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Feature Story

How far will your super take you?

Steve Schubertby Steve Schubert, Director of Actuarial and Benefits Consulting, Russell Investment Group

Australia is a world leader in retirement savings thanks to the compulsory 9% of earnings that employers are required to pay into superannuation. This, combined with the proposed budget changes, makes super a tax-friendly way to save for retirement. But will 9% be enough to ensure you can reach the retirement lifestyle you’re hoping for? The reality is there is no single answer for everyone. Here’s some information to help you consider what’s right for your own circumstances.

Things to consider

The budget changes in brief

Proposed changes to superannuation law mean that super will become an even more tax-friendly form of investment. If approved, these changes will take effect on 1 July 2007 and include:

No tax on super payments
Super benefits (from a taxed fund) paid to people aged 60 and over will be tax-free. This will apply to lump sum and pension benefit payments.

Keep money in super for as long as you want
You won’t be required to draw down on your accumulated super after age 65. This means you can keep your money invested in superannuation for as long as you need to.

Changes to income streams
A new set of minimum standards will apply to income streams.

One off chance to contribute
You will also have until 30 June 2007 to make up to $1 million in after-tax contributions, which is especially important for people considering transferring other assets to super before they retire. After 1 July 2007, the limit will decrease to $150,000 per annum, which can be averaged out over three years.

Your aspirations
How much income you want to live on and when you hope to retire are the key drivers in your retirement plan. Academic studies suggest that a couple needs around $26,000 p.a. to maintain a “Modest But Adequate” retirement lifestyle. For those with higher aspirations, $45,000 p.a. provides a “Comfortably Affluent” lifestyle that the top 20% of retirees could target.

Start saving now
The earlier you start the easier it is to achieve your goals. Unfortunately for many, the introduction of compulsory super has come later in life and there may be some catching up required. What’s more, the higher your income, the more you need to save to maintain your lifestyle in retirement.

Early retirement
This can be the deal-breaker for many retirement plans. Retiring early means less time to save for retirement and more time spending those savings. Retiring before 65 means relying solely on your own savings before becoming eligible for any government age pension. For most Australians, the goal of early retirement means turbo charging your savings plan now.

Invest wisely
Saving is important, but how you invest can make or break your retirement plan. Up to 85% of the money you draw down in retirement could come from investment earnings on your savings rather than the savings themselves.

Tips to help achieve your goals

Set realistic goals
Few people can save enough to retire early on the same income they enjoyed while working. Be realistic - how much income do you need in retirement? How much income would you prefer in retirement? When do you want to retire?


Want to know more?
For more information on the proposed budget changes, take a look at our retirement tips and helpful case studies.

Start saving now
Early saving allows you to benefit from compounding returns on your savings. As a rule of thumb, each dollar saved and invested in your twenties is worth around eight times the same savings in your fifties. Why not set aside that next pay rise to add to your regular super contributions?

Salary sacrifice
If you pay tax on your salary at more than 15% p.a., salary sacrificing into super means the net increase in your super is more than the take-home pay you are giving up.

Co-contribution
If you earn under $58,000 p.a. the government co-contribution will add to your own after-tax super savings. For low income earners, you could get up to $1,500 co-contribution to add to your $1,000 personal contribution.




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