When it comes to making life decisions, our age and stage of life tend to influence the course of action we take. For example, people in their 20s often take a more rugged approach to travel than people in their 50s. At the same time, health screening may increase as we enter the later years of our lives, compared to the first few decades.
It’s the same when it comes to superannuation. When we’re younger, many of us take a very different path to the one we would take when we’re closer to leaving the full-time workforce.
The way we approach superannuation in our early working lives is likely to be very different to the way we engage with it in our 50s. Here are some ways to think about each milestone decade, from our 20s to pre-retirement years.
Just as our 20s are an ideal time for career-building and travel, it’s often a popular time for higher-growth investment options. That’s because younger people have a longer investment horizon and may be able to recover from market fluctuations. While every member is different, we see many younger Active Super members favouring investment options that target higher average growth over the longer term (but that risks higher and more frequent losses in falling markets).
The 20s decade is also a common time to begin salary sacrifice arrangements or to make personal contributions to take advantage of compound interest.
Compound Interest is when you earn interest on the money you’ve saved and on the interest that money has earned. When you combine this with time, it means that making small regular contributions can make all the difference to savings in the long-term.
For low-income earners, the 20s may be a good time to look into the government’s co-contribution or Low-Income Superannuation Tax Offset (LISTO), which can help top up super balances for low-income earners.
The LISTO is 15 percent of the concessional (before tax) super contributions that you or your employer pay into your super fund.
Some of our members start to think about a first home in their 30s and take advantage of the First Home Super Saver Scheme. The government program allows Australians to save for their first house or apartment within their tax effective super fund.
Under the First Home Super Saver Scheme, if you’re eligible, you can withdraw up to a total of $30,000 of voluntary contributions you’ve made to your super (plus earnings) to put towards a first home deposit. From 1 July 2022, the number of eligible contributions that can count towards your maximum releasable amount across all years will increase from $30,000 to $50,000.
Eligibility is assessed on an individual basis and members should check the ATO website for details.
As members enter their 40s, they’re often established in their careers and may be starting to engage more with super. As such, it’s often a good time for a super strategy and insurance review to make sure they are both fit for purpose.
Due to the power of compound interest, any additional contributions you make to your super – no matter how small – could leave you exponentially better off over time. For example, you could consider chipping in a little extra, either by sacrificing a small part of your salary or making other personal contributions.
Just remember that before-tax contributions are currently capped at $27,500 a year. These are called concessional contributions and they include the money your employer has contributed.
After-tax contributions are called non-concessional and these are currently capped at $110,000 a year. Handy to know if you get a bonus or some other financial windfall.
With a couple more decades until retirement, the 40s are often an important time to review super investments and make sure they’re performing. By now, retirement goals – and the money needed to achieve them – may be a little clearer.
The lead up to retirement is usually the most common time to reconsider investment strategies. We often see our members switch from higher growth or balanced options to more conservative strategies as there are fewer years to recover if the market takes a tumble.
For many Australians, the 50s mark the last full decade of work, with retirement from full-time work common at some point in our 60s. As such, many of our members see it as a great opportunity to make additional, tax-friendly contributions to their super. These include maximising pre- and post-tax contributions (also known as concessional and non-concessional contributions) and continuing to take advantage of salary sacrifice.
It’s important to remember there’s no one-size-fits-all strategy for super, as everyone’s financial situation is different. What works for one person in their 30s may be less appropriate for another in their 50s.
Members are also urged to review beneficiaries to make sure their super ends up in the right place if the unexpected happens. It’s a good idea to tell us who you’d like to inherit your super. Super isn’t usually covered by your will, so a binding nomination helps to ensure your super ends up in the right hands. Simply complete and return a Binding Death Nomination form from our website.
You can always speak to one of our Active Super representatives or seek independent financial advice to find the right super pathway for you. Talking to a financial planner can help you make the most of your money at any stage of life.
To make an appointment, call 1300 547 873 or contact us to find out more about strategies and objectives that suit you.
This article is general in nature and not a substitute for personalised financial advice.
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