Your superannuation is your nest egg for retirement. And even the smallest mistake can cost you a fortune down the road.
The problem is that there are so many myths out there about how to manage your superannuation and what to expect from it. Some of these are helpful, and some definitely aren't. In fact, some of these so-called myths can derail your retirement entirely.
Here's one common superannuation myth that could mean the difference between a comfortable and adequate retirement.
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The superannuation myth that could ruin your retirement
"My employer's super contributions are enough."
Many Australians assume that compulsory employer superannuation contributions are enough to support a comfortable retirement. They think that because their superannuation is invested in a diversified portfolio, which is often benchmarked to broad market indices like the S&P/ASX 200 Index (ASX: XJO), it'll look after itself.
But the reality is, while these funds will help you, they won't provide the type of lifestyle that many individuals and couples expect when the time comes.
That's because employer contributions are based on your current salary, not on your future needs. They also don't take career breaks or part-time work into consideration.
It's also worth remembering that because of inflation, today's balance might not stretch as far in 40 years' time.
According to ASFA, a comfortable retirement is expected to cost approximately $54,240 per year for individuals and $76,505 per year for couples. In order to get that, a couple would need a superannuation balance of approximately $690,000. A single person would need approximately $595,000.
In order to accumulate that type of superannuation balance through the mandatory superannuation guarantee (which is currently 12%) alone, you'd need a high salary of around $100,000 per year consistently from the age of 30 until retirement, combined with compounded investment returns.
The harsh reality
The fact is that anyone earning less than what is considered a "high-level income" will have to add more funds themselves in order to come close to that goal.
While there is no sense adding money to your superannuation fund if it means you'll struggle to make it to payday, it's important to contribute extra wherever you can.
If you have spare cash at the end of the month, it pays in the long run to contribute it to your superfund.
After all, the power of compounding returns means that the more money you can invest when you're younger, the more impact it will have on your final balance.
