Fifty dollars a fortnight doesn’t feel like much. Skip a few coffees, cut back on takeaway once a week, and it’s covered without really noticing.
But super isn’t like a savings account that just sits there. It’s invested, and over time that investment grows. Assuming a 6.1% average annual return, which is a common assumption for a balanced super option (though returns vary year to year and nothing is guaranteed), an extra $50 a fortnight from age 30 could add an extra $60,000 to your super balance by age 651. Start the same contributions at 40 instead, and the additional amount is around $38,000 using the same assumptions.
Notice what’s driving that gap. It isn’t the contribution size; it’s the time invested and the compounding effect on your savings. A dollar put in at age 30 has 35 years to grow. However, the same dollar put in at age 40 has 25 years. Same amount, very different result, purely because of how long it’s been invested for.
You also need to consider how super is taxed. Extra contributions made before tax, called salary sacrifice, are taxed at 15% inside super for most people2, rather than at their marginal tax rate. In most cases, your marginal tax rate is much higher and can be up to 47% including the Medicare levy. This means you can build your future retirement savings while accessing tax benefits now.
Everyone’s outcome will look a bit different depending on their fund, contributions, salary or wages, starting super balance, and returns along the way.
Important to note that concessional contributions are subject to an annual cap of $32,500. The cap includes mandatory contributions from your employer, amounts salary sacrificed to superannuation and personal contributions for which a tax deduction was claimed. Exceeding the cap can result in additional tax being paid.
Another important point to note is the fact that amounts contributed to superannuation will be preserved until you meet certain requirements.
You don’t need a big lifestyle change to get started. It’s the small, steady amount that does the work over decades, not one large contribution made late. If retirement feels far off, that’s actually the best time to start, since the earlier you begin contributing, the less you need to contribute to make a real difference.
Talk to your adviser about whether contributing more to super makes sense for you.
