Case Study: Meet Jane!
Jane is aged 25 and has $10,000 in superannuation. She is earning a salary of $55,000 and decides she can afford to tip an extra $200 per month into her superannuation fund as an after-tax contribution. She decides to do that for five years (until age 30). What potential impact would that have on her retirement nest egg?
|Doesn’t Make Contribution||Makes Contribution|
|After-Tax Super Contribution Per Month (Over 5 yrs)||$0||$200|
|Total Value of Super Fund (At Retirement)||$1,930,086||$2,098,793|
So, paying an extra $12,000 (5 years of $200 per month) into her super fund from age 25 to 30 has added an extra $168,700 to her retirement savings. Great!
What if she was 35 at the time she started making extra contributions?
By age 35 Jane?s salary is now $73,915 (her original salary plus 3% per annum indexation) and she has a superannuation balance of almost $122,000.
|Earlier Contribution||Mid-Life Contribution|
|Total Value of Super (At Current Age)||$10,000||$122,000|
|Total Value of Super Fund (At Retirement)||$2,098,793||$2,098,793|
|After-Tax Super Contribution Per Month (Over 5 yrs)||$200||$437|
|Total After-Tax Super Contribution||$12,000||$26,220|
To reach the same end goal of almost $2,099,000 by retirement, Jane would now need to contribute an extra $437 of super contributions per month into her superannuation fund for five years.
Now Jane is aged 50
Life gets in the way, and Jane has reached 50 without finding the time or money to add extra to her super. She has continued working throughout her life and now her salary is a healthy $115,157. Her superannuation is also a healthy $568,000 – but there?s more to add.
|Earlier Contribution||Mid-Life Contribution||Later Contribution|
|Total Value of Super (At Current Age)||$10,000||$122,000||$568,000|
|Total Value of Super Fund (At Retirement)||$2,098,793||$2,098,793||$2,098,793|
|After-Tax Super Contribution Per Month (Over 5 yrs)||$200||$437||$1,316|
|Total After-Tax Super Contribution||$12,000||$26,220||$78,960|
At age 50, for Jane to reach the same end superannuation balance as her 25-year-old self could have achieved with a monthly contribution of $200 for five years, she will need extra super contributions of $1,316 per month for five years – or a total of $79,000.
Chances are that will equate to an extra year in the workforce, just to afford the extra payments.
It?s a challenging thing to prioritise, with obtaining career qualifications, saving for a house and affording a family all likely to take precedence, not to mention ongoing superannuation changes. Nevertheless, if you can find some spare dollars each month from your disposable spending, even just for a few years, your retirement nest egg could be that much bigger.