Compounding super: Retirement planning at age…

Compounding super
rocketEach scenario depicts you at a different age (in the present) when you start your retirement planning journey; however, your financial goals remain constant, namely, to accumulate $545,000 in superannuation by age 65, which is the minimum amount a single person may require for a comfortable retirement#.

General calculation assumptions

  • You are employed, and your income for each starting age is based on ABS data.
  • Your employer is contributing the mandatory Superannuation Guarantee contributions.
  • Your employer and voluntary contributions increase with inflation (3.2% per annum).
    • 2% per annum for rising cost of living (CPI inflation) + additional 1.2% per annum for rising cost of community living standards. 
  • Contributions do not exceed the annual concessional and non-concessional contributions caps.
  • Your superannuation balance for each starting age is based on recent ASFA data*.
  • Your investment return (before tax, after fees/insurance premiums) from your underlying assets inside superannuation is 5.3% per annum, and your net tax on investment earnings is 4.1% per annum (15% less an allowance for tax concessions).
  • $545,000 is measured in today's dollars, which means it has been adjusted for inflation.

Scenario 1 – Aged 25
You are 25 years old and want to accumulate $545,000 in superannuation by age 65. As such, over and above your employer's contributions, you will need to start contributing, for example, on an ongoing basis:

  • Roughly $237 per month in concessional contributions; alternatively,
  • Roughly $202 per month in non-concessional contributions.

Please note: From a compounding perspective, by adjusting your contributions frequency from monthly to weekly, your contributions would be roughly $55 (concessional) per week, or roughly $47 (non-concessional) per week, respectively.

Scenario 2 – Aged 35
You are 35 years old. As such, over and above your employer's contributions, you will need to start contributing, for example, on an ongoing basis:

  • Roughly $381 per month in concessional contributions; alternatively,
  • Roughly $324 per month in non-concessional contributions.

Please note: Your contributions would be roughly $88 (concessional) per week, or roughly $75 (non-concessional) per week, respectively.

Scenario 3 – Aged 45
You are 45 years old. As such, over and above your employer's contributions, you will need to start contributing, for example, on an ongoing basis:

  • Roughly $800 per month in concessional contributions; alternatively,
  • Roughly $680 per month in non-concessional contributions.

Please note: Your contributions would be roughly $185 (concessional) per week, or roughly $157 (non-concessional) per week, respectively.

Scenario 4 – Aged 55
You are 55 years old. As such, over and above your employer's contributions, you will need to start contributing, for example, on an ongoing basis:

  • Roughly $1,521 per month in concessional contributions and $597 per month in non-concessional contributions; alternatively,
  • Roughly $1,777 per month in non-concessional contributions.

Please note: Your contributions would be roughly $351 (concessional) and $138 (non-concessional) per week, or roughly $410 (non-concessional) per week, respectively.

Moving forward
Admittedly, the above scenarios are simplistic in nature (e.g. they don't take into account other strategies, such as the downsizing measure, the carry forward provision or the bring-forward rule, to name a few) and may not be relevant to your personal circumstances (e.g. financial situation, goals and objectives).

Nonetheless, they highlight something important. If you leave retirement planning for later, you may find that you are still able to achieve your financial goals comfortably. Alternatively, you may find yourself in a situation where you are under more pressure (i.e. contribution and/or risk-based) to reach your financial goals, or your expectations (i.e. accumulated wealth and/or retirement date) may need to be revised.

In a nutshell, when it comes to retirement planning, we can help point you in the right direction with an appropriately designed roadmap aligned with your financial situation, goals and objectives, and provide you with a helping hand along the way. However, at the end of the day, the fate of making your interpretation of financial success a reality ultimately rests with you.

Importantly, if you have any questions regarding this article, please contact Adam Vermillion at Essential Wealth and Retirement for further assistance.

Article first published 14 Nov-18 Compounding super: Retirement planning at age…. by https://ewar.financialknowledgecentre.com.au/kcarticles.php?id=1965. GENERAL ADVICE WARNING: The information contained in this article has been provided as general advice only. The contents have been prepared without taking account of your objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial adviser to consider whether that is appropriate having regard to your own objectives, financial situation and needs. Essential Wealth and Retirement Pty. Ltd. ACN 603 149 837 is a Corporate Authorised Representative of GPS Wealth Ltd. ABN 17 005 482 726 | AFSL 254544 | Australian Credit Licence 254544