Aussie mum reveals $160,000 superannuation ‘shock' impacting millions at retirement
An Australian mum has shared the common superannuation mistake that has left her $160,000 worse off at retirement. More than one million Aussies are sole traders and therefore don't need to pay themselves superannuation.
Fiona Campbell started her own virtual assistant business in 2013 after being made redundant from her previous full-time job as an executive assistant. The Newcastle mum-of-three told Yahoo Finance she was so excited to land her first client and build her own business that superannuation wasn't even on her radar.
'There was an element of not caring about super and there was this weird belief that I thought I was going to be making so much more money running my business than my super fund would earn,' she said.
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'I thought my real goal was to earn enough money in my job and super would be a bonus."
Campbell said her "highly optimistic" ended up being to her detriment.
'I feel so stupid saying this, but at the time, I thought super was something that old people thought about," she said.
Campbell said she was charging clients an hourly rate of $40 through her business, Thought Penny.
While this was more than her previously net take-home rate of pay as an employee, she said she didn't take into account the trade-offs of working as a sole trader contractor.
That included a lack of annual leave, sick leave entitlements and superannuation payments.It wasn't until Campbell had been running her business for six years that she realised how much her decision not to pay herself superannuation was costing her.
She was watching a program about superannuation and retirement and realised she was hugely behind.
'I worked out it was hundreds of thousands of dollars that I've missed out on earning in super. It was devastating because I can't go back and regain six years of compounding interest,' she told Yahoo Finance.
'That ship has sailed, which was a shock.'
According to the Association of Superannuation Funds of Australia (ASFA), a single person would need $595,000 in superannuation at 67 to have a comfortable retirement, while couples would need $690,000.
Campbell calculated that she missed out on at least $30,000 worth of superannuation payments over the six-year period where she wasn't paying herself.
Based on that amount growing at an average return of 7 per cent for 25 years and the power of compound interest, Campbell said that amount could have grown into $160,000 by her retirement.
'I realised just how much [superannuation] we'd need to continue the lifestyle we have now when we retire and it was quite shocking,' she said.
'I realised my lifestyle is gonna have to change, or I'm really going to have to get my butt into gear and start planning now.'
Campbell changed her business from a sole trader to a company structure, which means she now legally has to pay herself super.
She has also started actively making extra contributions to top up her balance.
'I'm being more aggressive about putting money towards my super but realising that past decisions mean it can't be my only strategy to prepare for retirement,' she said.
While Campbell has since increased her rates and is charging "three times the amount" she used to, she said she would still have to work 'so many hours' to earn back the money she has lost over those years.
'It would have been a lot easier if I had been diligent. Even if it was just a fraction of the super that I'd be earning as an employee, putting aside something would have made such a big difference,' she said.
Campbell said she is fortunate her husband earns enough through his full-time job that her family is able to live comfortably while still being able to save and invest for their retirement.
She has also founded the VA Lead Network, which connects virtual assistants and online business managers, and hopes to build it into an asset that she can sell in the future.
Campbell now employs a team of virtual assistants through her company.
When she engages contractors on an hourly rate, she said she pays them super in line with employee entitlements.
For those working on deliverables-based contracts who aren't required to be paid super, she works to find a rate that means they can afford to pay themselves super.
Campbell said she wants to make sure other sole traders and contractors don't fall into the same superannuation trap she did.
'I think it's so important and there's a moral obligation to make sure everyone on your team, whether they are an employee or a contractor, is earning a fair income and is in a position to be able to make super contributions,' she said.
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