Superannuation: why your early contributions make a bigger difference

I was having a great conversation with a younger business owner recently about super contributions.

He mentioned he had skipped this year as he was feeling the financial pinch but would make it up later.

It got me thinking about how not all super contributions are made equal.

AN EXAMPLE

Let’s say at 25 years old, you intended to make a $10k contribution to your super but didn’t do so.

Let’s also assume that you are getting an 8% return every year on average.

By the time you are 65, that $10k will have turned into $217,245. Amazing!

But let’s say you skipped it and instead made a contribution at 35 years old for $10k.

By the time you’re 65, this amount would only be $100,626.

You’ve missed out on over $115,000 because you missed that contribution.

ALL CONTRIBUTIONS ARE NOT MADE EQUAL

If you’ve missed out on contributing the $10k when you were 25, you would need to make a contribution of $21,589 to end up with the same amount of money.

If you waited until you were 45, you’d need to contribute $46,609.

Hold out all the way until age 55, and you would need to contribute $100,626.

This is why when you retire, most of your savings are from your contributions when you were younger.

SO WHAT DOES THIS MEAN?

This means you shouldn’t wait until later in life to ‘catch up’ your super. When you are young is the best to time to be contributing to investments as much as you possibly can.

For those people who took out $10k during Covid, this is going to have a huge effect on your finances and you need to fix this ASAP.

When it comes to investing, not all contributions are made equal. If you’re willing to go the first 10 years or so of your life going hard on investments, you’ll be far better off than trying to achieve this in the end.