Top up your super - how to ramp up for retirement or get ahead when you’re young

Ramping up for retirement

If you are in your 40’s or 50’s chances are you are thinking about how much you’ll need to live comfortably in retirement and wondering – “will I have enough?”

According to the 2008 Westpac-ASFA research report, the cost of a "comfortable" retirement lifestyle for a couple living in Melbourne is $50,086 a year.  In comparison, the cost of a "modest" retirement lifestyle for a single female living in Melbourne is $27,151 a year. This assumes the retiree(s) own their own home.  

As at August 2008, the Government’s Age Pension Payment is $14,216.80 a year for a single person and $23,753.60 a year for a couple. The pension is subject to both an income test and an asset test – whether you receive any age pension and the amount you receive depends on your income and assets.

So how do you fund the gap between the Age Pension (if you are entitled to one) and a comfortable living in retirement?  That’s where your super and other investments come in.

The good news is that topping up your super in CONNECT is easier than you think – you can make additional contributions from your pre-tax or after-tax salary, and even a few dollars a week extra can mean thousands of dollars more in your final payout.  And if you make contributions from pre-tax salary (salary sacrifice), you may pay less PAYG tax, which means the net cost to you is less!

Look at the difference putting in an extra $100 per month pre-tax (salary sacrifice) makes to a member age 42, with a current account balance of $35,000, who plans to retire at age 60:

The cost of putting in $1,200 per year pre-tax is only $822 net, assuming you earn between $25,001 and $75,000 and have no other source of income.

You’re never too young to think about super

Many financial planners say that if you want a lifestyle in retirement that's not too different to the one you have now, you'll need to put aside about 15% of your income each year for 40 years. So if you just rely on the money your employer puts into super for you, you might be caught short.

If you want to give your super a boost, you can put extra money into your CONNECT account each payday. Just a few extra dollars a week over your working life can mean thousands of dollars difference in the long run. Look at the graph below. Assuming the money was invested in a similar way to CONNECT's 'Balanced' option, you can see the difference between putting $10 a week and $20 a week into super over 25 years.

How do I put extra money in?

It’s easy. You can make voluntary after-tax contributions to your CONNECT super account by using BPAY. Simply call the CONNECT Administration Service for our BPAY reference number. Remember if you make after-tax contributions and you earn less than $60,342 p.a., you may be eligible for the Government’s co-contribution. That’s where the Government puts in up to $1.50 for every $1 you put in.

If you want to contribute extra money from your pre-tax salary (called salary sacrifice contributions), then speak to your employer.

Undeducted contributions (i.e. contributions you make from after-tax salary) are capped at $150,000 per year and pre-tax or salary sacrifice contributiors are capped at $50,000 per year or $100,000 per year if you are aged 50 or over.

Don’t forget to make sure we have your Tax File Number. CONNECT can not accept personal contributions unless we have your Tax File Number. If we do not have your Tax File Number we can still accept employer contributions, but penalty tax applies and they will be taxed at the top marginal tax rate, plus the Medicare Levy.