Most 30-somethings wouldn’t pay too much attention to their superannuation, but they should.
Here are the main reasons why younger people would benefit from a closer look at their superannuation statement. Your superannuation is your money, just not yet.
Superannuation is a tax structure provided by the government to encourage people to accumulate their own retirement savings in a tax-favourable environment. Current rules state that you must meet a condition of release before you are able to access your superannuation.
Based on current rules, someone who is in their 30s now will have access to their superannuation once they cease gainful employment at age 60. Your employer is required to contribute 9.5 per cent of your ordinary time earnings to superannuation and this will slowly increase to 12 per cent by 2026. Don’t rely on social security to save your retirement.
In 2007, there were five people of working age for each person aged 65 years or older. It is projected that by 2047 there will only be 2.4 people of working age for each person aged 65 years or older.
Because of this growing pressure on the welfare system, we have seen many changes to the aged pension which has reduced the amount that many retirees receive and pushed out the qualifying age.
It’s clear that social security isn’t going to save your retirement, but the good news is that you have plenty of time to start planning!
Would you let your employer choose your mortgage too? I recently met with a 30-year-old who had gone with his employers’ default superannuation plan. Because of this, he was invested in a 100 per cent cash investment.
After discussing his attitude to investment risks and the length of his investment, we agreed he was a “high growth” investor. This means he should be invested predominantly in growth assets, shares and property.
Assuming he wanted to retire at age 60, his investment time frame would be 30 years. Using actual investment market data from the past 30 years, Australian cash has provided an average annual return of 6.6 per cent a year while a diversified high growth investment has returned on average 8.1 per cent a year.
This difference in annual return translates into a difference of about $350 000 for this client at retirement. That’s no small amount!
Many super funds offer default insurance cover, so you may already have insurance in place in your superannuation fund. However,is it enough and are you really covered for what you think you are covered for?
It can be easy to answer a few simple questions to take out cover in super. However, if you need to claim on the policy, the insurer will investigate to see if the condition you are suffering from was pre- existing at the time the policy was taken out.
By purchasing insurance through a financial adviser, a thorough investigation of your health will be conducted before entering into the policy, so you will know exactly what you are not covered for.
An adviser will also recommend an appropriate level of cover to meet your needs.
Do you pay much attention to your super? Any tips and tricks? Share them with your community below in the comments.