.
"The longer you leave it, the worse it is," he said. "If you get money in sooner you start to reap the benefits sooner.
"The secrets to super are tax efficiency and compound interest."
Compound interest, once described by Albert Einstein as the eighth wonder of the world, means earning interest on your interest on your interest and so on. Super is perfect for this because your money can't be accessed until retirement, meaning all the income it generates gets reinvested to buy more assets and generate more income.
There are several ways to boost your super balance faster, including:
■ Salary sacrificing part of your weekly wage, which gets taxed at just 15 per cent instead of your marginal tax rate;
■ Taking advantage of incentives such as the government's super co-contribution or spouse contribution;
■ Consolidating multiple super funds into one to save on fees;
■ Checking the insurance cover you have within super to make sure it's not costing you unnecessary premiums;
■ Changing your mix of investments in super to target more growth assets such as property and shares if you have decades left before retirement.
Apart from the lower super contribution caps, a raft of changes that came into force last July do not hurt most workers, but NDA Law managing director Andrea Michaels said the constant tweaking of rules was damaging people's confidence.
"Even if you are not affected by the contribution caps, you may not understand the system because they keep playing with it, and that's a danger," she said.
Ms Michaels said super fund members needed to pay attention sooner in life and not bank on a future healthy government pension.
"It's going to be tough for the government to continue paying the age pension at the level they are paying," she said.
"If you can make small contributions in your 30s the compounding effect of that money is going to mount up."
The Australian Securities and Investments Commission's moneysmart.gov.au website has a range of calculators that help you forecast your nest egg and retirement income, work out how extra contributions can boost your savings, and check how long you can expect your super savings to last.
"People are generally healthier and living longer than previous generations," it says.
"Retired men can expect to live to 86, retired women to 90. This means if you stop working at 60, you are likely to need retirement income for at least 26 to 30 years."
And don't expect the age pension to give you a comfortable retirement. Its eligibility rules were tightened last year and it currently pays a maximum $894 a fortnight for a single or $1348 for a couple.
If you don't think you can live comfortably on those numbers, look at your super now.
Kylie Bishop has been taking a keen interest in her superannuation for the past decade.
The 46-year-old entrepreneur and her husband Jarrod, 40, have bucked the traditional trend for business owners to start a self-managed super fund - or ignore super completely - and have instead remained with the same industry fund they had when they first started work.
"Over the years I have watched it perform considerably well," said Mrs Bishop, who often tips extra money into her fund at the end of the financial year.
She said it was easy for Australians to ignore super because they never saw the 9.5 per cent compulsory contributions paid in by their employers.
"They lose sight that there's that 9.5 per cent value.
"Under 50, we think we still have many, many working years ahead of us, and are not thinking about retirement, death or disablement."
Mrs Bishop's super is invested in a slightly riskier mix of assets that typical super fund default options. "As I get older I might reduce that risk," she said.
"I have taken more of an interest in the last 10 years in my superannuation account. I'm a female in my mid-40s with five children and want to make sure the fund is still performing.
"Super is part of my long-term financial plan and because of that I need to keep thinking about it."
A desire to save money and invest ethically prompted Lucy Jackson to focus on her superannuation at a younger age than most people do.
Ms Jackson, 31, amalgamated several super fund accounts into one account in her late 20s.
"I also became interested in ethical investments, and moved it all to Australian Ethical," she said.
"I'm quite passionate about sustainability but sometimes feel a little disempowered. This was a powerful way for individual action to have an impact."
Ms Jackson said it was a good idea for Australians to take an interest in super earlier in life. "I think it's often easy to put it off, but if you are living in a big city, property is becoming increasingly unattainable," she said.
"Super is a really good way to invest and rely on other peoples' expertise to invest your money."