Reasons to invest in a super fund while you're young

Let’s face it… superannuation isn’t the most exciting topic to discuss when you’re in your 20s and 30’s. In fact, many people in this age group aren’t engaging with their super fund at all. However, learning more about your super and how you can accelerate your balance will be extremely beneficial when you reach retirement age.

Investing in your super fund while you’re young can have enormous benefits, including higher balances and savings on your tax return. Let’s take a closer look at these reasons to invest in your super fund, below.

Reasons to invest in a super fund while you're young

How much should you have in your super fund?

According to ASFA, the average 30 year old needs to have about $59,000 in their super to be on track for a comfortable retirement. However, stats show that the average super balance for a 30-34 year old is just $51,175 for men and $42,240 for women. These amounts are still larger than the average accessible bank balance at the same ages. If you have more than this, you’re doing very well, if you don’t there’s ways to catch up.

What do you need to know before you invest?

It’s important that you understand how your superannuation fund works, and how it will support you when you do retire. Becoming more knowledgeable about your super will help you understand the value of investing in your fund earlier. 

ASFA research indicates that more than half of young people under the age of 29 believe super is a good way to save for retirement, but most severely underestimate how much money they will need. Therefore, the more you invest now, the better placed you’ll be when you leave the workforce.

Compound your investment over time

The money in your superannuation fund doesn’t just sit there. Your fund will invest this money, and you can actually choose where your funds are invested, whether that be high risk or low risk. Because your money is being invested, you will earn a return on your balance. Over time it will grow into a significant amount of money.

Investing in your super earlier will mean that every dollar you deposit will earn more interest over its lifetime than dollars invested later on. For instance, it’s estimated that every $1,000 a young Australian invests in their super will be worth about $4,000 when they reach retirement age. Therefore, if you were to invest an additional $10,000 in your 20’s, you can expect that amount to be worth approximately $40,000 when you retire.

If you were to wait until later in life to begin investing more into your super fund, you will receive compound interest, but it will be far less than if you invested in your 20’s.

You can save on tax while adding to your super balance

Many young people don’t know that investing extra money into their super balance can actually reduce their tax bill. There are two types of voluntary super contributions that you can make; member voluntary contributions and salary sacrifice contributions. 

When you make these voluntary contributions to your fund, they will be taxed at 15%, instead of your marginal tax rate, which is based on your annual income. Therefore, by making additional contributions, you’ll be adding to your balance, gaining further compound interest over time, and saving money on your tax bill. 

There are certain conditions to these contributions and claiming the associated tax deductions. Therefore, to make the most out of tax savings when investing in your super, you should always obtain professional super advice

The government can add to your balance

If you earn under $43,445 for the financial year and make personal contributions to your super fund, the government will make a co-contribution of 50%. For example, if you make $40,000 during the financial year and voluntarily contribute $1,000 to your super fund, the government will add $500 to your account! This is yet another way to make the most of the benefits of additional contributions, and grow your balance while you are young.

Retirement will be more expensive in the future

Research indicates that retirement will only become more and more expensive in the future. The ASFA Retirement Standard shows that the cost of living in retirement rose 7.7 per cent over the past year to March 2023. This essentially raised the balance needed for a comfortable retirement by the same amount. By the time young people in their 20s reach their retirement age, inflation and cost of living will be much higher.

This is yet another reason why you should add to your retirement fund while you are young. The compound interest that we mentioned above will ensure your super balance is healthier when you do retire, meaning you’re in a better position to live comfortably.

The benefits of investing in your super fund while you’re young are clear; better returns, a higher balance when you retire, and savings on your tax bill. It’s something you should strongly consider, and if you have any questions at all, get in touch with a super advisor today.

You can withdraw additional contributions for a first home

The First home super saver scheme is a government initiative designed to help first-time homebuyers in saving for a house deposit. It allows individuals to withdraw voluntary contributions they have made to their superannuation fund for the purposes of purchasing a first home. The scheme offers tax advantages, as the contributions are taxed at a lower rate than most people’s marginal tax rate. Participants can contribute up to a certain limit each year and can withdraw the accumulated funds, along with any earnings, when ready to purchase their first home. The first home super saver scheme is another benefit to making additional contributions to your super while you’re young.

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