What You Need To Know About Super In Your 20s
In your twenties, you’re probably more concerned with trying new things than “safeguarding your future” through superannuation.
But, you may be surprised, now is a key time to get on top of your super. We spoke to Keegan O’Rourke CFP, a Financial Advisor at ShineWing Australia to get all the facts.
Myth #1: My employer takes care of my super, so I don’t need to worry about anything.
Whether you’re full time, part time, or on a temporary contract, your employer should be paying 9.5 percent of your salary into a superannuation account. This is called your Superannuation Guarantee (SG). That proportion will increase to 12 percent by 2025.
Even though SG is an employer’s legal obligation, it’s important to check to ensure that the contribution amounts are correct, and that you’re getting the payments to begin with – some industries are notorious for not paying it. “Check your payslips,” explains Keegan, “though as employers only have to make superannuation payments quarterly, I’d suggest checking once or twice a year.” A good prompt for checking is when your Annual Statement arrives from your super fund, which is usually in September.
If you’re self-employed – say, a freelancer, or own your own business – you’re responsible for making your own super contributions. This doesn’t have to be laborious though: you can calculate your 9.5 percent in an Excel spreadsheet, or use software packages like MYOB or Xero.
Myth #2: I’m young. Superannuation isn’t a priority.
Your twenties is actually the easiest time to contribute to super – especially if you’re moving from part-time to full-time work, which comes with a significant pay increase. If you start saving portions of these increases, it’ll be like the money was never there. Try cutting costs in the future, though, and it’s going to be more difficult.
When you’re young, time is on your side. As Keegan explains, “putting small amounts of money away early is going to have a greater impact on your retirement than if you were to catch up later on. It’s cumulative and it’s exponential.”
Take this example of “Sarah” and “Tim”: Sarah starts saving AUD$200 a month at age 25, with an annual return of six per cent. This means that by age 65 she’ll have contributed AUD$98,400 of deposits resulting in AUD$425,331 of money to spend. Tim, however, starts saving at 35. He’s only saved slightly less at AUD$74,400. But with the same rate of annual return, he ends up with only AUD$215,761 at age 65.
Starting those 10 years earlier almost doubles your savings!
Myth #3: Superannuation is just for retirement
Retirement isn’t the only reason why you might stop working. What if you have a bad car accident? Get cancer? Dare we say it, what if you die? Sure, there are government structures in place to provide compensation in some of these scenarios, but they’re not always going to match your cost of living or pay off debts you’ve accrued over time. For this reason, your superannuation accounts might include a default level of life, disability and income protection insurances.
In your twenties, you’re probably the fittest and healthiest you’ll ever be, so insurance might not be high on your radar. At the same time, you’re less likely to have lots of assets like shares and property. Your greatest asset is your ability to work and earn an income, so that’s something worth protecting.
Myth #4: Super involves too much paperwork. It’s a waste of time rifling through!
Getting mail from your super provider probably doesn’t rate high on your scale of excitement levels. Nonetheless, taking the time to check the paperwork will ensure you’re getting the most out of your fund.
If you’ve worked a few jobs in the past, you may have accumulated more than one super account; minimising paperwork and stress starts with consolidating them into one. Nowadays, doing so is easy – visit the Australian Tax Office section of your online MyGov portal and combine with just the click of a button.
To decide on which provider to consolidate into, ensure that your account is growing.
“Make sure your contributions are going in, check that you’re covering your fees, and that your investments are performing well,” says Keegan. “If your account’s going backwards, have a look around to find lower cost options.” As a twenty-something, your income protection will likely be set at a lower default level, so also check that you’re comfortable with the level of insurance provided. It’s also advisable to formally nominate who the money goes to if you pass away.
Myth #5: Planning for the future is way too hard.
Getting on top of your super is important because things change. Yesterday you may have been intent on living in a self-sufficient rural commune, tomorrow you might be putting down a mortgage on an inner-city apartment.
But how much will you need? The Association of Superannuation Funds of Australia (ASFA) releases a quarterly report that estimates how much money people need upon retiring. There are lots of variables to consider, but the latest report suggests that if you’re a couple aged 65, to live comfortably in retirement you’ll need a combined retirement income of AUD$60,000 per year.
To see how much money you might have when you retire, try using the superannuation calculator on ASIC’s MoneySmart website, which also takes into account known future changes to superannuation requirements.
By giving your super some attention – even if it’s only a couple of times a year – you’ll be able to control what you can, while you can. You’ll barely even remember it’s there until it’s time to reap the benefits, so now is as good a time as ever to start saving.
Chelsea McIver is a freelance writer and editor based in Melbourne. Her work appears in titles including VICE, Junkee, Broadsheet and The Big Issue. Tweet her @ChelseaMcIver