Fair enough, as there's likely to be significant expenditure requirements between 25 and 60 (I'm thinking exorbitant mortgages), where these funds could be better used. However, retirement saving should not be forgotten. Compulsory superannuation contributions of 9% are unlikely to provide enough to retire comfortably on, even for those of us who have been benefiting from these contributions for our whole working lives. You have to start savings for your retirement sometimes, the earlier you get the money in, the more time you will benefit from compounding growth in this tax effective environment.
I ran a little experiment to see for myself what the difference would be.
We are talking about a 25 year old here, retiring at age 60, with $20,000 currently in super and an annual income of $60,000. The following graph estimates in today's dollars the estimated end benefit, assuming the funds are invested 'aggressively' (ie, entirely in shares and property) and they receive the standard 9% employer contributions.
As it can be seen, an end benefit of around $480,000. Not that much, considering 9% on top of your income every year has been contributed to super. I think I'll be wanting more than that to retire on!
So, lets say the 25 year old decides to salary sacrifice around $100 a week (I'll use $5,000 pa). These contributions willbe taxed at 15% upon contribution. This is what we're looking at in today's dollars:
An end benefit of around $820,000. Looking like a much more healthy balance!
You really can't beat starting early. In reality, few 25 year olds are likely to forgo this sort of money for 35 years, but the key to benefiting from compounding returns is to start early. Thanks to the great Paul Keating, we will save significantly for our retirements without having to do too much of the hard work ourselves, but with a little help will end up with a much more comfortable retirement!
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