Compound Interest
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
Albert Einstein
I wanted to show some of the advantages of early contributions, but on top of that, as this ship has passed for many, if there is still value in playing ‘catch up’ later in life. For the purpose of this demonstration I have stripped back all Insurances and associated costs of Insurance that can sometimes be associated with Superannuation. I have also included average figures for the rest of the growth and inflation. Finally, I have not allowed for the increase to SGC’s that we are expecting from July next year. (More info on that here : https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage )
Let’s pretend you have just finished Uni and you’re into your first full time job, aged 21 and earning $55,000. Below is what I project your Super balance to be if your salary increases at an average of 1% per year for the rest of your working life and you made no extra contributions. As you can see – by age 50 you would have a balance of $458,953.
$50 per week salary sacrificed for 5 years is projected below. That $13k at the start adds over $30k by age 50 and takes your balance to $490,478.
Even with 5 years of salary sacrificing $100 per week from the age of 40 – you still cannot be in front on the prior calculated earlier in life contributions at half the amount. These $100 contributions from age 40 for 5 years take your balance to $463,548.00.
Ok, so I’m in my 40’s and didn’t do anything back then. What are my options?
Well if you put the concessional contribution maximum in ($25,000) for 5 years, it does change the outcome quite significantly. At age 50 your balance is now $557,996.
Concessional contributions include contributions made on behalf of your employer, so this amount needs to be established prior to calculating how much extra you can put in there.
However I think we have demonstrated that you can still catch up later in life and utilise the thresholds for concessional contributions where possible.
Should you wish to know more about this and how it can be applied to your specific circumstances, contact us today.