To understand the power of superannuation, you must first understand two basic functions that make super exactly that – a super way of investing.
- The power of compounding returns
- The simple tax benefits of superannuation
Compounding returns and what it means for you
If you want to really 'live' in your old age, it's worth giving your super top billing. Adding even small amounts to your super while you're in the workforce will make a tremendous difference to the final value of your super investment.
Let's say for example, that a worker aged 30 relies solely on the super contributions made by her employer. With a current salary of $50,000 and existing super savings of $20,000, this would see our worker accumulate super worth around $593,000 by the time she hangs up her work boots at age 65. Not a bad result.
However if our worker adds just $30 extra to her super each week, by the time she is 65, she will have super savings of around $833,000.
That's an extra $240,000 to spend, all from just $30 a week. An excellent result.
The tax benefits of superannuation – a powerful ally
Super also boasts outstanding tax savings. The returns on investments held in super are taxed at a low rate - currently a maximum of 15%. For most people, that's a lot lower than the tax on earnings from non-super investments, which can be as high as 46.5%. In retirement every dollar counts, so why pay the tax man when you could be paying yourself?
Then when you're ready to retire, your super can be accessed tax free from age 60. Take the money as a lump or draw it down gradually. It's your money, it's your choice.