Making small changes to your superannuation now could add $1.5 million to your retirement savings. By tweaking your investment strategy and avoiding high fees, you can significantly boost your super balance. Here’s how simple choices can make a huge difference over time.
Small Choices Can Make a Huge Difference
The average super balance for a 20-year-old earning the median income of $74,100 is expected to grow to around $4.2 million by the time they turn 65, assuming only the compulsory employer super contributions. But that’s with minimal intervention. If you make some smart decisions to boost your returns—like shifting your super into a higher-performing fund or adjusting your asset allocation—you could see that balance grow by more than $1.5 million.
It might sound incredible, but all it takes is a 1% higher return on your super investments. Over time, that 1% difference compounds, and it can lead to an extra fortune by the time you’re ready to retire, explains Yahoo Finance.
Choosing the Right Superannuation Fund: Passive vs. Active
One of the biggest decisions you’ll make when it comes to your superannuation is whether to go with a passive index fund or an active fund. Passive funds track the market, aiming to replicate its returns, while active funds rely on managers trying to pick the right stocks and beat the market. Interestingly, research shows that passive funds outperform active funds over 82% of the time. So, while active funds have their place, most of the time, a passive approach is a safer bet for long-term growth.
It’s also cheaper, as active funds typically charge higher fees for their attempts to outperform the market. If you’re leaning towards active funds, be sure to understand exactly why you’re making that choice and keep a close eye on how well the fund performs compared to the market. If your active fund isn’t beating the market consistently, it may be time to switch to something more cost-effective.
Don’t Let Fees Eat Into Your Returns
Another critical factor that can impact your super balance is fees. While it might seem tempting to chase the lowest fees, you want to focus on the value you’re getting for the price. High fees compound in the wrong direction—eating away at your returns year after year. Over the long term, a small difference in fees can lead to a significant decrease in your final balance. So while you don’t want to overpay, the cheapest option isn’t always the best.
The real secret is to balance fees with the returns you’re getting. A low-fee fund that delivers consistent returns can often outperform a high-fee fund, even if it promises better returns up front.
How Much of a Difference Does 1% Make?
It’s easy to think that a small percentage increase in returns won’t make much of a difference, but over time, it compounds. Let’s say your super balance is $50,000 and you earn 6% per year instead of 5%. That one percentage point difference means $1,500 extra each year. Over 40 years, that adds up to a massive difference in your final balance.
So if you can squeeze just 1% more from your super fund, that could mean $1.5 million extra in your retirement savings by the time you turn 65. It’s not just about working harder or earning more—it’s about making the right choices with the superannuation you already have.
