Join our investing community

Super Contributions for early 20s

Discussion in 'Superannuation, SMSF & Personal Insurance' started by suse, 13th Sep, 2012.

  1. suse

    suse Member

    Joined:
    13th Sep, 2012
    Posts:
    5
    Location:
    Gold Coast
    Hi all

    I'm hoping to get your opinions on the pros & cons of investing in (contributing to) super instead of external investments.

    I'm 21 and have almost $9k in my industry super fund, and I understand that although I'm young the rate at which my super grows through my employer SGC alone won't be enough to retire on. I know this will grow as I get older, but at this rate I won't have enough to retire on when I come of age.

    My question is, should I be focusing more on putting money into my super, or putting it into my savings & share investments etc?

    What are your thoughts on this?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Super might be a tax effective strategy, but once the money is in there you have almost zero chance of getting it back until you retire. At 21, that is a long long long way away and I can guarantee you that life will change and throw up unexpected challenges for you along the way.

    I personally strongly recommend against anyone (especially at your age) contributing extra to super - unless you already have a large investment portfolio and have too much money!

    Invest outside of super - you no doubt will want a house to live in one day, or need a new car when kids come along, or need to put your kids through school, or want to take an OS holiday ... there are lots of reasons you might need access to money and you can't get it when it is in super.

    You generally won't hit maximum earning capacity until well into your 40s and there will be plenty of time to top up your super contributions at that point.

    Note that I am not an advisor and this is not advice - just my opinion.
     
  3. suse

    suse Member

    Joined:
    13th Sep, 2012
    Posts:
    5
    Location:
    Gold Coast
    Hi Sim.

    I understand what you're saying, and it's definitely something to consider & keep in mind. I would like to increase my savings also, so that's definitely my current 'main goal' I suppose.

    Would you say its a bad idea to make any extra contributions at all at my age though? I'm just trying to be (very) proactive in ensuring that I have extra money in super for as long as possible, so that it can benefit from years of compounding. Its hard to find a balance though.
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    That's exactly what I'm saying.

    The only exception I would suggest would be if you or your partner were compulsive spenders and are not able to save otherwise ... in any other case I think you are better off investing outside of super.

    Try thinking of super as a tax you have no control over (which is effectively what it is).

    My suggestion is to aim instead to provide for your own retirement (at your chosen age, not the government's) outside of super ... then your compulsory super will be a safety-net to fall back on if all else fails.

    You may find that you do extremely well from your investing and choose to effectively retire at the age of 35 or 45 or 55 ... doesn't matter when, the key point being that it is YOUR choice, not the choice of the government as to when you can draw on your nest egg to fund your chosen lifestyle.

    Just FYI - if you were 50 years old now and asking the same question, this discussion and my suggestions would be completely different.
     
  5. suse

    suse Member

    Joined:
    13th Sep, 2012
    Posts:
    5
    Location:
    Gold Coast
    OK - Haven't thought about it that way before! ;)

    Thanks for your opinions
     
  6. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Also look at your eligilibility for the Government co-contribution.

    This is great for anyone young and with a lower income level:

    Super co-contribution

    I encouraged my girlfriend (now wife) to take advantage of when her income was low and it gave her super a massive boost.

    I also agree with Sim's comments - investing outside of super is probably best and will give you the most flexibility.

    SM :cool:
     
  7. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    18-25 Travel, study, have fun, start career
    25-35 Work hard, Buy house
    35-45 Work hard, Payback mortgage
    45-55 Build investment portfolio and/or add to super
    55 Retire :)