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What is your super contribution?

Q. I am often hearing that 9% compulsory super is not enough for a comfortable retirement and that it should be 15%. What do you think? And by the way if 9% isn’t enough should we simply bump up our super? 

A. A few years back the Association of Superannuation Funds of Australia or ASFA surveyed a whole bunch of people and the conclusion was that to have an enjoyable or comfortable retirement, you would want about two-thirds of final income from your job in retirement. In simple terms, you would need $30,000 in retirement if your final wage was $50,000. The number crunchers then started to ply their trade and worked out that to get this for as long as someone generally lives after ending work forever, you would need to save 15% of your wages for, wait for it, 40 years! Now this revelation really shocks a lot of people especially those who have only, say, ten years or less to go before they retire. Some people think the experts are saying you have to put 15% in super, but they’re wrong. Super is a great way to ensure a comfortable retirement, unless you don’t have too many years left until you retire like the last one, but the point is you have to save and you have to put it in assets that can match it with super. Buying a principal residence that you renovate and which attracts capital gain, tax-free, over 30 years can even beat super returns, but it might mean trading back in retirement. It could mean using a reverse mortgage, which can have a few worries for retirees. Investing shares with 6% of your income to push you up to 15% in total could be another option, but it will attract a higher tax rate. So doing this within a self-managed super fund could be the idea, but you would not be able to access this until retirement, which would be a good thing. Some people use margin loans to turbo charge their saving and this can be good if done well. Some late starters have used salary sacrifice to build up their super and this is very tax-effective. Young people should aim to bump up their super to 15% and buy a house and pay it off. There are better wealth building strategies but they are more risky and require advice. Those behind the eight ball should seek professional advice to help build up their super, but be wary of risky plays and remember, if you don’t understand anything an adviser recommends don’t do it! 

Published on: Tuesday, November 03, 2009

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