How the price of a few beers could earn you thousands towards your super!
Tom, Rick and Marcella are doing it and you could too!
They say time is money. And when it comes to growing super, it’s absolutely true.
It’s always easy to put things off. But one of the smartest decisions you can make is to start investing in your superannuation sooner rather than later.
Why? So you can take advantage of compound interest, which can turn even small amounts of money into thousands of dollars more over time. Compound interest is essentially interest paid on interest, so you’re earning money not only on the amount you put in, but over time, also on the interest you’ve already earned.
But the longer you invest, the greater the effect of compound interest will be, so it really pays to start saving as soon as you can.
Here’s an example of how much small amounts can grow:
Three friends, who we’ll call Tom, Rick and Marcella for the purpose of this story, start adding extra money to their super from their pay (after tax has been taken out) on top of the compulsory contributions their employer makes for them. Tom is 25, Rick is 35 and Marcella is 45 years old.
To make a weekly payment of $20, Tom cuts back on cigarettes; Rick reduces the number of beers he has after work and Marcella brings her lunch to work two days a week. They all make extra payments to their super until they retire at the age of 67. They invest this money in the same way, earning a return of 7% a year.
Over their working life, Tom pays $43,680, Rick pays $33,280 and Marcella pays $22,880 extra into their super. However, Tom’s money is invested for 42 years, Rick’s for 32 years and Marcella’s for 22 years. When Tom turns 67, because of his extra super payments, he will have over $248,000 more in his super. Rick’s super will be almost $119,000 larger and there will be over $52,000 more in Marcella’s super because of extra contributions. And because they are over 60 when they receive their super, it will be tax free.
Although Tom has contributed just over $20,000 more than Marcella has over their working lives, because Tom’s money has been invested for twice as long, he ends up with almost five times as much extra super than Marcella. Tom contributed only $10,000 more than Rick in total, but has $129,000 more super. The length of time the money is invested and the effect of compound interest is one of the key factors to growing money.
This example shows that saving a small amount of money, as little as $20 regularly over time, can grow into a substantial investment. The key is to start sooner, so you use compound interest to really get your super moving!
The people depicted in this example are fictional.
Assumptions: This expected long term investment performance is based on the historical performance of a fund with the same asset allocation as the AMIST Super Balanced option (60% growth and 40% defensive). Past performance is no guarantee of future performance. Extra payments are made from after-tax money. For simplicity, the compulsory employer contributions haven’t been considered in this example. It also assumes no deductions have been made for insurance premiums or fees.
So start your savings plan today
Set up an Automatic Bank Transfer ABT (Direct Debit). It’s easy and you’re in control. There’s a form here (PDF, 226Kb)