Super in your 30s. It’s important to squeeze it in

It’s important to squeeze it in

If you are in your thirties, chances are life revolves around children and a mortgage. As much as we love our kids, the fact is they cost quite a lot. As for the mortgage, this is the age during which, despite record-low interest rates, repayments are generally at their highest, relative to income. On top of that, one parent is often not working, or working only part time. Even if children aren’t a factor, career building is paramount during this decade.

Are you really expected to think about super at a time like this? Well, yes, there are a few things you need to pay attention to.

Short-term plans

As careers start to hit their strides, the thirties can be a time for earning a good income. If children are not yet in the picture, but are part of the future plan, then it’s an excellent idea to squirrel away and invest any spare cash to prepare for a drop in family income when Junior arrives. Just remember that any savings you want to access before retirement should not be invested in superannuation.

Long-term comfort

Don’t be alarmed, but by the time a 35-year-old couple today reaches retirement age in 32 years’ time, the effects of inflation could mean that they will need about $161,787 per year to enjoy a ‘comfortable’ retirement[1].

If you are on a 32.5% or higher marginal tax rate, willing to stash some cash for the long term, and would like to reduce your tax bill now, then you could consider making salary sacrifice (pre-tax) or personal deductible contributions to super. Super contributions and earnings are taxed at up to 15%, so savings will grow faster in super than outside it, provided your marginal tax rate is above 15%. For example, if you’re earning $100,000 per annum, making a concessional contribution of $10,000 from salary to super, will save you paying $3,450[2] in income tax and increase your super balance by $8,500 every year.

Growing the nest egg

Even if you can’t make additional contributions right now there is one thing you can do to help achieve a comfortable retirement: ensure your super is invested in an appropriate portfolio. With decades to go until retirement, a portfolio with a higher proportion of shares, property and other growth assets is likely to out-perform one that is dominated by cash and fixed interest investments. But be mindful: higher returns are usually associated with higher risk.

Another option for lower income earners to explore is the co-contribution. If you are eligible, and if you can afford to contribute up to $1,000 after tax to your super, you could receive up to an additional $500 contribution from the government. Or to keep your partner’s super humming along while she or he is earning a low income, you can make a spouse contribution on their behalf and gain a tax offset of up to $540.

Let your super pay for insurance

For any young family, financial protection is crucial. The loss or disablement of either parent would be disastrous. In most cases, it is wise to have both parents covered by life and disability insurance.

If this insurance is taken out through your superannuation fund, the premiums are paid out of your accumulated super balance. While this means that your ultimate retirement benefit will be a bit less than if you took out insurance directly, it doesn’t directly impact on the current family budget. However, don’t just accept the amount of cover that many funds automatically provide. It may not be adequate for your needs.

Whether it’s super, insurance, establishing investments or building your career, there’s a lot to think about when you’re thirty-something. It’s an ideal age to start some serious financial planning, so talk to us today about putting a plan into place so you can have everything now – and in 30 years’ time.

 

*The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. 
We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser. 

[1] Value of $62,828 today – the income required to provide a couple with a “comfortable” level of income as calculated by The Association of Superannuation Funds of Australia (ASFA) (March 2021) – in 32 years at 3% inflation.