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Over thousands of years, small drops of water on rock made the Grand Canyon.
Securing your financial future is exactly the same – the incremental savings all add up in the long run.
Let’s apply this analogy to superannuation.
Your super is designed to fund your retirement, but that doesn’t mean that you should ignore it until you get closer to needing it, no matter how many years away that seems right now.
By regularly reviewing super and making extra contributions when you can, you set yourself up for more financial security in retirement.
Well, there are a few key ‘life’ changes that should prompt you to look at your super and ask yourself some important questions: Is it performing as well as it could? Is it still the fund I need or should I look at others? Can I contribute more?
Perhaps the most significant of these is changing jobs. If you’ve had several employer-mandated super funds, it might be wise to consolidate them – you can minimise fees and charges this way and consolidated super is easier to keep track of. If you’ve already lost track, find your lost super here. Remember if you’re consolidating, rolling your fund/s over into another may incur some fees.
If the new job comes with a pay rise, then it’s also a good time to think about exactly how much you can salary sacrifice.
Not all employers offer salary sacrifice, but if they do, it’s worthwhile, because it’s a kind of pre-tax enforced-savings plan, and super contributions are taxed at a lower rate than your salary, so it has tax advantages, too.
There are a lot of factors involved, and this is just a simplistic illustration and a very basic calculation for the purposes of this blog, but if, for example, you are age 30, earn $60,000pa and salary sacrifice $25 a week, this can add an additional $45,000 to your retirement savings. $50 a week makes an additional $75,000 or thereabouts. Of course, every scenario is different and a financial planner can help you understand your own individual circumstances.
If you get married, divorced, buy or sell property, start a family, and when you are about a decade away from retirement are also important check points.
Another critical juncture is starting your own business. Many small business owners find themselves with sporadic cash flow in the early years.
Some unfortunately let this impact their super, meaning they forgo regular payments – don’t let this be you. It’s easy to fall into the trap of thinking that one day you’ll sell your business to fund your retirement. This is not a fool-proof plan with guaranteed perfect results, by any means, so make sure you have an exit strategy for your business – and a retirement fund that is separate from it.
Many small business owners find having a Self Managed Super Fund can be advantageous for a variety of reasons. It’s not for everyone, but it’s worth understanding the flexibility that comes with having a self managed fund and ways you can use it to grow your business, by purchasing commercial property, for example, or buying in-house assets (to a maximum of 5% of the total super investment pool).
What’s critical to remember is that your existing super fund is likely to come with insurances – perhaps income protection or life cover.
That said, these generic-type insurances don’t always offer completely adequate cover, but any change to your superfund will affect the in-built insurances.
For this reason, it’s wise to consider super hand-in-hand with personal insurance. If you’re intent on growing your wealth then you’ll want to put strategies in place to protect it, and this is where insurance cover is necessary. Then, if the unexpected happens, you’re not eroding your savings, investments or asset value to fund the crisis.
There are many ‘estimates’ about how much you’ll need to fund your retirement. And these are good benchmarks – but it’s a very personal thing.
What you need to keep in mind is that the average age of retirement is 60-65 years, and because we’re living longer, you need to plan for a post-working income for 25, maybe 30 years or more.
Every contribution you can make now, and as the years go by, whether it’s big or small, will make a difference when you get there.