Under 40? Four reasons why you should start thinking about your superannuation now

Under 40? Four reasons why you should start thinking about your superannuation now

The University of Melbourne and the Centre for International Finance and Regulation (CIFR) recently published a report on the knowledge, behaviour and attitudes of young adults (25-35) in Australia with regards to their superannuation. Being part of the demographic that was sampled for this study, I found the following points very interesting:

  1. Short-term financial goals took clear precedence over retirement planning.
  2. Only 35% considered themselves well informed about superannuation.
  3. More than one-third cited frustration, lack of control and lack of knowledge as factors explaining the difficulty of planning for retirement
  4. Only a third of those sampled read all or most of their periodic statements, with the majority simply paying attention to balance and fees and charges. Again, only one third agreed that reading and understanding their statements was ‘easy’.

Considering that this age bracket tend to have other priorities on their minds – such as mortgage payments, developing a career and expanding their families – these revelations don’t really come as a surprise. Superannuation which you can't access for another 20+ years is not typically at the forefront of the minds of this demographic. So the question is: Why should you think about superannuation and retirement planning now rather than later?

Here are my top four reasons why you should take the time now to understand your superannuation and what it can do for you.

  • Superannuation is a handy tax planning tool, especially during your working years

We’re actually taxed highest while we’re in our working years, because that’s when we’re earning the most. Because pre-tax contributions to superannuation and associated earnings are only taxed at 15% – compared to the marginal tax rates which can reach 45% – you can significantly reduce your taxable income by contributing to super. If you run a business via a company structure tax rates are 30%, which are still higher than super tax rates. 

  • Unlike past years, contributions are now limited each financial year

We used to be able to contribute unlimited amounts (post tax) in order to fund our retirement. Now there are yearly maximum thresholds which limits the ability to grow super rapidly in the lead up to retirement age. This means you need to pre-plan your retirement contributions earlier than you may have considered doing so before.

  • De-facto, married or have children? Superannuation, retirement planning and estate planning go hand-in-hand

Planning where your superannuation will go when you pass away is as important as preparing a Will and Testament is. Who your superannuation goes to is not dictated through your Will. If you haven’t made a binding nomination, then it is up to the trustee of the fund who your superannuation ultimately goes to (within the boundaries of the law, of course) – which means it may end up going to someone you wouldn't necessarily choose.

  • Listen to the wisdom of those who have gone before you

A recurring theme of what I hear from those close to, or actually in retirement, is the wish they had started learning and engaging with their super earlier. Many wished they'd saved more for super to be more comfortable and not have to rely so heavily on the age pension, if at all. 

If you’re already capable of understanding your day-to-day finances, there should be no reason why you can’t understand your superannuation. The research paper I quoted cited a lack of knowledge contributing to the lack of engagement among younger superannuation members. With proper research and education, similar to what you need to learn when investing and handling your day-to-day finances, you can learn to confidently understand and possibly manage your own superannuation too. 

Want to speak to an Accountant and SMSF expert about your needs? Schedule a no-obligation call with us now.

You might also be interesting in reading some of my other blog articles, such as Should you use an individual or corporate trustee in your SMSF? and How to invest in collectables and other personal-use assets within your SMSF.

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