The XYZ of Adequate Returns in Super

If you're a late entry X gen or better still a Y gen just entering the work force then it's likely you have more than 40 years to retirement. And that means you have something that the baby boomers don't have - time.

According to the Association of Superannuation Funds in Australia the definition of an 'adequate' retirement income will have you living on a figure of around $26,000 p.a.

Hmm, there goes that overseas holiday.

Time is what could make the difference between having an 'adequate' retirement which is pre-determined by your lack of action or a retirement where you get to choose the lifestyle that monetary assets can provide.

Superannuation is regarded as one of the best investment vehicles for retirement savings. Besides the tax savings, it provides the opportunity for young people to create substantial balances that are just not possible for the older generation of baby boomers.

If you are looking for more than adequate returns from super then you need to act now.

The power of compound interest or earning interest on interest needs a vital ingredient - and that is time. You can't control the time you've been given but you can control how you use it.

Let's look at 2 examples.

Example 1

You are 18 and decide to put away $1000 a year (less than $3 a day) until you are 30. You make no further contributions until your retirement at 65. That's only 12 years and a total of $12,000 you have saved. Let's assume you received an average return of 8%p.a. on your investment after all fees and taxes.

Example 2

You are 50 and decide to put away $5,000 a year (nearly $14 a day) until your retirement at age 65. You have no other superannuation. That's a total of 15 years and an impressive $75,000 you have saved. Let's also assume you have received the same average rate of return at 8% p.a. after fees and taxes.

Which is the better strategy?

Example 1 or starting at 18 will give you a balance of $343,241 at retirement. Not a bad return for an investment of $12,000.

Example 2 or starting at 50 will give you a balance of $163,751 at retirement and you've put in $75,000 of your own money.

That's the power of compound interest and why time is so important. The more time you have to invest the longer you have for compound interest to do its magic.

To make compounding even better for your super you should also look to consolidate your super into one account. It's not unusual if you have moved around between several places of employment to end up with multiple super accounts. By consolidating these accounts you will save on duplicate admin fees and the compound effect of this can be substantial.

If you're an Australian and earn under $32,000 a year you may also qualify for the government super co-contribution which adds another $1,000 a year, each year you contribute. If you added that to our 1st example you would end up with a balance of $686,481 at retirement. Not bad for an investment of only $12,000.

The message here is clear. If you are an X or Y gen then you have the power through time to choose the retirement lifestyle you want. The longer you delay the closer you will end up with only adequate returns from super.


Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education or the complete guide to superannuation a...

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