This is question mainly considered and debated by young people starting their careers. The attraction of superannuation and retirement savings is generally not very strong when retirement is in excess of 40 years in the future. Moreover, peer pressure creates a perceived need to have the best consumer items, particularly electronic devices, but also clothing etc. Strategies to fund income for retirement are generally deferred to ‘sometime in the future’. So at what age should I begin saving for retirement?
In fact, retirement savings effectively start at the time of your first job after you leave school. This is because of the Superannuation Guarantee legislation that compels employers to provide superannuation benefits for their employees. At the moment the rate is 9.5% of your gross income which will be paid, in most cases, to the fund of your choice. This is compulsory but it is paid by the employer so no real decision here!
Some people take the decision at some stage of their employment career to boost this retirement saving by voluntarily increasing the amount contributed to their super funds. This can be done by salary sacrificing some earnings and substituting it for a superannuation contribution. This can also help with reducing the amount of tax paid as the sacrificed amount is taxed in the fund at 15%, with a ‘deduction’ in from taxable income. Others will make an after tax contribution to their fund which may also qualify them for a government co-contribution if their income is low enough.
So the question is – at what age should you adopt either of these strategies. As superannuation funds generally invest to get a return for their members, the longer the money is in the investment space, the more time it has to multiply. This is very much akin to the example often spoken of being that of the effect of compounding. For example, if you have a dollar earning 10% per annum you will have $1.10 after a year, and $1.21 after two. Note the effect of interest on interest. This effect gains momentum each year and the effect is even more magnified.
On this basis the earlier you start the investing process the smaller the amount that will be necessary to get a really great result. So if you start at an early age to get this benefit happening the pressure to dramatically increase retirement savings later is greatly reduced. As a result, the answer to the question asked is – the sooner the better.
At what age should I begin saving for retirement? This is a question you need to ask yourself.