
Superannuation is a very important tool to save for retirement, whether that’s for a 60-year-old or a 20-year-old.
Superannuation offers several benefits, such as a lower tax rate during the accumulation phase. In retirement, the tax rate can be as low as 0% (depending on the superannuation balance).
Additionally, superannuation’s structure encourages long-term investing, which I think is the best way to build wealth.
Everyone wants to have a good retirement, and I think reaching the current average superannuation of a 60-year-old is a good target to aim at.
Average superannuation balance for 60-year-olds
Before talking about what Australians can do to grow their superannuation balance, let’s look at what the actual target is.
According to APRA data, the average super balance for 55 to 59-year-olds is $243,300, and for 60 to 64-year-olds it is $270,800. So, let’s say an investor wants to reach approximately $250,000.
A quarter of a million dollars is a significant amount of money to boost income in retirement. It could add $10,000 of income or more, depending on the dividend yield, rental yield, or interest rate of the assets inside superannuation.
When we look at the average superannuation balances for people aged between 25 and 29, the average balance is $28,000. That shows there’s a lot of growth to happen over the next 30 to 40 years.
So, how can aspiring Aussies get to a $250,000 superannuation balance by 60?
Superannuation guarantee
The first and perhaps most important element of saving towards retirement is the mandatory contributions that businesses make for their staff.
Businesses are currently required to pay their employees 12% of their wage into super. The required amount used to be less than 10% of wages, but now it’s 12%.
Let’s imagine someone earns $50,000 per year, which is close to the minimum wage on an annualised basis. That means that person would receive $6,000 of superannuation contributions over 12 months (minus the superannuation tax of 15% on contributions).
Excluding inflation effects, that would be net contributions of $51,000 per decade. Three decades of contributions would be $153,000. Of course, over time, people may get promoted or upskill, leading to a sizeable increase in their earnings and superannuation contributions.
However, plenty of readers aren’t earning just the minimum wage, so their annual superannuation contribution would be higher and help build towards $250,000 faster. For some higher earners, the superannuation guarantee contributions may be all they need to reach a large figure, perhaps beyond what the average superannuation balance of a 60-year-old is.
Aussie investors can do a few things to grow their superannuation balance faster than the bare minimum.
Invest in growth assets
Superannuation allows Australians to invest in a variety of assets. Over the long term, some asset classes have a better track record than others.
For me, as someone who is decades away from accessing my superannuation, I think it’s better to invest significantly (entirely, in my case) in ‘growth’ assets in superannuation. Shares are a lot more appealing to me than cash.
Cash and bond returns are significantly hampered by inflation, so the ‘real’ return is even less attractive.
I’m choosing to invest in international shares and great ASX shares in my superannuation. Ones that I believe will help grow my retirement balance by around 10% (or more) per year on average over the long term.
I mentioned before that someone earning a full-time minimum wage may contribute a net figure of $51,000 per decade to their superannuation. If that $51,000 grows by 8% per year, $51,000 doubles to more than $100,000 in approximately nine years. After another nine years, that original $51,000 could be worth around $200,000. And so on.
In conclusion, investing in growth assets and leaving them alone for decades can do some heavy lifting for growing a superannuation balance towards $250,000, or significantly more.
Make additional contributions
For people who have enough income to cover their essential spending, they can make additional salary sacrifice contributions out of their wage called reportable employer superannuation contributions (RESC), up to a certain dollar amount each year. This is a tax-efficient way to do it. It will likely need to be mentioned on the tax return.
Aussies can also make annual after-tax contributions to their superannuation, up to a certain (large) dollar figure, before being subject to extra tax. According to the Australian Taxation Office, the non-concessional contributions cap is $130,000 for FY27, up from $120,000 in FY26.
There are also a number of other, smaller, things that Australians can do, such as spouse super contributions to a low-earning spouse to boost their balance – this comes with a tax offset.
It’d be a good idea to ask a financial advisor what the current limits are and what the benefits are for each of these ideas.
Foolish takeaway
When you combine many years of superannuation contributions and investing, I think many Australians can reach the average superannuation balance of a 60-year-old. It just takes time, compounding, and choosing the right investments.
The post How almost any Australian can reach the average superannuation balance of a 60-year-old appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

