How voluntary contributions can add an extra $282,000 to your super

Vi is only 20 years old and in her second year of uni, but she’s already on track to pocket a whopping $282,000 thanks to her weekly habit.

Victorian woman Vi Huynh adds an extra $25 to her superannuation each week on top of her employer’s contribution and it’s a move that is going to grow her retirement pot by thousands in the long term.

While Ms Huynh is one of a small percentage of Aware Super’s members between the ages of 20-34 making voluntary contributions, with 4.3 per cent stashing away extra cash, it is having a massive impact.

The average voluntary contribution for those aged between 20-34 is $4764 per year, which adds up to an extra $282,000 in retirement.

But even if you can’t afford that much, every additional dollar you contribute in your early 20s, equates to $5 to $6 in your 50s because of compound interest.

New modelling from Aware Super shows that if a 21-year-old contributed $1 every day to their super they would be $32,000 better off in retirement.

Ms Huynh is in her second year of university, studying a bachelor of health sciences, but works several casual jobs.

She averages about 10 hours a week, working in both retail and education, and manages to squirrel away an extra $100 each month on average for her super.

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Vi Huynh with her mum Doan (left) is putting her own contributions into super at just 20. Picture: Supplied

The 20-year-old said her mum has encouraged her to invest in her financial future. Her mum, who works as a nurse, came to Australia aged 10 as a refugee.

“My mum does champion financial education and she always has coming from a refugee background. She does really know the impact of money and how it can help people live more comfortably,” she told news.com.au.

“When she was a refugee from Vietnam, she came here with not much to live off, and she has been self-made. She knows money can help you live more comfortably and provide for your family. She was wanting her children to live a better life than she could have, so it’s a great joy that she can pass on those money lessons.

“The financial lessons she has taught me is to start early and be money smart. So look at what are the essential things and what is not as important and urgent to purchase yet. It’s about necessity rather than frivolous things.”

Ms Huynh is also stashing money aside for an emergency fund and admits she is a bit of an “anomaly” among her peer group, who aren’t putting away money into their super like she is.

But she isn’t concerned about having enough money for retirement and instead wants to make sure she can live comfortably and manage any financial risk.

“In terms of putting money away, it keeps me in the mindset to have some money leftover in case something goes wrong, if some circumstances like Covid-19 happen or to have some super left over for me to look after my family later on,” she said.

Time out of the workforce could cost a 30-year-old up to $60,000 from their retirement balance. Picture: iStock

How your super can be impacted

Exclusive Aware data shows us that a 30-year-old taking a career break could reduce their retirement balance by $60,000.

To close a gap like this, a person will either need to work until they are 70 or make additional contributions of more than $6000 per year for the last 10 years of their working life.

An even bigger issue is women also retire with $200,000 less than men, according to Aware’s data.

For a female member to achieve the same retirement income as the male, she would have to delay retirement by approximately five years, Aware found.

Aware Super CEO, Deanne Stewart, said the huge difference in super balances are caused by a number of factors including the “ongoing gender pay gap crisis” where on average men “are simply paid more to do the same job as women”.

”Women are more likely than men to take career breaks where they’re either not earning any income, they’re earning a reduced income, and as a result their contributions to super are lower than for men at the same point in their career,” she told news.com.au.

“That has a double-whammy effect in that the women who take those breaks, say to have kids, are missing out on super contributions at the time, and in many cases they’re also missing out on promotion opportunities at work during that period.”

Woman are penalised for taking time out to have babies. Picture: Supplied

Women are more likely to have jobs in casualised industries too, which may mean multiple super accounts for each job.

As a result, employer’s contributions get eaten up by paying multiple lots of fees, she added.

“Our modelling suggests that consolidating accounts can save members as much as $360 a week before even accounting for the performance of the fund you’re in,” she said.

Accessing super early also causes a blow to the balance.

An average 35-year-old who has taken $20,000 from their super will reduce their retirement balance by $51,000, with the impact on their projected retirement income $1800 per year.

To make up the difference they will need to work two additional years to the age of 69 or make additional contributions of $5500 per year for the last 10 years of their working life.

Huge changes needed

Ms Stewart has called for a number of changes to be made to prevent women retiring with hundreds of thousands less than men.

“Paying the superannuation guarantee on family leave, family law reform, introducing joint super accounts between partners and making childcare cheaper and more accessible for families are all critical actions we can take today that will significantly improve retirement outcomes for women tomorrow,” she said.

Over a million Aussie mums have missed out on more than $1.6 billion in superannuation in the last decade because the Federal Government refuses to pay super on its parental leave scheme, an Industry Super Australia report found.

A KMPG report said Aussies who take time off to raise children should be given a 50 per cent superannuation tax rebate as well as top-up contributions from the Federal Government to make up for time spent out of the workforce.

Aware Super CEO Deanne Stewart. Picture: Supplied

But changes also need to be made in workplaces “because so much of this inequity starts there”, Ms Stewart said.

“We know that diverse companies are more successful in the long-term and it is time all organisations report on the gender balance of their leadership teams, undertake regular gender pay gap analysis and set clear targets and plans for how they will close any gaps,” she said.

“It’s also important that as a society we continue to support and champion flexibility and shared caring responsibilities for both men and women.”

If you’re currently in the job market and thinking about having children, Ms Stewart recommends finding out whether the employer pays superannuation guarantee contributions on parental leave.

“It’s something a growing number of employers do – we do it at Aware Super – and it can be one more step on the journey to closing that retirement savings gap,” she said.

Working voluntary super contributions into your budget is also a good strategy, like Ms Huynh has done.

“The earlier in your working life you can make additional, voluntary contributions to your super, the more you’ll get out of it thanks to the benefit of compound interest,” she said.