From a young age, I learned about the value of money as I’d only receive my weekly pocket money of 50 cents if I assisted with household chores.
It wasn’t until I was in Year 6 that I realised the benefit of saving. I had my eye on a push bike that my parents wouldn’t buy for me. I had to find a way to earn more pocket money, so I started delivering newspapers around my neighbourhood. I saved every cent I received in the bank. Needless to say, I was excited and intrigued by how my savings grew over time and how it gave me options to do other things.
Many years have passed but that memory has stayed with me. In fact, I have based many of my conversations with members on some basic saving and investing principles.
1. Start Small
Members often ask how much they need to retire. When I provide an estimated amount based on in-depth discussions about their requirements and goals, some of them feel daunted by the figure that they see.
My response to their reaction is that their dream retirement lifestyle can become a reality if they take a disciplined approach to saving money. It could be as simple as having one less takeaway coffee a day or preparing their own lunch instead of getting takeaway.
Just as squirrels store nuts for winter, saving a portion of any money you receive will add up. For example if you salary sacrificed just over $45 a week into your super from when you are 25 years old till you reach 65, you could be approximately $200,000 better off¹.
We have a range of tools to help you get started with saving, including our budget planner and calculators. These calculators provide you with an overview of how much super you need to support your retirement lifestyle and a breakdown of how much you spend.
From there we can help you identify what you can afford to salary sacrifice.
2. Benefit from compounding interest
Like a snowball that becomes bigger as it rolls down a hill, the earlier example shows that your super investments can grow exponentially if your returns are reinvested with the initial amount. In other words, you can earn interest upon interest.
According to the Australian Institute of Health and Welfare, a male born between 2016 and 2018 can expect to live to the age of 80.7 years while females would be expected to live to 84.9 years². Consequently, depending on your preservation age and life expectancy, your super needs to support your retirement for at least 20 years. So squirrelling a little away sooner can better assist with meeting your future requirements.
There are also other factors to consider including the increasing cost of living. If you are female, your employer’s super contributions would cease if you decide to take time off work to look after your family. With these in mind, it can be advantageous to make additional contributions to boost your super balance. There are several ways you can do this and depending on your financial situation, you may benefit from tax savings.
3. Save on taxes
Superannuation is a great tax structure to grow your wealth. The earnings on your super investments are taxed up to a maximum of 15%, which is typically lower than the marginal tax rate applied to most people’s salary or the returns on their investments and savings outside of super.
Another question that I get asked by members is whether there is any merit in contributing to their super when they could obtain some tax benefits if their investment property is negatively geared.
Some people prefer investing in a property because of its tangible nature and the ability for the investor to access the rental income and capital at any time.
However, it is always beneficial to look at the full picture and weigh up the returns and costs of investing in a property versus those relating to your super investment. Some things you may like to consider include:
- the cost of servicing a loan and ongoing maintenance of the property.
- the possibility of earning a rental return that is higher than your loan interest repayments and outgoings. In this situation, the rental income you receive will be taxed at your marginal tax rate.
- the inability to spread any capital gain across multiple financial years.
- having to pay interest on your loan to receive a tax deduction on your rental income, where your property is negatively geared.
- the risks involved in borrowing.
- tying up a lot of money in one investment.
Further, superannuation provides a tax free income stream when you are over 60 years of age.
Find out about the different ways you can grow your super and save on taxes.
4. Conduct financial health checks
Each of us go through different life stages which may include starting your career, buying your first home, getting married or divorced, or even losing your job. Often, changes in our lives can have implications on our finances so make sure you regularly review your savings and investments.
Even if things have not changed for you, it is useful to do a check-in to ensure that your financial strategy is aligned with your goals after considering any legislative changes.
If you need help with reviewing your financial situation, our financial advice team can assist. And depending on the type of advice you are seeking, we can provide limited advice at no additional cost. Contact us today.
5. Diversify your investments
The old adage that you should not put all your eggs in one basket is one of the most important bases of any investment, including your super. Every investment involves some risk and one way you can manage this risk is by diversifying your investment in different asset classes (e.g. bonds, cash, Australian or global share markets).
At Australian Catholic Super, our investment team closely monitors how your super is invested to ensure we cover a range of asset classes and alternative investments that aim to outperform during periods of market volatility.
For example, if you super is invested in our LifetimeOne default option, we help you manage your risk depending on which age group you fall under. For younger members there will be a greater exposure to growth assets such as shares and property. Once members reach 40 years of age, the asset allocation will change gradually, moving from a growth focused asset mix to a more conservative one as you move closer to retirement and intend to draw down the monies.
If you prefer to create your own portfolio, we offer various options within our super and pension products for you to choose from. Read more about the things you’ll need to consider when choosing an option.
Growing your wealth shouldn’t be complex. With a clear goal and disciplined approach, you can be on your way to living your best life during your golden years.
- a net investment return of 4.55%.
- a salary of $80,000 a year.
- salary sacrificing $45 a week equates to approximately 3% of the $80,000 annual salary.
- a 2% inflation rate.
- a super balance of $10,000 at age 25.
²Life expectancy & deaths, Australian Institute of Health and Welfare (Accessed 4 January 2021)
Any advice on this webpage is of a general nature only, and does not take into account your personal objectives, financial situation or needs. Prior to acting on any information on this webpage, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek independent financial advice if you are unsure of what action to take. Past performance is not a reliable indicator of future performance.
Need more guidance?
Depending on the nature of the advice you are seeking, we can provide limited advice at no additional cost.
Contact our financial planning team today.