Are you really too young to think about super?

For people in their 50s and 60s, investing in superannuation is probably top of mind considering retirement is a lot closer. However, the decision for younger people to invest into super is quite different, as they may not get access to this money for many years - sometimes even several decades!

There are many reasons to start saving as early as possible. If you start adding to your super at an early age, the power of compound interest over time will do more for your savings than trying to catch up with larger contributions later in life. There are a number of strategies that you can put in place now, to help with your future, including:

Salary Sacrifice

For those who can salary sacrifice, it is a very attractive proposition. Salary sacrificing simply involves having part of your salary paid into a super fund by your employer rather than receiving it as income. These contributions are not included as part of your assessable income, reducing your income tax burden. Salary sacrifice contributions are only taxed at 15% (the superannuation contributions tax) whereas if you invest with after tax dollars you must pay tax at your marginal tax rate (up to 46.5%) before you invest. It's an excellent form of "forced savings" - what you don't get in your hand, you can't spend! As salary sacrificing is such an attractive strategy, the government does impose some restrictions and limitations. For instance, for those under 50, it is important not to exceed the $25,000 contribution cap otherwise additional tax will apply on the balance.

Government Co-Contribution

For those eligible the government will make a contribution of up to $1,000 when you make a personal contribution of $1,000pa into your superannuation account. This is called the Government Co-contribution. This government initiative is in place to encourage people to make their own contributions towards their retirement nest egg. If you contribute $1,000p.a for five years, receive the full Government Co-contribution each year and your super earns 7.5%p.a for that period of time - you could have an extra $12,200. Not bad for a total out of pocket expense of $5,000! The power of compound interest means in 30 years time, you could have an extra $60,562 in superannuation#. To receive any co-contribution, you must earn less than $61,920 (for the 2010/11 financial year) and make a personal contribution. There are other conditions which can be found on our website [www.intrust.com.au].

Contribution Splitting

Another strategy you can utilise to grow super savings is Contribution Splitting, which allows a couple to share the contributions made by one partner. This can be beneficial where one partner has a much higher superannuation balance than the other. If you make a contribution for your spouse, he or she must meet age eligibility conditions and earn less than $13,800. For a contribution of $3,000 the contributing spouse can receive up to an 18% tax offset, knocking up to $540 off their tax liability. Over the long term this could save you a lot of money in tax, plus boost superannuation savings.

So as you can see, the earlier you start with any of these strategies, the more attractive concessions you can receive off the government for contributing to your own retirement payout. As with anything, it is still important to consider alternative investments. Consult your financial adviser before making any decisions to ensure you achieve the most effective outcome for your personal situation and maximise your benefits in both the short and long term.


# Software provider for the projections is COIN Financial Software

IS Financial Planning Pty Ltd ABN 64 143 707 439 trading as Intrust360°. Intrust360° is a corporate authorised representative of HN Financial Partners Pty Ltd ABN 16 088 547 077, AFSL 228969. Authorised Representative Number 379207.