Five ways to fix the biggest financial mistake Aussies make
Two in five Australians say they are not on track to meet their long term financial goals, according to new research from Colonial First State (CFS)1. When they were asked why, there was one thing the majority struggled to do. Read on to learn more, as well as practical tips to help you get back on track.
Australians felt more positive about their long term financial future in 2024 than they did a year ago, according to research CFS conducted into financial literacy and planning for the long term future.
In the three months to September 2024, 44% of Australians said they were feeling prepared for when they eventually stop working, up from 37% a year earlier.
However, almost two in five (38%) Australians say they are not on track to meet their long term financial goals when they eventually stop working. In addition, 35% say they aren’t confident they will ever reach those goals.
Why aren’t people on track to achieve their financial goals?
What’s the number one reason the majority of Australians fail to reach their long term financial objectives?
Not saving enough was by far the biggest contributor to people getting off track financially at 60%, followed by failing to plan for when they stop working, nominated by 39% of Australians, and not knowing how much they needed to save, named by 37%.
The good news is there are some achievable, practical steps you can take to help get your finances back on track for the long term:
1. Use online tools and calculators to help quantify your goals
Having some idea of how much you might need to save is the first step.
You can use online calculators to estimate how much you might need in your super, taking into account your goals, your current super balance, your income and how long you expect to continue working.
The government’s Moneysmart website also has some great calculators to help you set savings goals, accounting for the benefits of compound interest; and it offers ideas to help you reduce your expenditure and debt, if needed.
2. Use the tax benefits of the super system to help you save
Your employer pays the equivalent of 11.5% (increasing to 12% from 1 July 2025) of your pretax salary or wages in compulsory super contributions into your super fund to help you save for the long term.
Salary sacrificing a bit extra from your pretax pay into your super is a great way to make up some ground if you’re looking to catch up on your long term saving goals.
You can arrange for your employer to make additional super contributions on your behalf. These salary sacrifice contributions are generally only taxed at 15% (unless you earn over $250,000 a year), which makes them a very tax effective way of saving.
Salary sacrifice is a recurring arrangement, so your employer will keep making the additional contributions until you ask them to stop. It can be a great way of saving money for the long term, potentially without noticing it as much.
For example, one strategy might be to revisit the government’s recent Stage 3 tax cuts and ask your employer to salary sacrifice any additional take home pay into your super.
Keep in mind that both your compulsory employer contributions and your salary sacrifice contributions count towards the annual concessional contribution cap of $30,000. Any contributions that you make and claim a tax deduction for are also included in this cap.
Salary sacrificing and making personal contributions you claim a tax deduction for both reduce your taxable income, so if that drops you into a lower tax bracket, it may have an additional benefit.
There are also other types of contributions you can make to your super.
3. Take advantage of unused carry forward contributions
You may be entitled to contribute more than $30,000 at the 15% tax rate using what are known as carry forward contributions if you have paid less than your cap limit into super in any of the previous five financial years.
This may be particularly helpful if you have spent some time out of the workforce, for example to care for a relative or due to ill health. However, this only applies if you had a total superannuation balance of less than $500,000 on 30 June of the previous financial year.
For this strategy to be effective, you also need to have sufficient taxable income2.
4. Look into special provisions for older Australians if relevant
Even if you’re older, there are options available to help you get your finances back on track for the long term, such as when you reduce your working hours or stop working altogether. These include:
- Downsizer contribution: From the age of 55, you may be eligible to make a downsizer contribution of up to $300,000 to your super using the proceeds from the sale of your home. So if you have decided to sell up and downsize into a smaller more manageable property, this could provide an opportunity to top up your super tax free, and you can also withdraw it tax free later on. Both members of a couple can take advantage of this, making a total of $600,000 that can be contributed into super. Keep in mind the Association of Superannuation Funds of Australia recommends a super balance of $690,000 per couple or $595,000 for a single person3, so depending on your goals, this option, if it makes sense for you, could get you close.
- Transition to retirement (TTR): If you’ve turned 60 but haven’t yet retired, it may be worth considering a TTR pension, which enables you to work full time, withdraw up to 10% of your TTR pension account as a tax free income stream, and continue to contribute to your super. TTR income stream payments can provide you with more cashflow to make additional contributions to super like salary sacrifice or personal contributions. This can boost your super tax effectively if the contributions are higher than what you’re drawing from the pension.
5. Get professional advice
Financial advice is like a tide that floats all boats. CFS’s research shows that people who have received financial advice feel notably more confident about managing their finances, having enough money when they stop working and reaching their financial goals.
For ongoing financial advice, it may be worth seeing a financial adviser.
It’s also worth noting that fees you pay for financial advice may be tax deductible, particularly if they relate to managing your tax (such as salary sacrifice) or income producing investments held outside your super. If the advice relates to your super, you can also deduct the cost from your super balance.
If your needs are relatively straightforward, other advice options are also available.
If your advice needs are related to a particular issue, you can seek one off financial advice on a specific topic, such as managing debt, or maximising your super.
1 CFS survey about financial literacy and retirement, conducted with 2250 Australians between July and September 2024.
2 When making a concessional contribution using the carry forward rules, you need to have sufficient taxable income to offset with a personal tax deductible contribution or salary sacrifice. You should also keep your tax free threshold in mind, taking into account any tax offsets you may be eligible for.
3 ASFA Retirement Standard, June 2024.
Source: Colonial First State
