Listen ACT school teachers! You are leaving $400,000 on the table!

It’s interesting. Although I am exposed to the primary school teacher talk every day, ‘staying back for staff meetings,’ and ‘working late nights writing reports,’ with my wife being a teacher. I cannot seem to get away from teachers - it is also not uncommon for me to meet ex-teachers that have amassed a few million. It’s surprising isn’t it.

Why is this? Now, this is where I do not want to lose you. If you are a teacher, this can be you too. Let me show you.

On a typical, nothing out of the ordinary night, like any husband does, I spent my evening reading my wife’s enterprise agreement, the ACT Public Sector Education Directorate (Teaching Staff) Enterprise Agreement 2023-2026. While most people don’t get past the salary tables or the leave entitlements, something else stood out to me. When I raised this with my wife, it surprised me to find out that, no one was talking about it or that the education department was not promoting its significant benefits.

So why is it not uncommon to see wealthy retired school teachers. While teachers don’t earn high salaries, and arguably are underpaid, historically teachers had access to generous defined benefit public pension schemes. Many of the ACT teachers were previously in the defined benefit Public Service Superannuation (PSS) Scheme and those teachers across the border in NSW were in the defined benefit State Super Scheme (SSS), these defined benefit schemes were extremely generous. These types of retirement pension schemes are in the past as governments realised they can no longer afford them. As a current teacher, it’s likely you no longer have access to these schemes.

Therefore, what can you do now! If you are an ACT school teacher, whether it be a primary or secondary teacher, if you don’t take this action, you could be costing yourself $439,499 in retirement! Let me explain.

If you contribute, also known as salary sacrifice, an additional 3% of your salary into super, the government will reward you with a bonus 1% contribution into your super account. While this does not sound like a lot, it is! We naturally think in linear terms, while most good things in life come from thinking in exponential terms. Small actions today, can exponentially grow and compound into amazing outcomes with the patience of time.

What’s the immediate benefit of contributing an additional 3% of your salary today?

If you are at the beginning of your teaching career, you will earn approximately $85,000 pa. If you contribute an additional 3% of your salary, the equivalent of $2,550, you will receive a total benefit and be ahead by $1,220 in the first year. Reframed, this is the equivalent of a 73% return on your money. This is from a combination of both the tax savings from contributing to super and the additional 1% bonus contribution from the government.

What is the immediate cost to you?

You will receive approximately $1,670 pa or $64 per fortnight less in your pay and the money will not be accessible until retirement. With the current super rules, this is age 60 for the majority of people. There is no free lunch. Remember what I have said, good things happen when you put time on your side and think in exponential terms.

What is the long-term benefit?

Doing a simple calculation, assuming your pay never increases from $85,000 pa from age 25 to age 60 and the money you contribute into super earns an inflation adjusted 5% pa, which has been the average compound investment return of global share markets since 1900, as per the Credit Swiss Global Investment return yearbook 2023. The outcome of contributing or not contributing 3% to super is as per the below.

Take no action today – you will have a super balance of $750,471 age 60.

Take action today – contribute an additional 3% to super – you will have a super balance of $1,189,970 at age 60.

The small action of contributing 3% of your salary today, from the result of thinking in exponential terms and putting time on your side, enables your super to compound at a higher rate, providing you a significant benefit of $439,499.

With the teaching industry having an overwhelming gender distribution towards females, contributing an additional 3% to super can help to reduce the gender imbalance of retirement super balances. On average, women retire with 30% less super than men due to a wide variety of factors including gender pay gap issues and time out of the work force to raise children. If you’re a female, this is another reason in favour of making the additional contribution.

I will leave you on some final thoughts for ACT teachers. It is important that everyone lives within their means, simply you must spend less than you earn, we all have flags we must swim between. If you have a healthy emergency cash buffer in place, this number is different for everyone, however usually 6 months of expenses feels comfortable, then you should seriously consider contributing an additional 3% to super.

You may think, why would I contribute 3% to super if I could repay more of my mortgage at the current mortgage interest rates of 6.5%. I can only nudge you in one direction or another; I will let you work out the math. Save 6.5% on your mortgage or receive an immediate 73% benefit from contributing to super.

Think exponentially, not linearly.

If you would like to take control of your super and future, follow the link.

The Financial Poet.

The principal purpose of this blog is to provide factual information and not provide financial product advice. Additionally, the information is not intended to provide any recommendation or opinion about any financial product.

The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product. This post specifically excludes personal advice.