Let’s demonstrate how super contributions, low tax and compounding interest combine using Max as an example.
The story of Max
It is 2018 and Max is 20 years old. He has just finished studying and his first job pays $50,000 a year. His salary increases $2,000 a year over his working life. Max contributes 9.5% of his salary to his super fund, and his investment return is 7.00% per year.
A few questions to ask
By investing through super, how much money does Max have when he retires ? What would he retire on if he had invested his money outside of super instead?
The benefit of super's low tax rate
Max invests a total of $415,150 over his working life. If he had invested this amount outside of super, he would have just over $1 million by the time he chose to retire at 65. But because he chose to invest inside super, he ended up with $1.4 million, due to the lower tax rate. That's an additional $345,161 for his retirement. Lucky Max.
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General advice disclaimer
This is general information only and does not take into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for you having regard to your objectives, financial situation and needs and consider obtaining independent professional advice before making an investment decision. If information relates to a specific financial product you should obtain a copy of the product disclosure statement for that product and consider that statement before make a decision whether to acquire the product.