Saving for retirement
HOW much priority did you place on saving for retirement when you were 25? It probably didn’t rate among your top priorities.
Probably buying a car, going out and travelling were regarded as more pressing needs. And perhaps you were saving for the deposit on your first home.
Although investing as early as possible in life is an extremely smart idea, it doesn’t necessarily happen that way in real life.
This point was highlighted in a small and probably much-overlooked table in the recently published Superannuation Savings Gap report, written by Rice Warner Actuaries for the Investment and Financial Services Association.
This particular table attempts to broadly show what is happening in real life regarding the level of contributions that are flowing into members’ super accounts at different ages. It’s a fascinating exercise that was necessary for Rice Warner to estimate Australia’s huge retirement savings gap at different ages.
Perhaps not surprisingly, Rice Warner assumes that the 25-29 age group tends to rely solely on Superannuation Guarantee (SG) contributions.
By age 30, the level of contributions (through a combination of SG, salary-sacrificed, employer and after-tax contributions) begins to creep upwards.
Between ages 45-49 – when retirement savings should have become much more of a priority – Rice Warner assumes that members are having 18.5% of their salaries (or 9.5% above the SG) contributed into their super funds.
And by 55-59, when retirement should have become a much more pressing need, the actuary assumes total contributions of a little above 24% of incomes. And this percentage is assumed to rise to 27% for the 60-64 age group.
Particularly given the halving of the annual concessional contribution caps from 2009-10, Rice Warner’s assumptions on contributions by age should serve as another powerful wakeup call to begin saving as early as possible – even though there are plenty of other demands on your money.
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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.