Time to take advantage of super rise
LAST week Treasurer Bill Shorten confirmed that compulsory superannuation would rise from 9% to 12% over the next 10 years.
While that's good news for younger employees it doesn't do much for older ones as the change will not even start until 2013/14 when it moves to 9.25%.
This is why it is important to take steps to secure your own financial future and not rely on what the government want to do.
He is aged 50 and earns $75,000 a year. Their main assets are their home worth $600,000 with a mortgage of $100,000 and his work superannuation with a balance of $150,000.
Suddenly, their 50th birthday has arrived and they decide they had better seek advice before it is too late.
The financial adviser analysed their expenditure and it was agreed that they needed about $55,000 a year in today's dollars when they retired at age 65. If inflation is 3% per annum they will need to accumulate $990,000 by the time they retire.
Yes, it sounds like a vast sum - nearly a million dollars - but let's drill down a little. If his income rises by 4% per annum, and his work super earns 9% per annum, there should be $770,000 from that source alone by the time he turns 65. That means they are only $220,000 short of their target.
How do they do it? Fortunately, they are taking action reasonably early and the problem is easily solved - all they have to do is ask his employer to make additional salary sacrificed contributions of $679 a month to his super fund. This should boost his super by the necessary $220,000 by age 65.
Of course, many things could happen to change the scenario. He could lose his job or illness could strike the family, and it is possible that his superannuation fund may not achieve the 9% per annum that I have used in this example.
On the plus side, he could get a pay rise, or his partner may get a job, or one of their parents could die and leave them a substantial legacy from the sale of the family home. People's situations are continually changing which is why ongoing advice is so important.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org. Or follow him on Twitter @NoelWhittaker.