Could you live on $28 a day?

 

 

Have you ever dreamed about your perfect retirement? Maybe it includes some travel, spending time with a flock of grandkids or pursuing a lifelong hobby.

Whatever your dream retirement looks like, research from the Australian Bureau of Statistics shows that 53 per cent of us expect to fund our retirement with our own superannuation, an annuity or an allocated pension.

But recent superannuation data on how much Australians actually have saved tell a far less idyllic story.

Roy Morgan figures show that Australians are retiring with a median superannuation balance of just $207,950, which works out to be just over $10,000 a year over 20 years or just $28 a day.

That’s $28 to cover the bare necessities including food, transport, clothes, utilities and rent for those who don’t own their own home. No trips to the movies. No presents for the grandkids. No jet setting holidays.

The myth that your superannuation will take care of itself if you work hard is one that Australians have bought into for a long time.

Of course this amount doesn’t take into account the aged pension or other investments you might have but for many Australians, the reality is, without extra contributions the chances of your super being enough to fund a comfortable retirement are slim.

While its important for everyone to consider making extra contributions, it’s people who have breaks from the work force or work part time that need to be extra vigilant.

This is somewhat of a cruel irony in itself because setting aside extra money isn’t an easy feat for anyone who spends less time doing ‘paid’ work than the typical full-timer.

Plus, with a mortgage to pay, mouths to feed, kids to educate and bills piling up, superannuation understandably gets pushed down the pecking order.

We recently asked a range of personal finance experts what advice they’d give their 20 year old self and the most consistent response from them was to set money aside for later down the track.

I am keenly aware that retirement is the absolute last thing someone in their twenties gives even a moment’s thought to, but it really is the best time to set up good financial habits, before the financial burdens of kids and a mortgage distract you.

That being said, it is never too late to make a start. If the superannuation alarm bell doesn’t ring before you hit your 50s, there’s still 15 or more years to at least try and play catch up. It’s that or hatch a plan to stay in the workforce for an extra 10 or more years.

That’s why the $28 a day figure is so important. Yes it’s depressing, but it really needs to be taken as a warning, regardless of age. The super fairy is not going to magically provide for you in retirement unless you pay her a decent bonus each year, with interest.

The good news about making extra super contributions is that it is relatively straightforward. Setting up a direct debit to your super fund takes as much effort as any other online transaction but the benefits will far outlive the ill-fitting pair of pants you bought on ASOS last week.

Foresight and small sacrifices from week to week are what will make all the difference by the time you reach the end of your working life.

As with everything moderation is the key. If your contributions are to be consistent until retirement age then make it an amount that won’t throw out your budget.

Even $20 a month, which in real terms is just one movie ticket a month or a pair of nice shoes once a year can tally up to $14,000 extra in your super account over a period of 35 years, thanks to the power of compounding interest.

Throw in a few more of life’s luxuries that you’re prepared to skip once in a while and your extra contributions could start doubling or even tripling. The key to regular contributions is keeping your long term goals in mind.

One way to do this is to check your superannuation balance each month, to see how your fund and your funds are tracking.

It’s also a good idea to keep an eye on your fees to make sure you’re not haemorrhaging money through excessive charges.

Find out what other funds are delivering their customers based on five years’ performance and fees and work out whether you might be better off with someone else.

The superannuation market is thriving in Australia, so make sure it’s delivering you the service you need to get you to a comfortable retirement.

Keep in mind that superannuation is a complex product and what works for one person may not be ideal for another.

Read up on what to look for in a super fund and seek professional advice on the best way to maximise your contributions as they will be able to inform you of government schemes or tax benefits that may help you on your way.

The Australian Securities and Investments Commission’s consumer website Money Smart can also provide guidance on superannuation and a calculator to assist in calculating the benefits of extra contributions to your overall super balance.

Advice contained in this article is general in nature and not specific to your particular circumstances.  Before making an investment decision you should consider your own financial situation..