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An early start for super

I am under 30 – is it too early for me to be making extra super contributions? Or would I be better off putting money elsewhere?

This is a question I get asked a lot. Unfortunately, the answer is not simple, and the best thing for one person may not apply for another. Some of the variables that apply to this question are how much tax you pay, your income, how much you spend and may be intending to spend (for example, if you intend to take a working holiday), whether you are married, have a mortgage and or have children to look after and, of course, how much you have already been able to save within super.

Super is one of the best places to save for retirement due to the earnings only being taxed at 15 per cent. But if your taxable income is no more than $42,500, you are paying tax at an average rate of 15 per cent or less anyway so it may be better not to save using super as your own average tax rate is less than the tax rate applied to your funds within super (that is, 15 per cent) and you have the added benefit of being able to access the funds.

Overall, I believe you should use super to save as part of your overall financial plan and super should be a place where you can save funds you cannot access, so the money will be there for you when you retire.

If you do intend to have a mortgage and children, in order to pay for the costs (particularly if you live in Sydney) it would be expected that your taxable income would be greater than $42,500 at some stage anyway and hence saving within super starts to make more sense when looking at long-term investing.

As with most things, it is the time in the investment that counts, so the more you can start putting away now the better off you will be due to the power of compounding returns.

So, I would suggest you work out your budget and then see how much you can afford to allocate to super. Note that one of the best ways to save using super is to contribute the funds via salary sacrifice. This means you get the money into super but save yourself some tax. The result being you get more bang for you buck and most of the clients who come to Switzer Financial Services comment that once they don’t have the money to spend they do not miss it.

The next big question you should have Amelia is how should you invest your money within super and we would be more than happy to help you in this regard if you come and see us at Switzer Financial Services.


For advice you can trust, contact Switzer Financial Services.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. 

Published on: Thursday, July 16, 2009

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