Superannuation… the word can make you feel drowsy!

Consider this. The average couple today needs approximately $58,000 per annum for a Comfortable Lifestyle (source: ASFA Retirement Standard http://www.superannuation.asn.au/resources/retirement-standard). If your retirement includes annual overseas holidays then you may need even more!

The full age pension is currently $33,580 per annum, however you would need to have assets below $286,500 and income of less than $284 per fortnight to get this maximum pension.  With an ageing population, young workers would be well advised to start putting something aside for their own retirement.

The basic employer contribution rate (currently 9.5 per cent of your salary) will not solve the issue – a 20 year old starting on $35,000 today (with annual pay rises of five per cent  until 40, then 2.6% per annum rises thereafter) would end up with around $708,000 in their super in today’s dollar terms by the time they get to retirement age (now 67 years of age!). While this sounds like a lot of money, it would only provide income of around $42,000 each year without drawing dramatically on the capital. Spending at a higher rate would see you digging into your retirement nest egg and ending up reliant on the age pension.

A more comfortable retirement is in reach, especially if you start early. (Your children should read this!). If the same 20 year old in the example above made the effort to add five per cent of their gross salary to superannuation each year, they would end up with a retirement nest egg of around $1.028 million at 67 in today’s dollar terms. Such an amount could provide an income of around 61,000 a year and leave the capital intact to provide for future years’ needs. 

But why use superannuation for this?  It’s all about tax.

Investment earnings in your superannuation fund are only taxed at 15 per cent, compared to the current tax rate of 38.5 per cent for someone earning over $80,000 per annum.  For the person earning $80,000, putting five per cent of your gross salary into superannuation via a salary sacrifice arrangement would see you save around $1,540 a year in personal income tax.

So if you are interested in super charging your retirement nest egg, speak to your adviser about putting more money into superannuation via salary sacrifice…it might make all the difference.

The above projections use an average earning rate of eight per cent per annum, and average inflation at three per cent per annum.  Such projections are not a guarantee of return.  The above information is general in nature and does not take into account your personal circumstances.  You should seek appropriate professional advice before implementing any of the recommended strategies.