It is very hard to picture yourself with grey hair and wrinkles while you’re still in your 20s. A more relaxed lifestyle of gardening, lawn bowls and earlybird dinners seems far away, but it’s a lifestyle you are going to have to plan (and pay) for.
The thing about super is, the best time to start building your super balance is in your 20s. As your parents, or even your grandparents might say, “slow and steady wins the race”.
Times have changed (and will keep changing)
We don’t live and work the same way we used to. We don’t stay in just one job for life anymore. We rent rather than buy. We are living longer than ever before.
While the 9.5 percent government mandated super contributions are a great start, they are not really enough to give you a comfortable retirement. Even with the Age Pension – if it’s still around – your income after work could fall short. Add on top of that any breaks in employment for things like study or parental leave, and it could be even less. And if you work part time or casually, there may be periods of your life where you may not qualify for super at all – putting another dent in your nest egg.
What can you do? A lot
It sounds bleak, right? But you can take steps now to change your future. It is worth thinking about topping up your super with extra contributions from your pay cheque. Why? It can help to meet any shortfall that might occur between your employer’s contributions, the government’s Age Pension and what you actually need to maintain a good lifestyle in retirement.
There are tax benefits too. Super is taxed at 15 percent which is generally much lower than the tax on your income. So it’s a great way to save money at a really low tax rate.
The science behind super
The benefit of contributing to your super when you are young is that you are taking advantage of something Einstein dubbed ‘the eighth wonder of the world’ – compounding.
Compounding is the basis of wealth creation and can be best described by imagining a snowball rolling down a hill. As it accelerates, it grows. The longer the hill, the bigger it gets. Your super is the snowball. The hill is your timeframe.
Your super grows through contributions and also by the returns you get on your investment. And while there is the possibility of negative as well as positive returns - as long as your super fund is doing its job - over a lifetime of investment, your super balance should grow. The wonder that Einstein was talking about happens when you get returns on the returns which accumulate over time.
Think contributing extra into your super might be right for you? Find out how you can boost your super.
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).
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