How much better off could you be by saving for tomorrow, today?
By contributing more to your super now, you could be better off in retirement, whether that be near or far away. And just as the case studies below show, every little bit helps.
Mark gets super savvy
Mark is a 30 year old recruitment consultant, earning $80,000 a year.
Mark has managed to save $25,000 in super. And he knows his employer contributes 9% towards his super, which is helping him build up savings for his retirement.
If Mark’s super contributions continue to be paid at 9%, and he works to age 67, he will retire with a superannuation balance of $525,000 (in today's dollars).
Legislation has now been passed that, from 2013 the superannuation guarantee rate will increase to 12% over a six-year period.
With this in mind, Mark’s projected retirement balance would increase by $113,000, to $638,000.
Mark likes the idea of having more money in his super. He decides to make extra contributions from his before-tax pay as he knows tax wise he would be better off. He plans to make additional contributions of 3% of his after-tax pay to start with, and to reduce them as his employer's contributions get to 12%. Mark's projected retirement balance is now $678,000, that's a difference of $40,000.
Lucy knows the benefits of saving more
Lucy is a 35 year old Promotions Manager, earning $120,000 a year.
After a short career break, Lucy recently returned to her work. She checks her superannuation statement and finds she has $49,500 in accumulated super savings.
Lucy knows that her employer contributes 9% towards her super, but thinks she may need a little boost to help her enjoy the type of financial future she wants when she finishes work.
If future contributions continue at 9%, if Lucy works to age 67 she will retire with a superannuation balance of $671,000 (in today's dollars).
Increasing the superannuation guarantee rate to 12% means Lucy’s projected retirement balance at age 67 will increase by $129,000 to $800,000.
Rather than waiting, Lucy decides to increase her contributions to 12% immediately by making salary sacrifice contributions to super. Lucy’s projected retirement balance is now $851,000. That's a difference of $51,000.
Esther decides she can afford to act now
Esther is a 45 year old Human Resources Manager, earning $160,000 a year.
Esther has $91,500 in her superannuation account, and her employer makes 9% super contributions to her account.
If contributions continue at 9%, and Esther works through to age 65, she will retire with a superannuation balance of $541,000 (in today's dollars).
The super guarantee rate increase to 12% means Esther's projected retirement balance at age 65 increases by $77,000, to $618,000.
Esther decides that she can afford to make additional contributions to super now, and decides to salary sacrifice an additional 3% (and reduce her salary). If Esther makes these additional 3% contributions through to retirement, at age 65, her projected retirement balance becomes $731,000. That's a difference of $113,000.
Josiah knows it's never too late
Josiah is a 55 year old Chief Finance Officer, earning $200,000 a year.
Josiah has $366,000 in his superannuation account, and his employer makes 9% super contributions to his account.
If contributions continue at 9%, and Josiah works through to age 65, he will retire with a superannuation balance of $721,000 (in today's dollars).
Josiah realises that the super guarantee increase doesn't reach 12% until 2019, and he will miss out on much of the benefit of higher compulsory contributions. He decides that he can afford to make additional contributions to super now, and decides to salary sacrifice (and reduce his salary) so that his total contributions will be 12%. Josiah's projected retirement balance, at age 65, increases by a further $33,000, to $778,000. That's a difference of $20,000.
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Explanatory notes and assumptions:
For ease of comparison, all amounts are expressed in today's dollars, i.e. the effect of future inflation has been removed. Everybody's circumstances are different, and the decisions that individuals make in relation to their superannuation savings will take a wide range of factors into account.
No allowance has been made for any individual's personal tax circumstances, or for assets that may be held outside superannuation. These factors may influence the relative impact of making contributions from after-tax earnings, on a salary sacrifice basis, or as a combination of the two Superannuation, and other, assets will affect eligibility for the government age pension. These factors are not taken into account in these examples.
Some simplifications have been adopted for these calculations. For example, investment returns and inflation are assumed to be consistent (and positive) from year to year. It is assumed that the SG contributions made by your employer do not vary if you make salary sacrifice contributions to super.
The key assumptions used in the projections are as follows:
Superannuation assets are invested in the HOSTPLUS Balanced Option; Investment earnings before fees and tax are assumed at 8.0% per annum; Tax on investment earnings is assumed at 6.0% per annum; Fees on the HOSTPLUS Balanced Option are assumed at 0.6% per annum; For inflation, the rising cost of living is assumed to be 2.5% per annum and a further 1% per annum is assumed due to rising community living standards; Administration fees are assumed to be $2.00 per week, and insurance costs are assumed to be $3.00 per week (indexed to inflation); To facilitate comparison, all advice fees (fee for service and commission/asset based fees) are met from the member's retirement account balance.
General advice
Calculations are indicative only, and have been calculated by Rice Warner Actuaries Pty Ltd ABN 35 003 186 883 based on legislation at 1 July 2010, except where indicated otherwise.
Rice Warner Actuaries Pty Ltd is the holder of an Australian Financial Services Licence number 239 191.
Where relevant the government's changes to superannuation, including the increase to the superannuation guarantee rate and the Low Income Earners Government Contribution take effect from 1 July 2012 as announced in the May 2011 Federal budget.
The information in this material does not take into account your personal objectives, financial situation or needs. Actual investment returns will vary significantly from year to year, and could be negative in some years. It is important that you consider the appropriate Product Disclosure Statement before making a decision in relation to your superannuation benefits.
We recommend that you consult a licensed or authorised financial adviser if you require financial advice that takes into account your personal circumstances. You can check whether a person is a licensed or authorised financial adviser by visiting the Australian Securities and Investments Commission at www.moneysmart.gov.au