The government is heavily promoting its push to increase the super rate contributed by employers. For me there are a couple of issues which I think people should know.
Earlier in my career we were paid a salary plus super. Super was a bonus you didn't think about. The employer paid it. However a few years ago I noticed a surprising change in how the salary of young people was stated. Your salary was $X including super. Yes that's right. We'd gone from the salary being salary plus super to salary including super which in real terms is a drop in salary. My concern is, does this mean that as the government increases compulsory super the only real losers. For salary earners the super is coming out of their salary and thus the amount of money they have available to pay off their own bills including their home loans is reduced.
The second issue is the government loves to tell people how much that great bonus will be. Their latest online site states the changes will mean, if you're 30, earning around $70,000 a year, you'll get an extra $105,000 if you retire at 65.
First let's see. Isn't the retiring age increasing to 67!
More importantly that whopping great bonus of $105,000 is in today's dollars, but in 35 years time how much will that be worth. The problem is inflation. Each year as prices go up the buying power of our dollar goes down. For example in 1998 Julia Gillard bought her home in Altona for $140,000 and today 15 years later you'd pay around $600,000 to purchase a similar house which shows how $140,000 today could buy about a quarter of what it did in 1998.
The question then is how much would $105,000 in 35 years buy in today's terms. To find out you need to use a Present Value Calculator which I've written an made available on my apps page www.JustLocal.com.au/clients/apps, or directly at http://www.justlocal.com.au/clients/present-value-calculator/. The only question really is what the interest rate or rate of inflation you'd like to use. I'd suggest around 4-5%. The government aims for 2-3 but since 1970 the average has been 5.8% so 4-5% is a good indicator.
So how much will you be able to buy in 35 years? Something in today's terms worth around $19-$26,000, or roughly the price of a small car. Yep. That's it. A car.
To me the main thing is to understand that large sums today sound impressive but time reduces large numbers to rather insignificant numbers. If you don't understand this when you retire chances are you'll be very disappointed.
Have some fun with the calculator. See how things you buy today compare with things your parents may have bought decades ago. For example, in the mid 70s, (around 1975) a new Ford Falcon cost around $3,000 and I think teachers were paid a starting salary of around $5,000. A basic Ford I think costs around $30,000 and teachers earn around $50,000, so relatively speaking, they've kept up with general inflation (but not property which has increased faster). So does the calculator work as a reverse time machine. Enter the teachers salary today, for 38 years, 5.8% (the average inflation rate) and you end up with $5,868 which is pretty close. The car is $3,521, which again is pretty close.
Kelvin Eldridge
Online Connections
www.OnlineConnections.com.au
Call 0415 910 703 for computer support.
Servicing Templestowe, Doncaster, Eltham and the surrounding area.
Earlier in my career we were paid a salary plus super. Super was a bonus you didn't think about. The employer paid it. However a few years ago I noticed a surprising change in how the salary of young people was stated. Your salary was $X including super. Yes that's right. We'd gone from the salary being salary plus super to salary including super which in real terms is a drop in salary. My concern is, does this mean that as the government increases compulsory super the only real losers. For salary earners the super is coming out of their salary and thus the amount of money they have available to pay off their own bills including their home loans is reduced.
The second issue is the government loves to tell people how much that great bonus will be. Their latest online site states the changes will mean, if you're 30, earning around $70,000 a year, you'll get an extra $105,000 if you retire at 65.
First let's see. Isn't the retiring age increasing to 67!
More importantly that whopping great bonus of $105,000 is in today's dollars, but in 35 years time how much will that be worth. The problem is inflation. Each year as prices go up the buying power of our dollar goes down. For example in 1998 Julia Gillard bought her home in Altona for $140,000 and today 15 years later you'd pay around $600,000 to purchase a similar house which shows how $140,000 today could buy about a quarter of what it did in 1998.
The question then is how much would $105,000 in 35 years buy in today's terms. To find out you need to use a Present Value Calculator which I've written an made available on my apps page www.JustLocal.com.au/clients/apps, or directly at http://www.justlocal.com.au/clients/present-value-calculator/. The only question really is what the interest rate or rate of inflation you'd like to use. I'd suggest around 4-5%. The government aims for 2-3 but since 1970 the average has been 5.8% so 4-5% is a good indicator.
So how much will you be able to buy in 35 years? Something in today's terms worth around $19-$26,000, or roughly the price of a small car. Yep. That's it. A car.
To me the main thing is to understand that large sums today sound impressive but time reduces large numbers to rather insignificant numbers. If you don't understand this when you retire chances are you'll be very disappointed.
Have some fun with the calculator. See how things you buy today compare with things your parents may have bought decades ago. For example, in the mid 70s, (around 1975) a new Ford Falcon cost around $3,000 and I think teachers were paid a starting salary of around $5,000. A basic Ford I think costs around $30,000 and teachers earn around $50,000, so relatively speaking, they've kept up with general inflation (but not property which has increased faster). So does the calculator work as a reverse time machine. Enter the teachers salary today, for 38 years, 5.8% (the average inflation rate) and you end up with $5,868 which is pretty close. The car is $3,521, which again is pretty close.
Kelvin Eldridge
Online Connections
www.OnlineConnections.com.au
Call 0415 910 703 for computer support.
Servicing Templestowe, Doncaster, Eltham and the surrounding area.
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