Saving for retirement
Retirement seems like a distant prospect for most Australians. Indeed, on average most of us can expect to be retired for about 23 years after we finish working. However, few Australians actually save as if they fully understand retirement. Statistics show that the average retiree’s savings last only ten years, suggesting that there is a 13-year gap that has to be filled somehow. The problem is that Australians don’t take full advantage of their superannuation resources, leaving them behind the curve for retirement savings. There are also occasional changes to superannuation laws that affect the best way to save or plan. Be mindful of obstacles to saving and how to manage your superannuation fund under the new legislation, and what all of this means for your Will.
Just to review the basics, the super laws allow you to save for retirement with a few special advantages. First of all, there is the employer contribution. Your employer will automatically add 9.5 percent of your salary to your super account on your behalf each year. This can be a substantial amount of money over time and it is essentially free: everyone is entitled to this contribution. Money that is in a super account also has tax benefits. Up to a certain limit, any contributions you make will not be taxed as income, so it will grow faster. The super account itself grows from investment. The financial services company running your account makes choices about where and how to invest your super, with some input from you, and the return on those investments grows your money. Even a seemingly small rate of return like 3 percent a year will mean many thousands of dollars over the 30 or 40 years that you will be investing and contributing to your super.
Why Australians Don’t Save Enough
The basic super contributions may seem generous, but statistics show that the basic contributions are not enough to provide all the money that you need to retire comfortably. In order to grow your retirement savings you want might to you want might to look into potential tax benefits that may be available from different types of savings avenues, such as super contributions. Any amount you contribute, or salary sacrifice, to your super fund can help it grow in the long term. The cost of daily living can make it difficult to make these contributions because for many Australians the biggest strain on the household budget is home mortgage repayments. It’s a steep, ongoing cost that tends to crowd out other considerations. Mortgage payments absorb so much of the monthly budget that it’s hard to find ways to sacrifice salary on top of that. The mortgage isn’t the only big budget drain, either. Australians with credit card debt or other forms of personal debt will generally prioritise paying down their debt over putting money into their super or their retirement saving accounts.
Saving for retirement is something to consider sooner rather than later no matter what stage of life you are at. Even a small amount each week when you first start a job, or receive a pay increase can make a big difference.
2017 has brought with it a wealth of new changes to the rules for super accounts so it is a good idea to do some research and consult a financial planner to learn more.
A Will is a legal document that sets out your wishes for the distribution of your assets after your death. Your super does not form part of your will because it is held for you in trust by the trustee of your super fund and governed by superannuation law. You can however seek professional help to prepare a legal Will that makes provision for your super. If you choose to write your Will with State Trustees, we can help with preparing a Will that outlines your wishes.
Not all of the new super rules apply to everyone, so it isn’t necessary to learn all of them. The most important things to keep in mind are to start contributing something extra to your super account as soon as you can, even if it is just a little bit of money, and to account for your super in your Will, if that is your preference. Changes to superannuation laws happen from time to time, so keep an eye on the news to ensure that you are up to date on any changes that might affect you.
If you want to learn more about how best to provide for your loved ones in your Will, call us today on 03 9667 6444 or 1300 138 672 (outside Melbourne) for a confidential, obligation-free discussion about your circumstances and how we can help.
This article is for general advice only and does not take into account your personal circumstances. For financial advice appropriate to your individual situation, consult a qualified financial advisor.