We all know that super is your savings for retirement. But the money your employer puts in your account is only one of the ways your super grows. The real way your account can grow is through the magic of compound returns.
Your long-term investment
Super doesn’t just sit in an account waiting for you to retire. Unlike a regular bank savings account, your super fund strives to build your retirement savings by investing in areas like shares, property, and infrastructure.
By investing, your money has an opportunity to grow. And when investments grow, you get returns into your account. Every time you get a positive investment return, it increases your balance, enabling your retirement savings to grow over time.
The power of compounding is when you receive returns on your investment earnings, as well as on your original investments. Your returns start earning returns. The power of compounding helps you save more money. The longer you save, the more returns you earn.
It’s important to remember that all investments, including super, have some risk, and the returns on your investment may go up or down over time.
A higher growth option will have higher risk and experience more volatile returns over the short term. But it will usually achieve higher returns over the long term. A conservative option will offer lower risk but lower returns over the long term.
Compounding is particularly effective with a long-term investment like super—it’s perfectly placed to benefit from compound returns because the compounding effect happens automatically over decades.
Compound returns in action
Meet UniSuper members Sue and Ewen. They’re both 60 years old—Sue began investing at age 30 with $50,000 while Ewen began at age 40 with $100,000. Let’s see which has the higher balance now, the answer might surprise you!
| Sue | Ewen | |
| Starts investing at age | 30 | 40 |
| Invests until age | 60 | 60 |
| Investment timeframe | 30 years | 20 years |
| Annual rate of return | 8% p.a. | 8% p.a. |
| Started investing with | $50,000 | $100,000 |
| Investment value at age 60 | $503,133 | $466,096 |
For the purpose of this illustration, the modelling assumes an investment return of 8% p.a. with annual compounding. No allowance has been made for tax or investment fees and charges. Please note that lower investment returns and/or periods of market volatility, and the inclusion of tax or investment fees and charges could change the comparison.
We’ve assumed a starting balance of $50,000 and $100,000 with no further contributions. This example is for illustrative purposes only and doesn’t relate to any of UniSuper’s investment options. Figures are nominal values and haven’t been adjusted to reflect the impact of future inflation.
Sue invested less, but ended up with more
Sue invested $50,000 less than Ewen, but she ended up with over $37,000 more than Ewen.
Why? Sue had a 10-year head start which meant her money had more time to benefit from compound returns.
Ways to grow your super
Because compound returns are most effective over the long-term, the earlier you start investing your money, the better the chance of getting your money to grow.
There’s a range of ways you can add to your super to help your retirement savings grow (separate from employer contributions). You can make a before-tax contribution to your super by sacrificing part of your before-tax salary. This could reduce the amount of tax you pay if you pay more than 15% tax on your salary.
You can also make after-tax contributions from your take-home pay. Or, if you’re a low-income or middle-income earner, the government may make a contribution (known as co-contribution) to your account, up to a maximum amount of $500. Learn more about growing your super.
What’s your retirement strategy?
It’s important to make sure your super is on track for your future retirement plans. Even when you’re retired, you’ll want your super to be able to fund your lifestyle now and have a chance to grow so it can support you later. Through our Flexi Pension, you can start drawing income from your super while continuing to invest through one or more of our investment options. As everyone’s circumstances are different, it's important you make the right choice for you. This may be a good time to talk to a UniSuper consultant and find out more about the different types of advice we offer.