How $25 a week could turn into $78,023 by retirement

A lot of people don’t think twice about spending $10 on a takeaway meal or glass of wine. It may not feel like a big sum to spend. But you might be surprised at what impact that $10 could have over the long term if you used it to top up your super fund each week instead.

Canstar crunched the numbers based on several hypothetical scenarios and found that $10 a week could potentially turn into as much as $31,208 by retirement for a 20-year-old. For a 50-year-old who is closer to retirement age this could still add an extra $8,608 to their super balance.

This is largely thanks to the power of compound interest which is basically when you earn interest on your interest. It has a greater effect over longer periods of time.

Canstar looked at the impact of salary sacrificing $10 a week or $25 a week could potentially have to the super balance of someone who is 20, 30, 40 and 50. Keep in mind these are just hypothetical scenarios and the numbers will vary based on your individual situation including your age, salary, your super balance and the returns of your super fund. The returns on these scenarios are assumed to be 5.60%pa which is based on the five-year performance of balanced investment options on Canstar’s database. Of course always remember past performance is no guarantee of future returns.

A 20-year-old

The younger you are the bigger the potential gains. The 20-year-old in this hypothetical scenario could have $934,005 in their super at retirement if they relied simply on super guarantee contributions. If that 20-year-old salary sacrificed $25 a week though they could possibly boost their balance by $78,023.

Superannuation Retirement Balance Projection

Source: www.canstar.com.au – 9/12/2020. Based on a 20 year old with a starting balance of $5,795 per APRA Annual Superannuation Bulletin, starting gross annual income of $89,123 per ABS Average Weekly Earnings (full time ordinary time earnings), growing 2.5% annually, per RBA Target Inflation, retiring at age 67. Salary Sacrifice amount assumed to be paid into the super fund quarterly, at the same time that super guarantee (SG) contriubitions are paid by the employer. SG contribution amounts per Government announced rates, starting at 9.5% and increasing by 0.5% to 12% by FY 2025/26. Investment returns assumed to be 5.60% p.a. based on balanced investment options in Canstar’s database (5 year performance as of 31/10/2020). Average life and TPD insurance premium of $193.64 (increasing with inflation of 2.5% each year) is assumed charged at the end of each year based on products in Canstar’s database for an average balance of $80k and 20s age profile. End balance at retirement and total salary sacrifice amounts are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income, annual superannuations fees and performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

A 30-year-old

By adding $25 a week into their super the 30-year-old in this example could add an extra $54,609 to their super balance by age 67. Salary sacrificing just $10 a week could potentially give them a boost of $21,842.

Superannuation Retirement Balance Projection

Source: www.canstar.com.au – 9/12/2020. Based on a 30 year old with a starting balance of $23,749 per APRA Annual Superannuation Bulletin, starting gross annual income of $89,123 per ABS Average Weekly Earnings (full time ordinary time earnings), growing 2.5% annually, per RBA Target Inflation, retiring at age 67. Salary Sacrifice amount assumed to be paid into the super fund quarterly, at the same time that super guarantee (SG) contriubitions are paid by the employer. SG contribution amounts per Government announced rates, starting at 9.5% and increasing by 0.5% to 12% by FY 2025/26. Investment returns assumed to be 5.60% p.a. based on balanced investment options in Canstar’s database (5 year performance as of 31/10/2020). Average life and TPD insurance premium of $265.71 (increasing with inflation of 2.5% each year) is assumed charged at the end of each year based on products in Canstar’s database for an average balance of $80k and 30s age profile. End balance at retirement and total salary sacrifice amounts are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income, annual superannuations fees and performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

A 40-year-old

In this example, by topping up their super account by $25 a week this 40-year-old could potentially increase their super balance by $36,300 by retirement. And salary sacrificing $10 a week could see their super grow by an extra $14,519.

Superannuation Retirement Balance Projection

Source: www.canstar.com.au – 9/12/2020. Based on a 40 year old with a starting balance of $51,740 per APRA Annual Superannuation Bulletin, starting gross annual income of $89,123 per ABS Average Weekly Earnings (full time ordinary time earnings), growing 2.5% annually, per RBA Target Inflation, retiring at age 67. Salary Sacrifice amount assumed to be paid into the super fund quarterly, at the same time that super guarantee (SG) contriubitions are paid by the employer. SG contribution amounts per Government announced rates, starting at 9.5% and increasing by 0.5% to 12% by FY 2025/26. Investment returns assumed to be 5.60% p.a. based on balanced investment options in Canstar’s database (5 year performance as of 31/10/2020). Average life and TPD insurance premium of $338.25 (increasing with inflation of 2.5% each year) is assumed charged at the end of each year based on products in Canstar’s database for an average balance of $80k and 40s age profile. End balance at retirement and total salary sacrifice amounts are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income, annual superannuations fees and performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

A 50-year-old

The potential gains for a 50-year-old are not as impressive as for those who are 20 or 30 but still nothing to be sneezed at. Salary sacrificing $25 a week could potentially increase their super balance by $21,522.

Superannuation Retirement Balance Projection

Source: www.canstar.com.au – 9/12/2020. Based on a 50 year old with a starting balance of $100,123 per APRA Annual Superannuation Bulletin, starting gross annual income of $89,123 per ABS Average Weekly Earnings (full time ordinary time earnings), growing 2.5% annually, per RBA Target Inflation, retiring at age 67. Salary Sacrifice amount assumed to be paid into the super fund quarterly, at the same time that super guarantee (SG) contriubitions are paid by the employer. SG contribution amounts per Government announced rates, starting at 9.5% and increasing by 0.5% to 12% by FY 2025/26. Investment returns assumed to be 5.60% p.a. based on balanced investment options in Canstar’s database (5 year performance as of 31/10/2020). Average life and TPD insurance premium of $367.98 (increasing with inflation of 2.5% each year) is assumed charged at the end of each year based on products in Canstar’s database for an average balance of $80k and 50s age profile. End balance at retirement and total salary sacrifice amounts are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income, annual superannuations fees and performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

Making extra contributions to super

There are a number of ways you can make voluntary contributions to your super including pre-tax and post-tax. The scenarios outlined above assumed pre-tax contributions – also known as ‘concessional’ contributions.

When you salary sacrifice super contributions you generally ask your employer to deposit some of your salary directly into your super account instead of your bank account.

There can be tax advantages of making contributions via salary sacrifice. That’s because these will be treated as an employer super contribution and will be taxed at a maximum rate of 15%. If your marginal tax rate is higher than that you’ll essentially be paying less tax on that money.

It is important to be aware though that there are limits to how much you can add to your super.  According to the ATO, the cap on concessional contributions is $25,000 a year. Keep in mind this amount includes your employer contributions.

Cover image source: Melica (Shutterstock)