Young & Invested: How does your super balance stack up against others?
And what you can do if you’re falling behind.
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 55
One of my guilty pleasures is binge‑watching those street interviews where strangers are ambushed with questions about their finances. Judging by the views they rack up, I’m clearly not alone.
There’s something morbidly fascinating about watching a 22‑year‑old casually reveal an eyewatering salary while another admits they have $14.27 and a prayer in their savings account. I wouldn’t quite call it pocket‑watching, but it’s definitely a symptom of the era we live in, where comparison is embedded into every aspect of life. One of the less sexy comparisons out there is super.
At 26, the prospect of retirement is not something I spend much time thinking about. It often falls in the same mental folder as learn to cook properly and try to arrive at work before 9. But during one of my occasional life audits, I recently realised my super balance had crossed a small milestone. Whilst the exact number itself is largely arbitrary, it served as a reminder that my retirement pot wasn’t just some hypothetical concept to look at when I hit 50.
How do you stack up?
Admittedly, my first instinct was to determine how my balance measured up against others my age and whether there was any further groundwork to be laid. The table below from Rest Super provides an illustrative perspective.
Source: Rest Super.
I use the word illustrative because comparing super isn’t exactly a straightforward process. Most figures are presented as either an average or median, but the distribution of the actual balances is hidden. That means it’ shard to know whether you’re slightly in front or firmly sitting in the bottom quartile. Even then, I’d argue that comparison is far from the point.The goal isn’t to beat the average balance, but rather to retire comfortably.
How much do you need for your retirement?
The ASFA Retirement Standard provides a ‘Super Balance Detective’ tool that provides a rough guide at the balance you should be at to achieve a ‘comfortable retirement’. For someone my age, it suggests a balance of close to $36,000 to indicate I’m on track. This is a significant divergence from the snapshot above which reveals a much lower average balance for people in their mid‑twenties.
ASFA’s Retirement Standard breaks retirement lifestyles into two broad categories: modest and comfortable. A modest retirement sits just above the Age Pension and covers essential expenses with limited discretionary spending. A comfortable retirement, by contrast, allows for a good standard of living e.g. private health, regular leisure activities, decent car, the occasional holiday - you get it. It also assumes you own your home outright.
ASFA estimates that achieving this comfortable retirement requires annual spending of $54,840 for singles and $77,375 for couples. To support that level of spending, they suggest lump sums of $595,000 for singles and $690,000 for couples. These figures will naturally rise with inflation, but they offer a starting point to think about how much you need to retire.
How much should you save?
It’s tempting to assume the government‑mandated 12% employer contribution will get us to a comfortable place, but the jury is still out.
In a recent article, Mark modelled a scenario where someone earning $100k contributes only the compulsory amount into a ‘balanced’ super option for 40 years. At a 4% withdrawal rate, only about half of pre-retirement income would be replaced. This is well short of the commonly recommended 70% replacement rate.
His modelling suggests that contributions closer to 16% of income would be needed to reach that target. And that assumes a balanced allocation, no major career breaks and never paying capital gains tax on any of the investments in super. Given this is not reflective of reality for a lot of people, the contribution rate required is likely higher.
How you can get ahead
If you’re fretting over a lacklustre balance, fortunately there are things you can do to improve your outcomes. Given super is a long-term vehicle, being younger means that even small adjustments can compound into six-figure differences in retirement. It’s very easy to fall into the ‘I don’t make enough to boost my super’ thinking, I get it. For some that will certainly be the case. But there are other levers to pull besides your income.
Clean up your accounts
Prior to my first full time job, I spent almost 9 years working part-time in retail and hospitality in blissful ignorance of where my super was going. Every time I started a new job, I’d simply elect to join my employer-elected super fund to avoid what I deemed as an administrative hassle. It wasn’t until about two years ago when I decided to consolidate these into a primary fund. Whilst the balances had largely been eroded by fees, it still provided an immediate boost to my primary account. Sometimes accounts can even be transferred to the ATO as unclaimed super. You can check through myGov by accessing the ATO’s online services where you should see every account held in your name. Rolling these into one fund will reduce paying excess fees and ensure that the power of compounding is working effectively and in one place.
The most important investment decision you’ll make
Asset allocation is the largest driver of investment returns and is incredibly important in determining what your retirement will look like. I personally elect an all-growth approach, but that might not be the right answer for everyone. A conservative option with higher allocation to defensive assets might feel psychologically safer, but it can significantly hinder your balance, especially early in your career.
Most Aussies are likely too conservative for their own good. AustralianSuper currently has the largest number of superannuation accounts across Australia, with 90% of members in the balanced option. This option is generally a 70/30 split between growth and defensive assets. Given the average age of an AustralianSuper member is 42 and one could argue that most people are more conservative than they need to be. A superannuation lifecycle investment strategy automatically adjusts for the most appropriate asset allocation based on age. According to Australian Retirement Trust, those under 50 years old should be allocating 100% to a high growth pool – contrary to what it appears that most Australians are doing.
Source: Australian Retirement Trust.
The right option will depend on your individual time frame and risk tolerance, but arguably the biggest ‘risk’ is being too conservative early on and outliving your retirement savings. If your balance is behind,there’s a good chance tweaking your asset allocation will do the heavy lifting in the future.
Contribute more?
Boosting your contributions is easily the most effective catch-up strategy for those falling behind, or even those looking to get ahead. There are two main ways to do this. Concessional (pre-tax) contributions are like your employer’s super guarantee payments, a salary sacrifice agreement or any personal contribution that you claim as tax deductible. These contributions are taxed at 15% inside super which is often far lower than your marginal tax rate. Importantly, they are capped at 30k per financial year. The simplest way to do this is salary sacrificing a portion of your pre-tax income into super each pay cycle. Alternatively, you can make lump‑sum personal contributions at any point in the year and claim a deduction. This might make more sense if your income or expenses fluctuate.
Non‑concessional (after‑tax) contributions are payments to super that are made from your taxed income or savings. Unlike concessional contributions, these aren’t taxed on entry but earnings are taxed 15% inside super (and 0% in retirement). The annual cap is currently $120,000 and anyone under 75 can contribute provided their total super balance is below $2 million. This can also be expanded by the ‘bring forward rule’ which allows an individual to bring forward the equivalent of 1 or 2 years of your annual cap from future years. In practice this means you can make contributions up to 2 or 3 times the annual cap amount in the first year of the bring-forward period.
As someone who once sat firmly in the NO camp for salary sacrificing extra into super, I’ve now made the shift and upped my pre-tax contributions. The decision isn’t without trade-offs. The prospect of forfeiting ‘fun money’ in my 20s to fund a comfortable retirement I won’t see for decades isn’t alluring. It pains me to imagine the day I need to bring a walking stick to Bali. The way I make peace with this is by keeping my salary sacrifice contributions relatively small but consistent. Rather than carving out big chunks that erode my quality of life or derail other short-term goals, contributing a ‘miss-able’ amount from each paycheque is what currently works for me.
I recognise that being able to salary sacrifice and still enjoy life is a privileged position to be in, so I don’t plan on wasting it. The 12% government-mandated employer contribution can lull us into a false sense of security. But I’d argue for most people, it simply won’t be enough.
As a woman, I’m acutely aware that I’ll likely have higher lifetime healthcare needs, a longer life expectancy and a greater chance of developing chronic conditions in retirement. There may also be a point where I take a career break of some sort. That means that my retirement will likely be both longer and more expensive. None of these costs are easy to predict, but the one thing I can control is how much of a buffer I build now with decades for compounding to do the heavy lifting. At the end of the day, that matters far more than how my balance stacks up against anyone else’s.
