Depressing news about the American and European economies and their even more depressing impact on investment markets should not discourage people from boosting their super savings, says Mr Jonathan Philpot, wealth management partner with HLB Mann Judd Sydney.
“Current market volatility may discourage people from making extra contributions into their superannuation but the benefits are overwhelming and the 9 percent compulsory contribution is simply not enough if people want a comfortable retirement.
“We can’t afford to wait and see whether the Government will increase the compulsory super contribution levels – people really need to take matters into their own hands and start making additional contributions themselves.
“This is particularly important since the reduction in contribution caps a few years ago. Previously, people could wait until the last five or so years before retirement, and then start building up their contributions. Now, they really need to start adding to their super at least 20 years away from retirement.
“Increased contributions will have a significant impact on their retirement savings, not just through the total of the extra contributions but because of the compounding effect of these – and the sooner members, start the bigger the benefit.
“Moreover, it’s not always appreciated that superannuation contributions are made before tax so the after-tax impact is much less.
“For example, someone earning $100,000 a year making the basic 9 percent super guaranteed contribution, has an after-tax salary of $73,550. But an excess concessional superannuation contribution of $6,000 only reduces the after-tax salary by $3,690,” Mr Philpot said.
He pointed out that while investors can’t control what investment markets will do, they can control how much money they put into superannuation savings so it makes sense to concentrate on this.
“The best way to have a lasting impact on superannuation savings is to salary sacrifice additional sums into super. “Even small additional contributions can make a significant difference to retirement savings.”
Mr Philpot uses the same example of someone on a salary of $100,000 who simply contributes the 9 percent superannuation guarantee each year, and who earns a conservative six percent per annum on their super balance.
“They will have just over $660,000 in superannuation after 20 years. But if they contribute an extra 3 percent each year, bringing their contribution to 12 percent, they will have just shy of $790,000 in superannuation.
“In dollar terms, this equates to a difference in contributions spread over 20 years of $86,000 but a difference to the final balance of over $126,000.
“Higher levels of excess contributions will have an even greater impact” he said.
“In the same example, an additional 6 percent a year (or a total 15 percent) will result in a $916,000 final balance, a difference of almost $253,000 from additional contributions of $172,000.
“This can make a significant difference to people’s income, and allow a much more comfortable lifestyle, in retirement,” Mr Philpot said.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Jonathan Philpot – 02 9020 4196