Financial advisor James Wrigley has revealed the way you can help your kids become millionaires by the time they retire. (Source: Getty\/Financial First) <\/p>\n
Australians could have more than $1 million by retirement<\/a> if their parents get the ball rolling early on when it comes to their superannuation<\/a>. Workers normally get their first super fund<\/a> when they start their first jobs, which is likely in their teens or early 20s.<\/p>\n But financial advisor James Wrigley said mums and dads could set those funds up much earlier<\/a> and let compound interest do the majority of the legwork to make their kids eventual millionaires<\/a>. Wrigley told Yahoo Finance this strategy pays off because of how superannuation works<\/a> \u2013 and the magic of what Warren Buffet famously called the \u201ceight wonder of the world\u201d.<\/p>\n \u201cThe money is stuck until they’re at least 60,\u201d he said. \u201cThey can’t get access to it and spend it on something else in the short term. It sits there and can compound for an incredibly long time.\u201d<\/p>\n He said that while many people set up bank accounts or investing accounts for their kids or young relatives to give them a head start in life, that cash is usually spent once the child gets access to it.<\/p>\n Super, on the other hand, is locked away for decades.<\/p>\n Wrigley said it might not sound like the most exciting gift someone could give, but it would mean the world of difference when they retire.<\/p>\n Do you have a story? Email stew.perrie@yahooinc.com<\/p>\n Wrigley crunched some numbers and found that if you set up a super fund for your child and deposited $2,000 into it every year for 10 years, it could reach a million bucks by the time they retire.<\/p>\n He found a high-performing super fund with an 8.84 per cent return over the last decade, and used that metric as the basis to see how far compound interest could take your initial $20,000 investment.<\/p>\n \u201cJust let time do its thing,\u201d he said.<\/p>\n After 10 years, the money will have already earned $10,000 in interest, bringing the nest egg up to $30,000.<\/p>\n Then, you wouldn’t have to put a single additional cent in there, and it would grow to about a million dollars over the proceeding 40 years, provided it continued to compound at that 8.84 per cent rate. And of course that’s before your child has made their own compulsory contributions during their working life.<\/p>\n The Melbourne-based financial adviser said you don’t have to commit to $2,000 every year if you can’t afford it.<\/p>\n Even if you did $500 per year, you’d have $7,539 after 10 years, and $255,475 four decades after that, which is still a healthy amount of money.<\/p>\n The Australian of Superannuation Funds of Australia (ASFA) recommends single people to have $595,000 in superannuation for a comfortable retirement, while couples would need $690,000.<\/p>\n But a poll of hundreds of Yahoo Finance readers found 62 per cent felt they would need more than $1 million for that type of lifestyle.<\/p>\n Aussies might not be aware they can establish a super fund for their child without them having a job.<\/p>\n Superannuation funds will have different rules when it comes to setting up an account for someone who isn’t in the workforce yet or under the age of 18.<\/p>\n Wrigley said parents or guardians would have to do their homework to see which fund is right for their situation.<\/p>\n Usually, the parents or guardian will have to sign the documentation on behalf of the child and also provide evidence of their relationship with them.<\/p>\n Parents and guardians could also have to set up a tax file number (TFN) for their child.<\/p>\n If they don’t have a TFN, some funds might not allow for non-employer contributions.<\/p>\n Be aware that super funds have fees that can eat away at a parent or guardian’s contributions if they’re low enough, so it’s worth finding a fund that isn’t too expensive to run.<\/p>\n Get the latest Yahoo Finance news – follow us on Facebook<\/a>, LinkedIn<\/a> and Instagram<\/a>.<\/p>\n