Australia's compulsory Superannuation Guarantee means that your employer needs to contribute 12% of your earnings into super.
Regardless of the ongoing political debates over that guarantee, this should mean most Aussies will have built up enough in superannuation to live comfortably in retirement.
But if your goal is to be more than just comfortable during those golden years, you may not want to hang your hat solely on those super savings.
Now there are a number of ways you can build extra wealth. In my opinion, buying quality ASX shares and holding them over the long-term tops that list.
But how much do you need to invest in ASX shares to reach that $1 million milestone?
I'm glad you asked!
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Investing in ASX shares to bolster your superannuation savings
If you take a look at the S&P/ASX 200 Gross Total Return Index (ASX: XJT) – which includes all cash dividends reinvested on the ex-dividend date – you'll see it's returned 43.1% over the past five years (as of afternoon trade on Thursday).
This equates to an annualised return of approximately 7.5%.
Now, atop this benchmark yield, how much you need to invest in ASX shares for an extra $1 million in addition to your superannuation will depend on how many years you plan on investing.
The sooner you start, the longer you have to build up your ASX share portfolio. And the sooner you can tap into the magic of compounding.
Here's what I mean.
If you're 40 years old and looking to retire at 67, then you'll have 27 years to buy ASX shares.
If you started today and invested $1,000 each month, here's what you'd have on top of your superannuation:
- $180,042 in 10 years
- $558,192 in 20 years
- $1,146,198 in 27 years
So, if you have 27 years to achieve your $1 million goal, you should be able to get there by investing just $1,000 a month in ASX shares.
Now, if you're 50 and want to retire at 67, you'll need to materially increase those monthly investments to get there in only 17 years.
According to my trusty compound interest calculator, if you invest $2,450 in ASX shares every month, you should have $1,014,029 on top of your superannuation in 17 years.
Which ASX shares should I buy?
Over time, you may want to build up a diversified ASX share portfolio.
But to get the ball rolling in building that superannuation boosting wealth, you could start with the Vanguard Australian Shares Index ETF (ASX: VAS), which is intended to track the ASX 300 index.
Over the past five years, the exchange traded fund has delivered an annualised return of 7.6%.
The ASX ETF's top four holdings are BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), and National Australia Bank Ltd (ASX: NAB).
