Young Australians costing themselves in retirement with one superannuation mistake

Despite being one of the largest assets Australians will ever have, many are largely disengaged with their superannuation which could have long-term impacts on their retirement nest egg.

Survey data released by AMP, based on the responses of 2000 people, shows one in four Australians have never engaged with their superannuation, while almost half only check their super once or twice a year.

AMP super director of growth and customer solutions Julie Slapp says Australians are missing a trick by not engaging with their super.

“Small steps – like checking your fund details or talking to your provider – can build confidence and unlock the full benefits of compounding returns,” she said.

“We know that as little as an extra $20 a week put into super can grow to $98,000 over 30 years through compounding, yet more than half of Aussies under 40 don’t understand the concept.”

Omura Wealth Adviser director Terry Vogiatzis told NewsWire this hands off approach meant many Australians were placed in default superannuation funds, which might not be taking enough risk early on in a member’s career.

“While that may sound counterintuitive, risk can be positive when you have a very long investment horizon,” Mr Vogiatzis said.

“With longer investment horizons, the probability of a negative return decreases and the predictability of a long term return increases.

“When there is time on your side, generally the best defence is offence.”

A default superannuation option is designed for people who do not want to make an active choice.

It will have a balance of growth assets including shares and property, as well as defensive options such as cash and bonds.

Each individual fund will choose its own percentages they allocate to growth or defensive assets.

A higher growth fund will have a higher allocation to shares and property.

The higher growth option also has higher risk and is more susceptible to market moves.

To illustrate the point, Mr Vogiatzis used a person with 35 years until they retire who currently had $75,000 in their superannuation and adds $12,000 a year to their super.

If the person was in a fund that returned 7 per cent a year, they would retire with $2.4m, but if they instead returned 9 per cent a year, the same person would finish their working life with $4.1m.

Mr Vogiatzis noted individual circumstances and risk tolerance would play a part in some people’s investment assets, with a high focus on growth assets presenting a bigger risk for customers.

How much super will you actually need?

While the figures swing widely depending on lifestyle factors and access to the pension, the Association of Superannuation Funds of Australia (ASFA) has a rough guide to how a person could need post work.

The ASFA, says an Australian couple who retire aged 65 now need $76,505 per year combined to achieve a comfortable retirement, with $54,240 required for singles.

This means couples would need $690,000 in their combined superannuation balance to achieve a comfortable retirement, and a single person would need $595,000 when they retire – and that’s all on top of owning your own home.

Couples looking to achieve a modest retirement who are still renting would need $385,000 in their superannuation and singles would require $340,000.