Ask the experts: I have less super than others my age, what can I do to catch up?
If Steven Bradbury proved anything on that fateful day in 2002 when he sailed past his bruised competitors to bring home Australia’s first gold at the Winter Olympics, its that it’s never too late to catch up; a lesson as true for superannuation as it is for speed-skating.
Unlike Bradbury’s infamous victory, however, someone playing catch-up with their super doesn’t need to rely on those ahead of them to slip up, and – according to Industry Fund Services technical, research and advice services chief Craig Sankey – the rewards can be just as exciting.
The New Daily asked Mr Sankey to explain how to check your super savings are on track, and what strategies are available to those looking to top up their retirement savings.
How much is enough?
The amount of super someone will need to save before retirement depends on two key factors: when they want to retire, and how much they want to live on when they do.
The answers to those questions differ from person to person. That means there’s no universal answer to the question of how much is enough, but calculations done by the Association of Superannuation Funds of Australia suggest that for a comfortable lifestyle (holidays, nice clothes, reasonable care and private health insurance), healthy retirees would need $545,000 (or $640,000 for couples) at retirement.
Retirees with less than this will still enjoy a modest lifestyle, but might have to cut back on things like lavish holidays or fancy household goods and electronics.
Concerned super members can use the superannuation calculator on the MoneySmart website, run by government financial services regulator ASIC, to get an idea of how much they’ll have at retirement.
ASFA has also published a rough guide showing Australians’ average super balances at various ages. Mr Sankey said this was a useful way to track your super’s performance, but added that the numbers would be higher than actual savings for most people because the figures are dragged up by wealthy outliers.
Making up lost ground
If your super balance is lower than you’d expect for your age, or it doesn’t look like you’ll have saved as much as you’d like by retirement, Mr Sankey said there are four main strategies that can help make up the difference.
- “Delay your retirement and work longer – and that doesn’t necessarily mean you work full-time.”
- “Take on additional risk and try to get higher returns. But that’s something you shouldn’t do lightly, and should seek advice before doing.”
- “Lower your retirement expectations, which is a bitter pill to swallow but sometimes it’s the only option you have.”
- “Start contributing more now – and that’s the easiest one to do if you plan ahead. Plus, the earlier you start, the better.”
The best option is the fourth – additional contributions. What’s more, the extra payments don’t have to be terribly large to have a big impact, Mr Sankey said, especially for younger members.
When Industry Fund Services crunched the numbers for The New Daily, it found that a 30 year old salary-sacrificing $20 each fortnight would see an additional $24,460 in their account at retirement. That equates to an additional $92 in income each fortnight.
Increase that contribution to $50 a fortnight, and those figures balloon up to an additional $61,150 at retirement (equating to an extra $134 of fortnightly income).
Those calculations are based on a 6 per cent annual net return and an annual inflation rate of 2.5 per cent.
“The other strategy that’s becoming more popular now is tax deductible contributions. Previously only self-employed people could use that strategy, but now it’s opened up to everyone,” Mr Sankey said.
“It works the same as salary sacrifice, but allows people who get to the end of the financial year without salary sacrificing or have some extra funds to make these one-off lump sum contributions and claim a tax deduction on them.”