A bit of extra super goes a long way toward a long life

IN 1987 when I wrote Making Money Made Simple I pointed out that Australia's population was ageing, with more and more pressure to be placed on government budgets.

I also wrote that financial independence is within the grasp of anybody who learns the fundamentals of investment at a young enough age, and decides to put their mind to becoming wealthy.

Think about those born after January 1966 - they will not be eligible for the age pension until they turn 70. Odds on that most of them will live to over 90. 

This means they have to stay at work until 70, and while doing so, accumulate enough money to see them for more than twenty years. 

This is why it is vital to start using strategies now to boost your finances. 

Let me show you how powerful extra superannuation contributions can be. 

A person is 48, earns $80,000 a year, has $120,000 in super all contributed by the employer.  Their partner does not work. 

They intend to work for 22 years and then go on the aged pension, if it is still available, at age 70.  They estimate they will need $4,000 a month in today's dollars when they retire  - this will be $7500 a month at age 70 if inflation is 3% per annum) 

To achieve this goal they will need to accumulate $1,300,000 if they live to age 95. 

If their employer superannuation earns 8%, and their income increases by 3% a year, they should have $1,100,000 in their employer fund at age 67 - $200,000 short of their target.

If they had stopped work at 65, their super would have only been worth $720,000. 

Notice the mathematics of compounding here.  Almost half of the final balance at age 70 occurs in the five years between age 65 and 70. 

Because they are working till age 70, all they have to do to make up the shortfall of $200,000 is salary sacrifice a paltry $300 a month for the next 22 years.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email:

Topics:  noel whittaker opinion superannuation

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