Shifting The Dial On Super
It is about now when those well-intentioned New Year resolutions start to come under pressure.
The summer holidays are behind us, schools are back and the rhythm of life is returning to a familiar routine.
The bigger, bolder ambitions for the New Year are often the first to fall by the wayside simply because of the level of difficulty.
But instead of thinking big and bold what would the impact be of making a small change. Nothing radical, more of an adjustment than a rewrite of your lifestyle.
It is probably safe to assume that not too many people had retirement planning on their New Year resolution list. But it is definitely an area where small changes – depending on your age – can make big differences.
Our superannuation system mandates that 9.5 per cent of wages is paid into superannuation. But that is already slated to rise (albeit slowly) to 12 per cent by 2025. So is 9.5 per cent enough or should you be saving 12 per cent given that is the longer-term goal the government has settled on.
Or should you be listening to the actuarial professionals who point to 15 per cent of wages being the more reliable answer to the question of how much is enough?
Lifting your super contributions from 9.5 per cent to 15 per cent probably sits under the heading of bold, aspirational target for many people.
Today's imperative – putting food on the table, paying energy bills - rightfully takes priority.
But what about if you shifted the dial on your super contributions just a little – say half of one per cent – to 10 per cent a year. And committed to increase by the same amount each year until you hit the 12 per cent target.
Using the retirement calculator on the financial services regulator ASIC's Moneysmart website gives you an easy insight into adjusting your contributions. For a 30-year old earning $70,000 today the super account balance (in today's dollars) is projected to be $276,000 at age 67 when contributing the mandatory 9.5 per cent.
If you increase your contributions to 10 per cent your account balance will go up by $12,200. If you take the bigger step of going to 12 per cent contributions the account balance is projected to rise to $337,700 – or $60,700 more to spend in retirement.
Context is important motivation here. As investors inertia and procrastination are two behaviours that typically work against us. Yet a modest increase in contribution level – perhaps a $100 or $200 a month – can make a significant difference over the long term and by dialling up your salary sacrifice contributions via payroll deduction is an effective way of harnessing the inertia and letting time and markets work for you.
Before we know it will be time for setting next year's New Year resolutions.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.