The sooner, the better: How young workers can add six figures to their super

Australia’s superannuation system is world-leading, but it’s becoming increasingly clear that many of us take it for granted.

“Often, it is a case of ‘out of sight, out of mind’ for working-age Australians,” says Scott Girdlestone, partner and head of wealth advisors at William Buck.

In fact, 54 per cent of those surveyed for Vanguard’s How Australia Retires 2025 report said they couldn’t recall the last time they had engaged with their super fund.

Girdlestone reckons the proportion of younger Australians disengaged from their super is even higher. “We find that younger clients understand the basics but aren’t always aware of all the different ways superannuation can help them,” he says.

However, engaging with your super fund when you’re young is critical to ensuring you retire with a healthy super balance. Here are some things to consider to set yourself on the best path for a happy retirement.

Making sense of additional contributions

If you have a super account, you can grow your retirement nest egg by depositing money on top of the contributions your employer must make on your behalf.

A 30-year-old worker earning $100,000 a year could increase their super balance by nearly $120,000 by age 65.

One option is to ask your employer to deduct money from your base salary and pay it into your super account with your standard employee contribution. This method is known as salary sacrificing, and the additional amounts are known as concessional (pre-tax) contributions.

You can also make one-off payments using take-home pay or savings. These amounts are known as non-concessional (after -tax) contributions. “Additional contributions can be an excellent thing because you’re putting assets into a 15 per cent tax environment,” Girdlestone says.

That means you only pay 15 per cent tax on concessional contributions such as salary sacrificing. If you make a contribution out of your take-home pay, which has already been taxed, you pay no extra tax.

Any interest you earn on money in your super account is also taxed at 15 per cent, unlike interest earned on money in a bank account, which is taxed at your marginal tax rate.

According to the Moneysmart super calculator, a 30-year-old worker earning $100,000 a year could increase their super balance by nearly $120,000 by age 65 if they contribute an extra $50 a week to super via salary sacrificing.

Girdlestone says superannuation accounts are a key tax structure that everyone needs to consider as part of their overall financial strategy, particularly if they receive a windfall, such as an inheritance, while they are of working age.

But he says additional contributions only make sense if you really can spare the money. “You can’t touch your super until you’re 60, and if you are carrying debt or have pre-retirement plans, locking money away might not be the best option.”

Using your super to save for a home

In general, you cannot access the money in your superannuation account until you retire. The exception is the government’s First Home Super Saver Scheme, which allows you to put aside money in super then withdraw it for a first-home deposit.

It works like this:

• First-home savers can make voluntary super contributions of up to $15,000 a year, up to a total of $50,000;
• The money is ring-fenced from your main super balance;
• Like other voluntary contributions, the money is either taxed at 15 per cent (if concessional) or is not taxed (if non-concessional);
• When you are ready to buy a home, you can withdraw the amount you’ve contributed, plus any earnings.

Kat Abrahams, director of Keystone Advisory & Tax, says the scheme is under used by first-home buyers. “It allows you to save in a disciplined way and to take advantage of a low-tax environment, which can make a real difference when you’re trying to get onto the property ladder,” she says.

Thinking about your super now, not later

Because it is a long-term investment, small additions to your superannuation balance can make a big difference to your retirement nest egg. The principle is known as compounding.

If, for example, you have $1000 in super, and you earn 10 per cent net interest in a year, your balance will increase by $100 to $1100. The following year, you will earn interest on the new $1100 amount, and so on.

Even if your account receives no additional contributions, your $1,000 will grow to $2,707 in a decade thanks to compounding.

“The sooner you deposit money into your super account, the more time it has to compound,” notes Bold Wealth director Dylan Partiger-Green. “You can use the compound interest calculator on the Moneysmart website to model this for yourself.”

That’s why Partiger-Green recommends his younger clients make voluntary superannuation contributions if they can afford to do so.

“Nurturing your super as a young adult means that, by the time you are 40, you’ve already done the hard work. You won’t need to make extra contributions and can use your salary or other earnings for living. Focus on your super early and it’ll look after itself later.”

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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This story was created in partnership with Vanguard. The content is independent of any influence by the commercial partner.