The secret to super. Start young. It’s a marathon not a sprint

The secret to super. Start young. It’s a marathon not a sprint

Debby Blakey

I often get asked the question “What’s the secret to super?” and the truth is there’s no magic bullet to instantly grow your balance. Rather, super is so effective because it takes advantage of the amazing power of compounding, by steadily growing your account balance through consistent contributions and strong long-term investment returns*. 

This is very much how we approach investing at HESTA. Essentially, our investment strategy is focused on generating sustainable, strong long-term investment performance for our members while contributing to a healthier planet and society.

It’s never too late to take an interest in your super, but it really pays off to focus on how your super is going when you’re young.

If I had one piece of advice to give younger people, it is to take a look at your first pay statement and check to see that your employer is paying your super. While most employers do the right thing, one in three Australians still miss out on super they’re entitled to. This is costing working Australians more than $6 billion in super that could be helping their accounts grow for their retirement.

There are lots of other advantages of keeping track of your super when you’re young. 

Compounding

Starting early means you have more time to take advantage of what’s been dubbed as ‘the eighth wonder of the world’ – compounding. Compounding is earning a return on top of the returns you’ve already earned. The key to this is time. The longer your money stays invested earning a return, the more likely it is to grow. 

Keeping track of your super

When you’re young it’s likely that you’ll have a few jobs. Some people don’t realise they can easily take their super fund with them when they change employers. So, keep your super fund details handy – but also check to see that your fund is still right for you. HESTA is dedicated to the health and community services sector. So our products, advice, and services are specifically designed for our members who work in this sector. And remember, if you don’t make a choice when you change jobs your employer may automatically start paying super into their chosen default fund. Often this leaves people with more than one super account. If you think this might be you, it’s free and easy to check if you have more than one fund, and you can save on unnecessary fees if you get all your super in one place. Just remember to check the insurance that’s attached to your current fund before you consolidate accounts.

Putting in extra

While your retirement might seem like it’s a long way off, any extra money you tip into your super now might be some of the most powerful contributions you make. That’s because they have time to grow (remember the power of compounding). This can be a particularly good strategy for women who think they may take time out of the workforce to care for children. If you top up a bit more in your 20s this can help avoid the gender super gap which currently sees women retire with about 40% less super than men. While unequal pay is also the key reason for this, unpaid time out of the workforce also leaves women’s super-balances lower when compared to men over the long-term

Super is a low tax environment

It’s also worth checking if your employer offers salary sacrificing, as you can save on tax with additional super contributions made out of your gross pay (before tax is taken out) lowering your taxable income. Super contributions are taxed at 15% – this is likely to be lower than most people’s marginal income tax rate. So, your super investments get a great head start before they’ve even begun earning a return.

Long-term returns

Super grows through contributions and also through the returns on the money that’s invested. While there is always the possibility of negative as well as positive returns, over a lifetime of investment, your super balance will more than likely grow. This is why paying attention to it from the get-go is so important because it means you have time to ride out market volatility whilst also capitalising on compounding. 

* Returns may be positive or negative. Past performance is not a reliable indicator of future performance. 

Issued by H.E.S.T. Australia Ltd ABN 66 006 818 695 AFSL 235249, the Trustee of Health Employees Superannuation Trust Australia (HESTA) ABN 64 971 749 321.

This information is of a general nature. It does not take into account your objectives, financial situation or specific needs so you should look at your own financial position and requirements before making a decision. You may wish to consult an adviser when doing this. Before making a decision about HESTA products you should read the relevant product disclosure statement (call 1800 813 327 or visit hesta.com.au for a copy), and consider any relevant risks (hesta.com.au/understandingrisk).


The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice or its related entities. This information is general in nature and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. To view our full terms and conditions, click here.

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