When retirement day finally arrives you want to be ready to live life to the full; and it takes only a few smart decisions throughout your life to get there.
Travel, learning a new skill, volunteering or buying a cottage in the country - we all have a bucket list of things we will do one day; when the kids are older, the mortgage is repaid and we give up our day job for good.
While wishing is free, making it happen generally requires funds. The best path to cross this significant gap between dreams and reality is through thoughtful management of your superannuation.
The good news is that it doesn’t have to be that way. The difference between a fulfilling retirement and a restricted one often comes down to planning.
With enough effort, thought and sacrifice, you can make your super finance what it is you really want to achieve.
In short, the difference between a fulfilling retirement and a restricted one often comes down to planning.
The first step is to work out how much you will need to achieve your bucket list. A good place to start is The Association of Superannuation Funds of Australia Retirement Standard. It estimates that couples need an income of $58,326 a year to live comfortably in retirement^, or $42,597 for singles.
To produce this income couples currently need a retirement lump sum of about $510,000 ($430,000 for singles). That’s enough to afford a broad range of leisure and recreational activities and a good standard of living, including local and overseas holidays.
Of course, this is an estimate only. The real figure will depend on the lifestyle you want to lead in retirement.
The next step is to look at how your retirement savings are tracking. Your employer is currently required to pay 9.5 per cent of your gross salary into your superannuation account. While this goes some way towards funding your bucket list, it probably won't take you all the way there.
The Super Guarantee rate is set to increase incrementally to 12 per cent by 2025, to improve people's financial wellbeing in retirement. If your bucket list includes world travel, lots of fine dining or getting a pilot's licence you're going to have to figure out ways to boost that super balance.
Making super work harder
You can’t afford to sit back and rely on your employer’s contributions alone to achieve your bucket list. You’re going to have to try make your super work a bit harder.
Here are three things you can do now to boost your super:
Consolidate your super accounts
If you’ve changed jobs over the years there’s a good chance you’ve left a trail of super behind you. By consolidating all your super into one account you pay just one set of fees so, all funds being equal, your overall balance will grow faster. It will also be easier to keep track of your financial progress.
Set aside a few hours to review your super accounts. If one fund meets all your needs, then contact your chosen fund to get the ball rolling. In some cases, you may decide to keep more than one fund for insurance or tax advantages or to avoid exit fees.
You should also remember that other key features are relevant when choosing a super fund, such as performance.
2. Salary sacrifice
Making additional contributions to super from your pre-tax salary can be a tax-effective way to boost retirement savings, depending on your circumstances. That’s because you pay tax on your contributions at the superannuation rate of 15 per cent – 30 per cent for higher income earners – rather than your marginal income tax rate.
Ask your employer if they allow salary sacrifice. Even small additional amounts contributed regularly can make a big difference to your retirement kitty and ticking items off that bucket list.
3. Take control of your super investments.
If you don’t actively choose your investment option your super will end up in the default, or ‘balanced’, option.
The balanced option typically invests 60 per cent to 80 per cent of your money in growth investments such as shares and property and the remainder in ‘defensive’ cash and bonds.
Over long periods shares and property provide higher returns than cash and bonds, but with more ups and downs along the way. If you still have 10 years or more until retirement you may be in a position to take on more risk in return for higher rewards in the long run.
As you get closer to retirement you can dial down the amount of risk in your investment mix. With enough planning, when the time comes to leave work you should be in good shape to start ticking off your bucket list.