How younger workers are boosting superannuation balances now for retirement
Younger Australians are focusing on superannuation earlier than their parents and it’s paying off with a 30-year-old median wage worker today eyeing a balance over $600,000.
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Compulsory superannuation’s climb to 12 per cent of wages will help deliver today’s young adults a super balance above $600,000, new research suggests.
However, the July 1 rise – from 11.5 per cent currently – won’t guarantee a comfortable retirement for some workers, the Association of Superannuation Funds of Australia warns.
An ASFA research note says while self-employed people, gig economy workers and women taking time off work to raise children may struggle to build a big enough nest egg, a 30-year old today earning a median $75,000 wage and with $30,000 currently in super is expected to have a balance of $610,000 in today’s dollars by age 67.
That future figure dwarfs today’s median super balances for 60-64-year-olds of $205,000 for males and $154,000 for females, and helps explain why more people in their 20s and 30s are thinking about super.
Financial advisers say factors behind young people’s increasing interest include the compulsory super growing nest eggs faster, the rise of financial influencers on social media, surging house prices making future home ownership feel unattainable, and worries about a future age pension.
The ASFA-commissioned research found people aged 18-to-34 have similar high levels of support and trust towards super as older Australians despite not being able to access their savings for decades.
It found 73 per cent are pleased with their super’s performance and 77 per cent believe the compulsory contribution rate should be at least 12 per cent.
“Today’s younger workers will benefit from higher compulsory contribution rates for longer periods of time compared with previous generations of Australians,” ASFA CEO Mary Delahunty said.
“Fund members have seen balances rising steadily in recent years, which … gives them greater confidence about their financial future,” she said.
Rising Tide senior financial planner Rebecca Pritchard said there was a “definite trend” of more young adults focusing on super and other investments such as shares.
“There’s a lot of fear in younger generations around long-term security and housing affordability,” she said.
“The other one, which is fundamentally quite irrational, is a lot of people have fear that the age pension won’t be there by the time they are age-eligible.
“So they’re looking at their super and thinking ‘I can’t rely on anything else, I may or may not own a home, so I’ve got to look after my superannuation’.”
Ms Pritchard said young adults should ensure they were getting good value and good service from their super fund, and most should have their super in high-growth investments.
“Investing in your career is going to be the most powerful way to grow your super, by growing your income,” she said.
Financial strategist Theo Marinis said young adults had grown up with super over the past 30 years and were seeing its benefits.
“Being compulsory since the 1990s and rising to 12 per cent from July 1, people realise that’s going to build up,” he said.
“Three always will be Centrelink, but with the standard of living that people demand now you can’t cover that on the pension.”
Mr Marinis said the $600,000 projection for typical workers at retirement equated to $1.2 million per couple, enough to fund a $60,000 tax-free pension, and some people could retire earlier then self-fund until they reached pension age.
“The beauty of super is it’s compulsory – it’s going to leave you in a much better position down the track,” he said.
ASFA’s research note says some people will find it harder to build super savings because their jobs are not covered by compulsory super – such as self-employed and gig economy workers – or they take time out to raise families.
ASFA’s Ms Delahunty said it regularly advocated to improve equity in super. “Progressing payday super legislation, so that people receive super at the same time as their wages, will significantly reduce risks of underpayment or non-payment of super,” she said.
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Originally published as How younger workers are boosting superannuation balances now for retirement
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