When talking to my Gen Y friends about the importance of building their super early, the first thing they say is retirement is so far off for them. The second thing they say is they would rather use their money for the shiny new car they have always wanted, or a holiday they have been dreaming about – anything they could enjoy here and now. At first I could definitely relate to this; like my friends I’m young, fit and focused on my career. Retiring hasn’t even crossed my mind, let alone planning for it.The truth is, our superannuation plays a significant role in determining the lifestyle we enjoy when we decide to retire. It is one of the biggest, if not THE biggest investment we will ever have. An even scarier truth is, with our ageing population, outliving our hard earned retirement savings is a harsh reality. Gone are the days where retirees could depend on the age pension for a comfortable lifestyle.

One thing I’ve come to understand is it is never too early to think about your super. In fact, the sooner you start planning, the bigger the impact it will have (and the better equipped you will be) when you finally decide to hang up your boots. it is possible to prepare for the future without sacrificing your lifestyle today. I’ll use the following example of ‘John and Sharon.’

‘John and Sharon’ are both 25 years old.  They each have an annual salary of $50,000 and $10,000 in their super balances. By continuing to work and have employer contributions paid into their super, John and Sharon would expect to have a balance of $407,573 in todays dollars at age 65.

Now, if ‘John’ is proactive about his retirement planning, and decides to salary sacrifice $100 each week ($5,200 per year in today’s dollar terms) for the next 10 years, at age 65 he will have a superannuation balance of $536,183. This is an increase of $128,610 for his retirement, and all it cost John was $52,000 over the 10 year journey.

‘Sharon’ on the other hand, focuses on her career and realises at age 50 she may not have enough money in super to fund her retirement. She then takes out a similar strategy to John and invests $100 per week (in today’s dollar terms) for the next 10 years. By age 65 ‘Sharon’ will expect to see her super balance at $497,455. ‘Sharon’ is now in a better position than if she was to do nothing, but waiting until age 50 before taking action, ‘Sharon’ misses out on over $38,000 she could have enjoyed during retirement.

It’s no secret ‘John’ is closer to achieving his retirement goals thanks to a little forward planning, and the power of compounding interest. The earlier you invest and the longer the time frame, the more you allow for compounding to work for you.

The most exciting thing is ‘John’ doesn’t have to stop salary sacrificing after 10 years. If he continues to invest $100 each week of his pre-taxed income, he could build his super to over $838,800. If he continues to focus on himself and his career and drives great income, he may increase the amount he salary sacrifices each week. The potential is limitless!

It is never too early to start thinking about the future, and there are many steps you can take today to set you on the path to financial freedom. For instance, knowing where your super is held and how it is invested is a great place to start.

Speak to an Income Solutions Financial Adviser today and develop a retirement plan that’s right for you.