Early action puts retirees well in front
Telling young adults not to worry about superannuation has to be the most costly — and spectacularly bad — advice ever.
Its shoddiness is magnified for women who are more likely to have a big chunk of their lives with no income or a low income because they have children.
It foolishly ignores what highprofile financial adviser Noel Whittaker calls “the magic of compounding interest”.
The “magic” needs many years. A 40-year working life is probably ideal. But if you start early, even with small amounts, you earn interest, then interest on your interest. This is the “compounding” element.
It’s simple but it’s crucial. Leave it until later and it costs more than double to get the same result. And so it is for super. Take a woman who starts work aged 20 on $50,000, graduates to the average women’s wage of $75,000 at 25, has a child at 30 and does not earn again until she is 35.
From 35 to 40, she earns half the average, then has average earnings in her 40s and 50s. In her 60s, she cuts back.
If she relies on the 9.5 per cent compulsory super and makes no extra contributions, she will have $493,000 at age 67 if her super earns the average over the past 30 years.
For a “comfortable” retirement, you need $545,000, Association of Superannuation Funds of Australia says.
But let’s say when she starts work at 20, she pays $30 extra a week into super. At 25, she gets a promotion and makes it $50 until she turns 30.
If she never made another extra payment, at 67 she has $574,000.
Now compare this to a woman who made no extra payments and panics when she turns 50.
To get near the $574,000 balance set up effortlessly by Whittaker’s “magic” in her 20s, she has to pay an extra $100 a week until she turns 60. That gets her $572,000.
But it cost her $52,000 in her 50s, not $19,240 in her 20s. OPINION