What does financial freedom in retirement really look like? For many Australians, it means having the flexibility to travel, enjoy hobbies, support family, and maintain a lifestyle that's more than just the basics.
But for those in their early 40s, the question is: are you on track?
The numbers at age 40
According to the Australian Retirement Trust, someone aged 40 should have around $168,000 in superannuation to be on pace for a comfortable retirement.
In reality, the average balance for Australians aged 40–44 is closer to $131,792 for men and $102,227 for women, based on Rest data.
That's a gap, but the good news is that time is the single most powerful asset you have. With two decades or more until preservation age, growth and compounding can do the heavy lifting if you put your money to work now.
1. Keep working and growing contributions
Career progression and income growth can be major drivers of long-term wealth. The more you earn, the more you can contribute to your super, and the sooner those contributions start compounding.
Salary sacrifice is also a powerful lever, lowering taxable income while boosting super balances. For those with room under the concessional cap, it's worth considering personal contributions wherever possible.
2. Invest outside super for flexibility
Super is tax-effective but locked away until retirement. That's why building wealth outside of superannuation is also valuable.
While current challenges with cost of living and inflation can make saving difficult, letting spare cash sit in a relatively low-interest account means your money risks losing ground.
The good news is that it's never been easier to invest. Low-cost trading platforms make even micro-investments simple, while the rock-bottom fees of exchange-traded funds (ETFs) have opened up the benefits of compounding to everyone.
As Motley Fool's own Scott Phillips often reminds us, history shows the power of even average market returns. A $10,000 investment in the ASX back in 1995, compounding at 9.3% per year, would today be worth $143,786 — more than 10 times the starting amount!
That's before considering the potential upside of adding exposure to quality companies with durable competitive advantages — the kinds of businesses that can grow faster than average and compound wealth for decades.
3. Let compounding do the work
Time is the secret weapon in investing. As Charlie Munger once said: "The first rule of compounding: Never interrupt it unnecessarily."
Here's the maths using the long-term 9.3% annual return of the Australian market:
- $10,000 invested for 10 years grows to around $24,300.
- Leave that same $10,000 untouched for 25 years, and it swells to more than $92,000.
The difference isn't just the return, it's the time allowed for growth to keep multiplying.
And of course, savvy investors aren't just sitting on a one-off deposit of $10,000. Adding regular contributions along the way is like throwing fuel on the compounding fire, accelerating the growth even further.
Being younger — like 40 years old — means you have that most precious resource on your side: time. Every year you let your investments compound increases the gap between simply getting by and achieving financial freedom.
4. Growth now, income later
For investors in their 40s, growth is typically the more favourable focus. The aim isn't whether an ETF or company pays a dividend today — it's about total shareholder return. If your investments are compounding at or above the average market return over time, you're on the right path.
Tilting toward growth means seeking exposure to broad-market ETFs or quality companies with durable advantages that can expand earnings faster than average. This is where the compounding effect can be most powerful, as you still have years on your side before preservation age.
Closer to retirement, once compounding has helped build wealth, investors often shift their emphasis. At that stage, balancing growth with more income-focused assets can align investments with lifestyle needs.
Foolish Takeaway
The average super balance at age 40 is just a number — not a destiny. What matters most is what you do from here.
By considering extra contributions, investing beyond super, and letting compounding work its magic, you can take control of your financial future. Time is the most powerful tool in wealth-building, and at 40, you still have plenty of it on your side.
Invest wisely (or Foolishly!) and you may not just meet the averages — you could exceed them and set yourself up for a retirement that's not only comfortable, but truly rewarding.
