Can young Aussies retire by 55?


Checking out from the daily grind by retiring early is an aspiration shared by many, but it turns out that younger Australians are the most optimistic about it becoming a reality.

New research conducted by Aware Super has found that 31% of those aged between 16 and 34 are bullish about the prospect of packing in work by the time they hit 55, which is far higher than the 19% of 35 to 54-year-olds who feel the same way.

A comfortable retirement will most likely require a sizeable nest egg though, and it's on this front that there appears to be a disconnect between expectation and reality for some would-be early retirees.

gen z guide to early retirement

Upon asking those in the younger cohort how much they thought they would need in the way of savings for a comfortable retirement, 29% said they believed that less than $500,000 would be enough, while 8% didn't know at all.

In reality, the figure is likely to be much higher. Aware notes that the average couple needs somewhere in the region of $640,000 to maintain a comfortable retirement at the age of 67, while a single person needs around $545,000.

Peter Hogg, the head of advice, experience and enhancements at Aware Super, says that while it's admirable that so many people are shooting for an early retirement, there are gaps in awareness - especially when it comes to superannuation.

"There are some things that have to be factored in to those expectations. Access to super is obviously a big one because you can't actually access just super until you're 60, so those sort of things really need to be considered.

"That's why we're really focused on educating people on things like when you can access it, the power of compound interest, government co-contributions, and the tax benefits that come with it. And then being able to help them manage some of the expectations around retirement as well."

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Getting the basics right

So is there anything younger Australians can do on the superannuation front to put themselves in a better position to retire with the money they need? Hogg says that the good news is that young people have time on their side.

"There are a few great things that young people can be doing today. First things first is just engaging with it, and understanding where your super is and how it's invested.

"If you're 20 years, 30 years or even longer away from retirement, take advantage of that time to invest appropriately. For some people they might be able to take more risks with their investments to grow it more substantially. Obviously everyone's different in terms of their risk tolerance, but that's certainly an opportunity that we see for someone younger."

Another major consideration, especially for anyone who has worked multiple jobs, is weighing up the benefits of consolidating their super into one fund. Account stapling is likely to make this less of an issue over time, but Hogg says that consolidating funds can be a good way for people to reduce the impact of fees on their returns.

"Just by engaging with your fund and understanding what you've got, what you're entitled to and how you're invested, you might identify something that you don't need or is a duplicate of what you need."

Topping up super

Beyond nailing down the basics, making additional super contributions on top of those coming in from an employer is another way that younger Aussies can look to boost their balances. Daniel Thompson, a financial adviser and partner at Finnacle, explains that there a couple of options here.

"There are two main ways. One is what is called salary sacrifice which is done through your employer or payroll if you're self-employed," he says.

"This is where you decide to choose an extra amount you want added per pay period towards your super. Say you earn $1,100 a week and you want an extra $100 to go into your super via salary sacrifice, your employer will take that $100 out before you get paid, so essentially you will only pay tax on the $1,000 that's left over.

"It's a tax-effective way to build your wealth, whereas if you buy shares or invest in something yourself, you're using money after it's been taxed."

Thompson says that an opportune time to start salary sacrificing can be when you receive a salary increase - that way you're less likely to notice the difference.

"The second way is personal voluntary contributions where, if you've got some money that you've saved up or that you've received from an inheritance or somewhere else, you can actually put that as a one-off contribution into your super fund. There is a bit of administrative work with forms to fill out, but you can claim it as a tax deduction."

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Investing outside of super

For anyone born after July 1, 1964, the age at which people can start tapping into their super - special circumstances being an exception - is currently 60.

Obviously that may create a funding hurdle for those looking to stop work before that age though, which is why Thompson suggests considering investment options outside of super.

"Super's great as a long-term wealth building tool because it's tax effective, and having it locked away can be helpful because you can't touch it or access it. But the downside comes with accessibility if people do want to retire early - we call it achieving financial independence.

"Financial freedom often includes things like owning your home, being debt free, and thing's along the way like weddings, family, kids, and travelling that people want to do.

"It's not about ignoring or shunting super, but it might be about people also setting themselves up with outside of superannuation. It might not be quite as tax effective, but it helps with that accessibility aspect, but it really does come down to individual goals and what people want to achieve."

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.