The Heavy Lifting of Super Contributions

When people talk about super and investing the conversation it is usually around fees and performance. They are certainly important but here is something more important…contributions.

Let’s assume the following:

1. Salary $100,000

2. Post-tax super return 6% p.a. net of fees

3. Wage inflation 2.5% p.a.

4. Timeframe 20 years

Salary $100,000, return 6%

Contributions make up about half of your super balance after 20 years in this case.

After 20 years you would have about $700,000. Nice big number and the chart goes up.

But here is what gets missed – look at the darker red section. Those are employer contributions. Remember, your employer has put in 11.5% of your salary into super for you (12% p.a. from FY26 onwards).

After 20 years, about half of your wealth is not due to luck, anyone’s ‘cleverness’ nor anyone with ‘finance’ in their job title. It has happened solely because you went to work every day.

Higher return and lower fees

Of course, we want good performance and lower fees, all else equal. So what if, between the two, we earned a 1% p.a. higher return every year for 20 years? That would get us an extra $100,000. Not too shabby.

Higher returns and lower fees of a combined 1% p.a. results in about $100,000 more super in this case

Contribute more yourself

But what if we started with our initial scenario and simply contributed $100 per week for 20 years?

That results in a $900,000 balance – a difference of $200,000 for contributions of 20 x $5,200 = $104,000. That’s powerful.

Further, what the chart doesn’t show is the annual out-of-super tax benefit of deducting those contributions - about $1,664 p.a. for someone on $100,000.

$100 per week = $104,000 over 20 years. Yet the total value add is about $200,000 due to earnings.

Finally, to make our point about the sheer power of contributions even clearer, what if you were self-employed and didn’t contribute to super?

I can’t tell you how often we see this. Often it will be because business owners treat their business as their retirement plan which can be fraught with danger. Read out thoughts about that here.

The difference is about $540,000 from the first chart! Is your business going to be worth that after taxes?

There are plenty that will be, but many more that won’t. If you are the latter, you need to get your head out of the sand and address it.

The danger of not contributing. Compounding can’t get going without contributions. Returns themselves only do so much.

Conclusion

Of course we want to target the best return we can for our risk profile and have the lowest fees. But they simply don’t match the power of contributions to drive compounding.

Pathway To Wealth

That is definitely NOT to say that all your surplus should go to super. This is where our Pathway to Wealth program comes in.

We work with people who have surplus income to identify where their surplus is best placed to meet their other goals such as liquidity, early retirement, debt reduction, education funding and more.

What are you doing with your surplus? Isn’t it time you put a plan in place?

The information contained in this blog has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.