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Learn how to set yourself up financially for retirement and build out your nest egg by salary packaging your super.
Setting yourself up financially for retirement is incredibly important, and your superannuation is a vital part of that process. The question is: are you doing all you need to prepare yourself for your golden retirement years?
If you're not satisfied with where you’re currently at, you could make a real difference by salary packaging additional super contributions. It’s one of the simplest items to salary package. And in the long run, it could be one of the most rewarding.
Read on to see if there’s more you could be doing to meet your financial goals.
If you're like many Australians, your superannuation will be a key source of income funding your retirement. With life expectancy high, that money will have to last, as people spend longer in retirement than previous generations.
Life expectancy
Australia has some of the best life expectancy rates of anywhere in the world. Recent ABS research from the period of 2020-22 sets our latest life expectancy at birth as 81.2 for males and 85.3 for females. Because of the potential for such a long retirement, it’s critical to have a strong super balance when you finish working.
A variety of expenses
Of course, once you hit retirement, you’ll have a range of expenses to contend with, both big and small. Some of the larger items could include paying off your mortgage, dealing with renovations on your property, new cars, holiday travel and medical expenses.
Money Smart estimates that you’ll need 67% of your pre-retirement income to maintain the same standard of living once you stop working.
Consider the types of expenses that you expect, and how many of these you think will be big, major costs.
Your current balance
Recently, The Association of Superannuation Funds of Australia (ASFA) provided an update on Australian super balances. Currently, the average super balance for the 35-39 age bracket is just under $91,000. For 40-44, it's $131,792.
How does your balance look right now... and how does it compare with other people in your age bracket?
It's never too early to keep an eye on your super balance and consider if it's likely to be enough for your retirement years.
It's impossible to know exactly how much you'll need once you get to retirement. And the further you are from that day, the more things can change before you get there. But right now, there are a few indicators you can run with (again with the help of ASFA and its research).
First, consider the lifestyle that you'll want in your retirement. ASFA sets out two main standards of living: comfortable and modest. Both are based on the assumption that you own your own home and that you’re relatively healthy.
A comfortable retirement sets out a good standard of living, with expenses covering daily essentials, leisure and exercise. It also includes going out for the occasional meal and keeping up private health insurance. On the other hand, a modest retirement is geared toward a standard only slightly above the age pension. That means you can expect more basic health insurance and infrequent social, leisure and exercise activities.
You may not be sure whether you're currently on track with your super. Or if your employer’s compulsory contributions will add enough to your balance by the time you retire. Whenever you’re uncertain, consider seeking independent financial advice to weigh up your options.
But if you do decide that you want to add to your balance, salary packaging additional super could be the answer you’re looking for.
It's very easy to set up. Simply log into your online account, provide us with some important details (it should take just a few minutes) and you could be adding to your nest egg from your very next pay day.
Not only will you be putting extra money away for retirement, but you'll also have the added benefit of potentially saving on tax while you do it. That's because super is deducted from your salary without any income tax.
Instead, there’s just a contribution tax of 15% taken by the super provider on the other end (on contributions up to $30,000 per year, including compulsory employer contributions). Given your income tax rate will generally sit well above 15%, you could expect to make a decent tax saving on each salary packaged contribution.
It doesn't need to be much, either.
Small, consistent efforts over a long period of time can add up to a big difference. For example, contributing just the cost of a cup of coffee a day into your super each pay could increase your balance by more than $50,000 by the time you retire (depending on your age now).
Adding even a small amount to your super each pay date could make the world of difference for your senior years. If you'd like to start salary packaging super today, log into your online account to sign up.
^ The estimated increase in super balance is taken from the SuperGuru website calculator (an initiative of The Association of Superannuation Funds of Australia) at https://www.superguru.com.au/ExternalFiles/calculators/small-change/index.html. Calculations were made based on investing the monthly amount of $116 into a balanced fund and assuming 4.8% growth over a 17-year period for a 50-year-old; 27-year period for a 40-year-old; 37-year period for a 30-year-old. Calculations are not intended to be relied on for the purposes of making a decision in relation to a financial product, including a decision in relation to a particular superannuation fund or strategy.
Disclaimer: This is general information only. Before entering into any salary packaging or novated leasing arrangement, you should consider your objectives, financial situation and needs, and obtain appropriate legal, financial, or other professional advice based upon your own particular circumstances.