One of the biggest lessons I see clients learn as they get closer to retirement isn’t about investment returns or picking the right super fund.
It’s about time.
Many people look at their super balance in their 50s or 60s and realise just how powerful compounding has been. Just as often, they wonder what their balance might look like if they’d started contributing a little earlier.
Unfortunately, none of us can go back and give our 20-year-old self another 30 years of compounding.
But many of you have children or grandchildren who are just starting their working lives. That means you have an opportunity to give them something many of us wish we’d had ourselves—a head start.
Not because they need more money today.
But because they have something far more valuable than money.
They have time.
A simple strategy that could make a big difference
One strategy I don’t think gets talked about enough is using the Government Super Co-contribution to help children and grandchildren start building their super.
If they’re eligible, the Government will contribute 50 cents for every $1 of eligible after-tax contributions they make, up to a maximum of $500 each financial year.
Receiving an extra $500 is great.
But that’s not the exciting part.
The real opportunity is giving that money another 40 years to grow.
Could this work for your family?
If you have children or grandchildren who have recently started working, it’s worth checking whether they’re eligible.
This strategy may be worth exploring if they:
- Have started earning an income from a casual, part-time or full-time job.
- Earn less than $49,293 this financial year, making them eligible for the full Government co-contribution of up to $500.
- Earn between $49,293 and $64,293, where they may still qualify for a partial co-contribution.
- Have their Tax File Number linked to their super fund.
- Lodge an income tax return.
If someone comes to mind while reading that list, this strategy is worth considering.
What could this actually look like?
Let’s say your daughter is 18 and has just started a casual job while studying.
You decide to help her contribute $20 a week into her super. That’s $1,040 a year.
Because she meets the eligibility rules, the Government contributes another $500.
Repeat that for eight years.
Here’s what you’ve achieved before she turns 26:
- Your contributions: $8,320
- Government co-contributions: $4,000
- Total invested: $12,320
Now leave that money alone.
Assuming it earns an average return of 8% per year, by age 60 it could grow to around $240,000.*
That’s the opportunity.
The Government’s contribution is helpful, but it isn’t what creates the wealth.
Time does.
Is this the right strategy?
Not always.
For some young people, building an emergency fund, paying off expensive debt or saving for a first home may be the higher priority.
But if your child or grandchild is eligible for the Government co-contribution, this can be a wonderful way to help them start building good financial habits while taking advantage of a benefit that’s only available while they’re earning a lower income.
A final thought
As parents and grandparents, we spend years helping the next generation get ahead.
We help with driving lessons, university, first cars and, eventually, maybe even a first home.
Helping them understand the value of investing early might be one of the greatest financial gifts we can give them.
Not because of the Government co-contribution.
Not because of the $20 a week.
But because you’re giving them something that none of us can create more of.
Time.
If you’d like to explore whether this strategy could work for your family, or whether your child or grandchild is eligible, I’d be happy to help.
*Illustrative example only. Assumes an average investment return of 8% p.a. Investment returns are not guaranteed and actual outcomes will differ.
