Why your super is SUPER important!
Written by Luke Wade
It seriously worries me when people neglect their super!
Sadly, whether you’re self-employed or not, super is normally the first thing to slip by the wayside when things get tight.
Why help future you when you’re struggling to pay the bills today, right?
Well as I’ll show you below, the cost of not paying super on time is huge!
But first, let’s throw around some facts.
Did you know, that according to the Intergenerational Report issued by the Australian government in 2015, the life expectancy for Australian’s born in 2015 is 91.5 years for men and 93.6 for women.
If you’re anything like me and don’t want to work a day after your 65th birthday, it’s completely reasonable to expect to be retired for anywhere between 9,000-11,000 days.
Let’s say that you buy one $5.00 coffee every day you’re retired, you’ll likely need $45k-$55k just to keep your caffeine cravings in check…
Throw into the mix that our baby boomers (roughly 25% of our population and current workforce) are either hitting retirement age or going to hit it over the next 10 years or so. It doesn’t take a mathematician to work out that once you replace a couple of million hard working Australian tax payers with retirees relying on the aged pension to fund their trips to their local café, the government, who can’t pay the bills as it is, will be left in a position where there are too many mouths to feed and not enough people to feed them.
Your expenses don’t stop when your income does, and you definitely shouldn’t be planning to rely on the government to pay you a pension when you finally decide to hang up the boots.
Bottom line is you’re going to need a decent nest egg to make sure you can enjoy your retirement.
Right, so we know having a decent stack of super behind you is important.
Growing that stack doesn’t happen over night though. It takes time, regular contributions and investment returns to grow.
Let’s do some math…
According to the ATO, Australian workers are short changed roughly $2.85 billion each year in unpaid super.
Just in case you read that wrong, that’s billion, with a ‘B’! Not a stat that we should be proud of!
Let me show you why…
Firstly, let’s assume that the missing $2.85 billion should have been yours (ouch).
Secondly, let’s say for the purpose of this exercise that you’ll be shortchanged the same amount for the next 10 years (double ouch!).
Thirdly, we’ll assume your super, had it been paid, had been invested with a middle-of-the-road performing fund which had delivered an average return of 6.0% per year over each of the 10 (the better funds have returned significantly more than this).
Now let’s assume that instead of your super being neglected (whether by an employer or yourself if you’re self-employed) it was paid in full, in the year it was supposed to.
If your balance at the start of 10 years was zero, and the first contribution was made at the end of year one, after 10 years your super balance would look something like this:
That’s over $9 billion of retirement savings you’ve earned simply because your super was contributed when it was meant to be, then invested by your super fund, then reinvested, and then reinvested again. A fraction under 32% of the actual contributions for free.
Run the same calculations but over a 30 year period and you end up with a balance of $225,315,830,713. That’s $139.8 billion more than the actual contributions of $85.5 billion.
That’s essentially $139.8 billion of free money.
Make the contributions monthly instead of annually and you end up with a touch under $1.4 billion more than in the example above.
Don’t believe me? Run the calcs on your own super using ASIC’s compound interest calculator.
You see, aside from winning Tattslotto or co-starring with Leonardo DiCaprio in the next blockbuster, compound interest is kind of the be-all and end-all of building sustainable, long term wealth.
Sure, we’re using huge numbers in the example above, but the reality is that it is exactly what the Australian workforce is missing out on every year their super goes unpaid.
The other reality is that whether you’re contributing $1,000 or $1 billion dollars a year to your super, as long as it is invested well, the growth rate will be the same.
The morale of this story?
…Well there are 3:
- Review how your superfund is performing. If it’s not getting the job done, give it the flick for one that is.
- If you’re employed, don’t work for someone that doesn’t pay your super! If they haven’t and you’ve only just realized, follow the link to report it to the ATO
- If you’re self-employed, pay your super on time and in full. Hell, pay more if you can afford to. You will thank yourself later, and if nothing else, it’s a great tax deduction.