An extra $140,000 at retirement? Yes please! The maths on super contributions, explained
Key takeaways
- Salary sacrificing $70/fortnight could add around $140,000 to your super over the long term.
- Concessional super contributions are generally taxed at 15%, so contributing $70 may only reduce your take-home pay by around $50, depending on your tax rate.
- The earlier you start, the more time there is for you balance to grow. Use a super calculator to see what extra contributions could mean for you.
Making extra super contributions on top of your employer's contributions can help you pay less tax, boost your super balance and retire with more money.
My friend decided to do exactly that recently. Here's her situation in summary:
- Aged 42, she began salary sacrificing $70 into her super each fortnight.
- Her take-home pay drops by ~$50 thanks to tax benefits. The other $20 is tax she would've paid, which adds up to around $12,000 over the years.
- By the time she turns 65 (in 23 years), those extra fortnightly contributions could grow to around $140,000 (assuming an average 9% p.a. return).
- Of that, about $42,000 comes from her own contributions ($30,000 from reduced take-home pay and around $12,000 from tax savings).
The remaining $100,000 or so is investment growth.
That's compound growth in action: her money earns money, those earnings earn money, and the snowball keeps rolling.
Now, this is an estimate and doesn't account for fees, taxes or inflation. But one thing doesn't change: time is your biggest advantage as an investor, and the earlier you start, the harder your money can work for you.
Work out your own super numbers
💰 How much super should you have?
Step 1: Decide how much you could contribute
Think about an amount you wouldn't really miss from your take-home pay.
Super contributions are taxed at 15% instead of your marginal tax rate, so your take-home pay isn't likely to fall the full amount.
Step 2: Work out how many years until retirement
Ask yourself: How many years do I have until I want to retire?
You'll use this number in the next step.
Step 3: Work out how much you'll contribute
Multiply your regular contribution by 26 (the number of fortnights in a year), then multiply that figure by the number of years until you retire.
For example:
- $70 × 26 = $1,820 a year
- $1,820 × 23 years = $41,860 contributed
That's the amount going into your super. The amount you'll actually "feel" leaving your bank account will be lower because of the tax savings.
Step 4: Estimate the investment growth
Super is invested, so your contributions have the chance to grow over time.
If we assume an average annual return of around 9%, my friend's regular contributions could grow to approximately $140,000 by retirement. What could yours look like?
Use our super calculator to see how an extra $20, $50 or $100 a fortnight can change your balance at retirement.
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