Mortgage or super? Super or the mortgage? Paying down your mortgage quickly may seem prudent but making additional contributions to superannuation from a young age is even more important now that the concessional contribution limits have been reduced.
Starting earlier will also cost you much less in the long run.
A large percentage of us - 83 per cent - have superannuation balances of less than $100,000. In the 30- to 34-year-old bracket, that percentage is as high as 93 per cent. In the 45- to 49-year bracket, it's still rather high at 80 per cent, and in the 55- to 59-year bracket, it's 69 per cent, according to ASFA research on superannuation balances in the 2009-2010 financial year.
Those numbers should ring alarm bells, particularly if you're over 55. A superannuation balance of just $100,000 at 55, even if you work for another 10 years on an income of $80,000, will only give you an annual income at retirement of $24,107 until age 91, after which you would have to rely on the pension, which is only marginally lower.
And $100,000 is far from the $500,000 to $1 million bandied about as the magic final balance needed for your superannuation to sustain a reasonable lifestyle into retirement.
Our table shows the varying amounts you would need to salary sacrifice at different stages of your life to achieve the ASFA's standard retirement income of $40,391 a year for a single person.
Before you work out if you're anywhere near that goal, consider what a reasonable retirement is. What are you earning now? Would $40,391 keep you in the manner to which you've become accustomed?
Of course, that's tax-free and does assume that you have no accommodation costs, that is, you've paid down your home. It also assumes a weekly communications budget of just $25.51, a clothing budget of $39.10, $105.34 to spend on food and $214.70 on leisure, which would include annual holidays.
An executive financial planner at Westpac, David Simon, says that for younger people, "there's no real desperation and drive to fund retirement because it's in the future".
But, as the figures show, people of all ages should be thinking about their retirement and changes to concessional contribution limits, or the amount that you can contribute tax-free into superannuation, mean it's more important than ever to start thinking about it from a younger age.
It used to be that higher limits allowed you to throw a lot in at the last minute, or after you turned 55, when you finally had a bit of spare cash lying around. However, the reduction of those limits to $25,000 for the majority of people, which includes your 9 per cent superannuation guarantee, means you have to start saving sooner.
"People no longer have the luxury to wait just before retirement ... to channel everything into super," Simon says.
A senior technical services manager at Colonial First State, Craig Day, uses the example of two people aged 30 on annual incomes of $80,000 and with superannuation balances of $50,000. They have the same goals, that is, to retire at 60 with a balance of $1 million.
One of them starts salary sacrificing $9800, indexed at 5 per cent until retirement. The other waits until they are 50 to salary sacrifice, from which point they contribute their maximum concessional limit for 10 years. They also have to contribute an additional $37,000 a year, after tax, to reach their goal.
They both end up with the same amount at retirement but the cost to the early starter is $268,000 of gross income, compared with more than $500,000 for the late starter.