With our national superannuation retirement scheme being in place for more than 30 years, it's safe to say that the average working Australian has been contributing to their superannuation accounts for the majority of their working lives. But is the average superannuation balance good enough for you and the retirement you dream of?
Last month, we looked at the average superannuation balances for a few different age groups.
We found that the average super balance for someone aged between 60 and 64 was $402,838 for men and $318,203 for women. Let's meet in the middle there and say that the overall average is $360,520 for a 60-year-old Australian.
Now that might be enough to fund a moderately comfortable retirement for someone who owns their own home and is also eligible to receive at least a part pension payment.
But I'm hoping to at least double that amount, and hopefully triple it, by the time I retire.
Here are three ways I'm planning on making that happen.
How I'm planning on doubling the average superannuation balance
Using super perks
As many of us would be aware, the superannuation scheme has many lucrative tax perks built into it. For one, super contributions are generally taxed at a lower rate than our ordinary income – typically at 15%. Earnings from our super funds, once we hit the pension phase, are usually tax-free as well. But that's only part of the story.
There are a few other perks that we should all be aware of taking advantage of if we can.
One I have used in my younger years is the super co-contribution scheme. Basically, this allows eligible Australians to make an after-tax contribution to their super funds, of which the government will fund a 50% co-contribution. It has a cap of $1,000, so if you cough up that amount, the government will throw in an extra $500. Not a bad way to get an immediate 50% return.
However, this perk is only available to "low and middle-income earners" who fall under a salary threshold. For the 2024 financial year, that threshold is $58,445, and you can only obtain the full benefits if you earn under $43,445.
But if you are eligible, this could be a great way to give your super a free boost. Of course, this is just general advice. You should check with the Australian Taxation Office and a tax expert before sending any money to your super fund with the expectation that the government will chip in extra.
Beat the average by topping up your superannuation
This one is a little more obvious. But it could be your key to an above-average superannuation balance. As we all know, super contributions are compulsory in Australia. As it stands today, the super guarantee is set at 11% (having increased from 10.5% last financial year). This means that an additional 11% of your before-tax salary will eventually find its way into your super fund. Many Australians leave their super at that.
But you can turbocharge your fund by making additional contributions to your super fund. The reason why super is so effective at providing us with a shot at a comfortable retirement is that it harnesses the power of compounding over decades.
When someone begins their working career, they immediately start squirrelling away cash in their super funds. But this cash doesn't just sit there. It is usually invested into a range of financial assets, including term deposits, government bonds, ASX and international shares, as well as some alternative asset classes.
If left alone, this helps your super balance compound over time.
If you manage to up your contributions even further from those compulsory payments, it can have a huge impact on your final super balance by the time you retire. This is one of the strategies I occasionally use to boost my own super balance.
To illustrate, let's say someone put $1,000 into their super fund at age 20. If their super fund is able to compound at an average of 7% a year, that $1,000 will be worth more than $21,000 by the time they reach 65.
Imagine what the average superannuation balance would look like if everyone put an extra $1,000 in every year.
Making sure my super is only invested in shares
Chances are, if you've looked at your average superannuation statement, you'll notice that you're probably invested in something called a 'balanced fund'. This is usually the default fund that most superannuation providers place new members in.
As we've just discussed, it is known as a balanced fund because it invests across a wide variety of asset classes. The 'aggressive' assets like shares are balanced by the 'defensive' assets like cash and bonds.
This might sound prudent. But opting for something different could help you bag a huge advantage when it comes to your retirement.
The balanced fund invests in those defensive assets like cash and bonds to protect a super balance from volatility. But these assets also tend to deliver far lower returns over long periods of time. Most of us only need to use our super funds when we are near retirement, Therefore, it makes far more sense to be only invested in the best-performing asset classes – shares.
I personally have 100% of my super fund invested in ASX and international shares, and I believe that anyone who is at least 10 or more years away from retirement should do the same. Again, this is another area where you should consult a licensed tax or financial advisor. But it's well worth thinking about.