How an extra $50 a fortnight could boost your super

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.

How time and compounding make the difference

A balanced super option commonly assumes a 6.1% average annual return. However, returns vary year to year and nothing is guaranteed.

Using that assumption, an extra $50 a fortnight from age 30 could add an extra $60,000 to your super balance by age 65¹. If you start the same contributions at 40 instead, the additional amount is around $38,000.

Notice what’s driving that gap. It isn’t the contribution size. Instead, 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. It’s the same amount, but a very different result, purely because of how long it stays invested.

The tax benefits of salary sacrifice

You also need to consider how super is taxed. For most people, super funds tax extra before-tax contributions, called salary sacrifice, at 15%². This is instead of your marginal tax rate.

In most cases, your marginal tax rate is much higher. In fact, it 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. It depends on your fund, contributions, salary or wages, starting super balance, and returns along the way.

Things to keep in mind

It’s important to note that concessional contributions have an annual cap of $32,500. The cap includes mandatory contributions from your employer and amounts you salary sacrifice to super. It also includes personal contributions you claim a tax deduction for. If you exceed the cap, you may have to pay additional tax.

Another important point is that you generally can’t access money you contribute to super until you meet certain requirements.

Small steps, big difference

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. After all, 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.

¹ Based on the Superannuation Calculator available on MoneySmart.gov.au, assuming salary/wages of $100,000 pa indexed at CPI of 2.5% pa, Superannuation Guarantee of 12%, Super fund admin fees of $59 pa, starting superannuation balance of $0.
² If your assessable income together with concessional contributions exceed $250,000, additional tax of 15% can be applied to the amounts being contributed to superannuation.