Simple way to boost your superannuation by $252,000

Thousands of Aussies have over $2 million in their super funds – yet many others languish far behind. But there’s a simple way to boost your balance.

Recent tax data on superannuation funds shows there are 79,590 Aussies with more than $2 million in their super funds, with 700 of those being under 40.

Clearly this group is an outlier, because the data shows that for 30 to 34-year-olds, the average super fund balance for males is $48,603 and for females is $35,673. For people aged 40 to 44, the average balance is $120,923 for males and $94,553 for females.

How other people are tracking with their money shouldn’t really make a difference to you, but knowing where you sit does have its advantages.

If you’re behind, it lets you know there’s something you need to address. If you’re on track, it might give you peace of mind, or it might drive you to do more. And if you’re killing it, it might give you the motivation to keep going, or it might give you permission to take your foot off the pedal a little.

Further, looking at some of the data for people in the groups that are closer to where you ideally want to get and what they’re doing differently can give you some pointers around what you might want to be thinking about.

If your super isn’t where you want it to be, there are some things you can do to give it a kick along.

Boost your super contributions

Probably no real surprises here, but the data shows us that most of the cohorts with higher super balances make higher levels of personal contributions to their super each year.

The cap on tax deductible super contributions is $27,500 each year. This includes any money contributed by your employer through compulsory contributions, but for most people this leaves enough room to make a decent contribution to your fund.

If you’re 30, contributing an extra $100 to your super fund each week would grow your superannuation by an additional $252,697 by the time you reach age 65.

What makes super contributions even better is the fact these can be done pre tax, meaning you don’t even feel the full amount of the contribution you make.

You can boost your super for a tax deductible amount of $27,500 per year. Picture: iStock

Going back to our example of contributing $100 per week, if your taxable income is above $45,000 it means your marginal tax rate is 34.5 per cent (including Medicare levy).

Because you would have paid tax on your income at 34.5 per cent, making tax deductible contributions means you don’t ‘feel’ 34.5 per cent of the contribution. In other words, the cost of a $100 contribution to your super fund is only $65.50 (100 per cent minus 34.5 per cent).

For people with super fund balances below $500,000, you can also ‘catch up’ on your unused contributions from previous years – contributing up to five years’ worth of your unused contribution cap amount in one year.

Switch your investments

The more ‘growth’ investments like shares you have in your super fund, the higher your long-term expected return will be.

The two big drivers of how much you should have in growth investments are – how long your money is to be invested for, and your tolerance for risk.

If you need to access your super in the short-term, if you’ve invested in shares and the market drops you could need to sell at a loss – clearly a disaster.

But on the flip side, if you have years or even decades to ‘ride out’ market ups and downs, you have plenty of time to ride out any downturn until markets recover.

Take time to understand investment risk to work out which type of investment is right for you. Picture: iStock

In terms of your risk tolerance, if you’re the sort of investor who might freak out and make a reactive decision if something goes wrong, you need to tread carefully when it comes to share investing.

That being said, I’ve found that the reason most ‘nervous investors’ are that way inclined is because they don’t really understand investments and investment risk.

Taking the time to understand investment risk and how it can be managed, and how to set up a solid investment portfolio for the long-term goes a long way to giving you the confidence to hold more growth investments in super.

Review your super fund

Another way to get the money you have in super today working harder is by looking at which super fund you’re using.

The super fund market is highly competitive and changing constantly, so if you haven’t reviewed your super fund recently there may be a better option out there for you.

When looking at your super fund, there are three things that are important – investments, fees, and other benefits like insurance.

Switching super funds can pay off. Picture: iStock

Given your super fund is essentially just an investment account, having quality investments should be high on your hit list when assessing which fund is best for you. You’ll want to make sure your super gives you access to quality investments that have a strong history of good performance.

In my view, before even looking at super funds you should think through what sort of investments you want to use, whether it’s passive index funds, shares or ETFs, or ethical investment options. Once you’ve made your choice, you can narrow your super fund search to those funds that offer the investments you want.

Fees aren’t everything when it comes to super, but they are important. Instead of looking for the lowest fee fund, instead what you should be doing is making sure you’re getting value for money.

Once you’ve narrowed down your potential super funds by looking at which give you access to the investments you want, you can rank the funds by those with the sharpest pricing.

Then you want to look at the other benefits your super fund offers, particularly the insurance cover. Many young Aussies feel invincible, but the unexpected does happen – and insurance is your safety net. Look for a fund that offers quality insurance cover, and make sure you consider any existing insurance when switching your super.

The wrap

No matter how you’re tracking with your super, there are things you can do to get more out of what you have today. Your super fund doesn’t need a lot of attention, time or work, but a little goes a long way here – small changes today will compound to make a big difference over time.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, and author of the Amazon best-selling book ‘Get Unstuck’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.