Do you want to retire early and travel the world? You need a plan21 Sep 2023 4 min read
If you’re starting out in your first job or are in the early stages of your career, retirement may seem like a long way off. So, if retirement is about future you, why would you worry about it now? It’s a fair question.
But a better question is, what do you want to be doing when you retire?
Perhaps you see yourself trekking the Amazon or taking karate classes. Maybe you’ll be spending time with your family while working part-time at your fashion-tech company. However you imagine your future, your super is likely to play a huge part in what retirement looks like for you.
The decisions you make today can impact your super savings and, your plans for how you’ll live in retirement.
Is superannuation important if you’re young?
Many young people will have a super balance. If you have a full-time, part-time or even casual job, your employer is required to make super contributions on your behalf at the rate of 11% of your wages. If you are aged less than 18, super contributions are only payable if you work more than 30 hours per week.
Your super will grow over time as your employer (and possibly you as well) make contributions. But there’s something else to be aware of – the power of compounding interest!
What is compounding interest?
If there’s anything that’s likely to get you keen to start saving, it’s the magic of compounding interest.
Let’s look at an example. Say you save $200 per week for 10 years — that’s a total of $104,000 you’ve put aside. But if you put your money in an investment that delivers a high rate of return — let’s say an average of 5% p.a. after tax over 10 years — and you reinvested the earnings, then that $200 per week would grow to over $134,000 in 10 years. That’s an extra $27,000 for saving exactly the same amount every week.
The power of compounding comes when you put the interest or returns you get from an investment or bank account straight back in rather than taking it out and spending it. This effectively increases your principal investment amount. Because interest is calculated on your principal amount, as you increase that, the interest earned also grows. Over time, compounding can make a real difference to your investment.
The longer your interest compounds, the higher the potential return — so the earlier you start, the better. And this is all for no extra effort or investment on your part.
This is especially significant when it comes to your super, which should be a key focus of your long-term financial fitness program. Let’s look at a case study to see the difference starting 10 years earlier could make to your super investment.
|Starting at 30 years old
|Starting at 40 years old
|Regular contributions (after-tax)
|$50 per week
|$117 per week
|7% p.a. after tax
|7% p.a. after tax
|Accumulated amount at 60 years old
|Amount contributed with your 'own money' over investment period
|Benefit of compounding
Your super fund will invest your retirement savings on your behalf to earn you returns on your balance. You will have the option to select the investment with the level of risk you’re willing to take. At NGS, we offer different account options that have varying levels of risk. Choosing the account that’s right for you doesn't have to be difficult. You can talk to one of our Super Specialists for free, who can help you determine which account best suits your needs.
How much super will you have when you retire?
How much super you have when you retire will depend on how consistently you work. You may also choose to make voluntary contributions to your super fund or salary sacrifice, which will boost your super savings.
It’s important to understand that everyone’s situation is unique, and therefore your super balance is likely to be different to someone else who is the same age. However, you can check where you’re at against the average Australian.
How to work out how much super you will need in retirement
While there is no crystal ball to determine exactly how much money you will need or have, there are ways you can plan. A great tool is the NGS calculator that is designed to estimate your total retirement income, including benefits you may receive from the Age Pension and non-super investments. You can also choose to factor in super details for your spouse or partner (if applicable) and see the impact of a career break or move to part-time work on your projected super balance.
This enables you to more clearly assess your estimated financial position in retirement and what you may need to do to reach your desired retirement balance.
How can you make a superannuation plan?
Getting on top of your super when you’re young is an excellent idea. Setting up your super to best suit your needs will ensure you are giving yourself every opportunity to build your super savings. Super can seem like a complex topic, but once you know the basics it’s fairly straightforward. Talking to a super specialist can be a great place to start. They will be able to help you set up a plan, so when you do finally reach that time in your life when you will stop working, you will be able to live out your dreams.
Our Super Specialists make the conversation easy to understand. Why not connect with an NGS Super Specialist and start planning today for a brighter tomorrow?