Never too late to start

Too often people give up on super. They think they have saved too little that they won’t be able to catch up and it’s just a waste of time. But there are several key benefits of putting money into superannuation and importantly, it is never too late to start.

Firstly, while your savings in super during accumulation mode is taxed, it is taxed at the marginal tax rate of 15 per cent. For most Australians who are still working, this is below the top marginal tax rate they are paying on their take home wages.

Secondly, your savings in superannuation are protected from your creditors if things should go wrong during your working life and you are faced with a financial disaster. It’s good to know that your super is protected from creditors in these situations.

Finally, the true value of superannuation is compound interest. This is where interest is building on interest and capital gains are building on capital gains. Sounds a bit complex? Think of a snowball rolling down a ski run and getting bigger and bigger as it goes.

That how the benefit of compound interest works and as your super balance gets bigger so too does the accumulated earnings and capital gains get bigger so those last few years where your super is in accumulation mode can make a big difference to your retirement funds.

It’s also important to remember just $100,000 in super can make a big difference to your retirement. Remember these numbers.

For every $100,000 you have in super when you retire, it is reasonable to expect a long-term rate of return of 6 per cent net or about $6,000 a year in net income. That’s an extra $500 a month in your bank account in addition to the age pension.

The reasons these number are so important is because they are so easy to multiply. If you get to $100,000 in super, try to save a further $100,000 in super. If you have $200,000 in super that’s $12,000 a year you can expect or income of about $1,000 a month in addition to the full pension.

If you and your partner both have $200,000 in super, that’s an extra $2,000 a month and so life becomes more and more livable even while receiving the full age pension.

Now, I’m not for one minute suggesting that life on the Australian age pension is a breeze and my goal for all clients is to be self-funded or have so much in the way of super savings they won’t qualify for the pension.

But my key message to everyone is to not give up on your super. It will be your best asset in retirement, and you need to talk to me about how we squeeze as much money into super before you do retire.