Gaining millionaire status might seem like an impossible dream, but it could be more achievable than you realise if you’re willing to make the most of your superannuation fund.
There are some new rule changes planned which will add flexibility for some savers but will, at the same time, be limiting to others (you know how the government likes to give with one hand and take with the other).
There is some uncertainty over when, or even if, the changes will actually take effect, because of the divided Federal Parliament. But whatever happens, there’s no denying that super’s low taxes make it a great way to save up to and after retirement.
Club Plus Super CEO Paul Cahill says it’s “not inconceivable” for supers to hold upwards of a million dollars. There are ways to boost your fund, for example by making regular contributions starting in your 20s or 30s, by pumping profits from an investment property into your super, or by combining couples’ funds.
If you commit to depositing $100 a week, this great thing called compound interest can make your savings grow to more than $1.2 million over the course of a normal working lifetime. Now that’s a good reason to start saving while you’re young!
“If they work for 45 years, they are going to find they get very close to millionaire status if they do it correctly,” Cahill says.
“We often forget that for most people when they retire, there isn’t one nest egg hatching but two. Speak to your fund about the rules and incentives that exist for partners.”
One of the planned changes from the government is to lower the cap on tax-deductible contributions (including salary sacrifice and employer payments) to $25,000 a year. This might not sound like a big deal when you’re in your 20s or 30s, because you really don’t have that kind of cash lying around at the end of each month, but people in their 40s or 50s may find themselves unable to save as much as they would like because of this new limit.
“The 45-50 bracket is when people switch onto super,” says Cahill.
Wealth On Track principal Steve Greatrex says couples can make the most of the system by using each other’s contribution caps.
“I think people will have to start thinking about salary sacrifice earlier and more often,” he says.
“It’s going to be harder to catch up now with the lower caps.”
While it’s unclear whether the new cap will be put in place, there are other more positive changes which probably will be given the green light. These include allowing older Australians to contribute, allowing people to make limited catch-up contributions, and allowing personal tax deductions for anyone who pumps money into super.
But while these may be “useful”, says Greatrex, these added flexibilities will not be enough to offset the damage done by the proposed lower contribution caps.
“If people want to get to millionaire status they have to use the system to their advantage,” says Cahill.
“There is a common perception that super isn’t real money because it isn’t immediately accessible, but the reality is that Australians are living longer than ever before and the money you have in your super fund will feel very real when you’ve stopped working and it’s yours to do with as you wish.”
His advice is to structure your savings well and get sound financial advice to help you take full advantage of the system. And we have to say we agree with him!
