Retirement planning requires a proactive approach. It’s not just about relying on your employer through compulsory super contributions to provide you with a comfortable retirement, although this will provide the younger generations with a greater headstart, particularly given the Federal Government’s plans to increase compulsory super contributions to 12 per cent and the fact that people entering the workforce will be paid compulsory super contributions from an early age.
Numerous surveys indicate that a single retiree needs approximately $40,000 per annum to have a comfortable retirement and a couple needs about $55,000 per annum. Based on a six per cent return on your super, a single retiree would need approximately $666,000 as a lump sum in super at retirement and a couple would need around $916,000.
If you set these amounts as a minimum target, they will be and are achievable the sooner you take some positive action to grow your investments in or out of super. Superannuation is the most popular vehicle to build your retirement nest-egg because of the tax concessions provided by the government. But this doesn’t stop you from building investments outside of super which can contribute to your retirement.
A higher income throughout your working life can make it easier to achieve a comfortable retirement, but this doesn’t stop a low income earner from achieving a comfortable retirement if they take a proactive approach to building their super.
There are many ways to boost your super for retirement. Let’s take a look a few of the more popular ones.
1. If you are eligible, the government co-contribution scheme is a good way to boost your super. Even with the reduced co-contribution applying from 1 July, 2012, it’s still a 50 per cent return on your investment. If you aren’t eligible, your spouse may still qualify.
2. Salary sacrifice is a great way to boost your super and save tax. If you earn more than $37,000 you will pay tax at 34 per cent (including medicare levy) on income up to $80,000. Any income you sacrifice to put into super will reduce the tax rate to 15%.
3. Review your super fund. Fees and investment performance can make a big difference on the outcome of your retirement nest egg. Check out some of the research houses like Chant West, Canstar or Super Ratings, which can provide you with useful information on performance and fees.
4. Choose an investment option for your investment time frame. If you have more than five years before you can access your super, then the focus should be on an investment option that will provide the best growth and income over that time. Don’t be distracted by market volatility and switch your investment option every time there is a movement in the market.
This article first appeared on SuperBiz.
Robert Bourne has more than 35 years’ experience as a financial adviser.