People in their 20s and 30s tend to not do much with their super, and that can be a mistake in itself. It could leave them with a large gap between what they’re capable of contributing in the last 10-15 years before retirement and the level of income they want to retire on. Lots of people say, “I’d love to retire at age 60 on $100,000 a year.” But they don’t actually focus on their super until they’re 45 or older. And to achieve that sort of outcome, the level of extra super contributions that would be required is huge and probably unachievable. That means pushing retirement back or accepting a lower level of income – and therefore a lower quality of life – in retirement.
Another common mistake is not watching what employers are contributing. If people aren’t getting the correct amount of contributions they’re owed by their employer, it can add up over the years and have a big impact on their retirement savings.
Something else to be cautious of in your 20s and 30s is continuing to hold income protection insurance through super. One of the things that super can do is pay insurance policies, and it’s a good idea to hold life and disability insurance through super. But people who have their income protection policy inside super can’t claim a tax deduction for their insurance premiums – whereas that is possible for income protection held outside of super. And income protection policies outside of super generally have more favourable payment periods and can pay a lump sum to cover the cost of things like physiotherapy or getting domestic home help.
Another mistake is not claiming a tax deduction for personal contributions. A lot of people don’t realise there are important notification requirements that have to be followed. Super fund trustees must be informed if a member intends to claim a tax deduction, and it must be done within certain timeframes. It’s generally by the time a tax return needs to be lodged, or by the end of the following financial year. We find that people make a contribution, and then by the time they get around to telling the trustee they want to claim the contribution as a tax deduction, it’s too late. The notice is invalid and the super fund can’t accept it.
Source: Colonial First State