That title got your attention, didn’t it?
You’re either pessimistic, or keen to learn how. Well, it’s actually not that difficult. We assume that most, if not all of our listeners have a small amount of money that they could put aside each week. For this particular scenario, we’re going to use $100 as an example.
If you don’t spend that $100 each week and put it into your superannuation instead, in 11 years it’ll turn into just over $105,000.
11 years isn’t a lifetime, but it’s long enough for that money to compound significantly. Assuming that you salary sacrifice as you put that money into your super, it’s actually $153 before tax - but you’ll only be out of pocket $100. This, of course, is based on an average income of $37,000-$90,000 where people are paying a marginal rate of 34.5% tax.
Once the $153 is in your super, it’s only taxed at 15% inside the account. It doesn’t take a mathematical genius to work out that that’s much better than paying 34.5%.
We can hear what you’re thinking. But $105,000 isn’t really that much in the scheme of my retirement.
That’s true. But here’s the thing. That money isn’t static. It’ll keep growing, especially once you’ve retired and turned it into a 0% taxed superannuation income stream.
If you treat this ‘pot of money’ as totally separate to everything else, here’s one thing you could do with it: you could draw an extra $10,000 a year for a holiday for 24 years.
You read that right. 24 years.
Having that $105,000 in your super (to be exact, it would actually be $105,589), an assumed 8% net-rate-of-return would see it make $8,447 in the first year alone. Now if you’re drawing out $10,000 a year, you’ll really only be taking out a little bit extra on top of the return.
We have other podcasts about this 8% rate of return, which of course is not guaranteed - but a high growth fund can definitely generate a return that averages 8% or over based on historical perspective.
So, if you think you can part with $100 a week out-of-pocket, you could be looking at a $10,000 holiday every year for 24 years of your retirement. And we think that sounds pretty amazing.
What cuts can you make now? It doesn’t have to be huge, and it doesn’t even have to be $100. Check out our other podcasts about budgeting. We’re not saying give up everything you do. Of course, you have to enjoy your life now too. And if you’d rather spend all your spare cash on fun now, that’s completely your choice.
Our take home message is simply this: it doesn’t have to be all or nothing. Find your balance, make some trade-offs, and work out how much you’re willing to sacrifice now for something bigger in the future.
Click to hear more on the topic through the relevant podcast episode.
Dallas Davison, Michael Hogue and Ali Hogue.