Superannuation – spend it or keep it?
There has been much talk recently about how the Australian Government may tinker with Super in the future. There’s talk of taxing the super rich more to make the system more equitable. Those of you who are realists such as me know that such a change is very unlikely to happen. The rich speak with their money and have so much influence over our politicians that any radical change to superannuation is unlikely. The politicians will talk, have conferences, produce White Papers and then cow-tow to the people that really rule – the rich! The Prime Minister will say he is listening to the Australian people and then do what the strongest lobby group says he should do.
Super on the airwaves.
I was listening to the radio in the car the other day and was shocked when I heard a recently retired listener ring in and talk about his Superannuation. He said he had recently been to a reunion of about 400 people. He had worked hard all his life, saved as much Super as he could, then retired and put most of his Super Fund towards a pension to last him as long as possible during his retirement years. Quite a few people he talked to at the reunion had done exactly the opposite and he was upset by their attitude. He said most had taken their Super as a Lump Sum payout. They then upgraded to a newer and more expensive house, bought a new car, went on an extended around Australia or overseas trip and spent most of the lump sum. They then applied for the Old Age Pension to live the rest of their retirement with little spending money but thought it was the correct thing to do. I thought at first he must be exaggerating but then he said that it was at least 5 or 6 people he had talked to at the reunion. He found it odd and was troubled by it but I don’t think it is unusual at all. Most people are greedy but won’t admit it. It’s a normal human trait that rules many of the decisions we make during our lives. Is it the right thing to do? Of course not!!
Save and live well.
Everybody would like to “save and live well.” It’s not an outrageous expectation though and can be achieved by saving modestly for the long term and adding to Super contributions from your employer. Consider adding to your Super before paying tax via Salary Sacrifice as this is a much more tax efficient way of saving. Instead of paying tax on your contributions at your relevant PAYE rate, you’ll only pay 15% tax on Super contributions via Salary Sacrifice.
I’ve included a calculator below to allow you to do your own calculations for your future. I’ve decided to use a savings calculator instead of a Super calculator as it is easy to follow and simple to fill out. You can compare the answers with a more complicated Super calculator such as the one available at Moneysmart but I thought simpler was better. The answers will be slightly different but at least when you add the interest rate on the Savings calculator you can understand the implications whereas the Moneysmart site hides some assumptions.
On the calculator below you can add your plans to see what the monetary outcome will be.
eg. You plan to save $400 per month, you are 30 years old so have 30 years to save to retirement and the interest rate received is 7% (a reasonable long term rate). As you can see the answer is $485,150.60. Not bad for saving $100 per week for 30 years.
With Superannuation now at a rate of 9% for most people, a $50,000 wage would be Super per week of roughly $86ish. Imagine if you also added the extra $100 per week to this for 30 years – $902,380.11!
I’ll leave you to play with the calculator and plan your future.