Bruce Brammall, The West Australian, 13 November 2017
Surveys, yardsticks and statistics – if you care about your own personal finance, these are usually a staple part of your information diet.
Why? Because they allow you to judge your performance. Are you tracking ahead, or behind? Do you need to work/save harder? Is there something you could be doing better/smarter?
One of the toughest yardsticks to set, let alone beat, has always been: “How much super should I have at age 30, 40, 50 or 60?”
We know that just receiving your 9.5 per cent from your employer is not going to be enough to get you to a comfortable retirement – if you are relying on super as being your only means of saving for retirement income. And you don’t need to – property and shares outside super are also good options, if less tax effective.
But how much extra do I need to put in, and when, and to hit what targets along the way?
One American TV finance columnist recently proffered some numbers on exactly that. She tweeted: “By the time you’re 30, aim to have 1x your annual income set aside for retirement. At 40, 3x; at 50, 6x; at 60, 8x; and by retirement, 10x.”
She was completely mauled on Twitter.
The most vicious criticism was aimed at her claim that 30-year-olds should have one year of their salary saved for retirement. The squeals seemed to be coming from Twits who believed the only way this could be achieved was by drinking coffee bought from a thermos from home, never eating out, living with “mom and dad” and refusing to pay board and ignoring any overtures of attractive others, because that might lead to babies.
The retirement system in the US is different to ours. They don’t have Australia’s compulsory super system. But even our superannuation guarantee, at 9.5 per cent, we know will not be enough, which is why it’s legislated to move to 12 per cent.
The average Australian will not hit those numbers via just SG payments from their employer.
But they are, roughly, the sorts of multiples of income that anyone who cares about their super should be aiming at.
So, if you can’t get there with the 9.5 per cent, how do you?
By showing a little more love to your super. Putting in a little extra each year. With some personal sacrifice, or even salary sacrifice.
Younger Australians need to learn to put in extra into super, from a younger age. It doesn’t have to be huge amounts, but it needs to be earlier and more consistently.
Previous generations – under previous and more generous super rules – were able to shovel money into super after 50, when the kids were largely off their hands and their mortgages were paid down.
They could literally throw in $100,000 a year. Per job.
Our generation, however, is limited to $25,000 a year in concessional contributions, which includes SG, salary sacrifice and any other form of tax-deductible contributions.
When we make it to 50, many of us might be in a position where we could put in $50,000 or more. Nuh-huh.
So, we need to start making contributions earlier. In our 30s.
It could be as little as a few thousand dollars a year. An extra $100 a week ($5200 a year) through your 30s will make a huge difference. If you can continue that through your 40s, fantastic.
From 1 July this year, the government has made this easier. Anyone can now make a super contribution and claim a tax deduction for it (remembering it is a concessional contribution like your SG payments and they can be no more than $25,000 in total).
You can make the payments directly to your super fund and claim a tax deduction, at any time during the financial year. If you decide in June that you have an extra $5000 that you want to put into super … call your super fund and get the details to directly deposit it into your super account.
How might I change those age v income targets? Really, only at the margins. They are acceptable yardsticks. And as to the haters who mauled her on Twitter? They should probably just shut up and pay attention.