Investing your super for growth: before and during retirement

We all tend to understand that our retirement income is largely determined by what we contribute, and the earnings on our investments. What might surprise you though, is the extent to which investment returns – even just a small extra rate of return – can change things over time.

According to research adapted for Australia by actuary Jim Hennington, retirement income for Australian superannuants is typically derived:

  • 15% from the money you saved during your working years
  • 35% from the investment returns you achieve before you retire
  • 50% from the investment returns you achieve during your retirement.

Although the actual percentages for each person will vary depending on their personal situation and the market conditions they live through, the principles are highly relevant to the way most people’s superannuation works over the course of their lifetime.

The practical implication is that earning a good investment return on your retirement savings is just as important, if not more important, than it was during your working life.

Yet all too often we see people take a conservative approach to investing their retirement saving – either in the years leading up to retirement, or once they have stopped work.

The importance of investing for growth

To highlight the importance of investing for growth, consider a 30-year-old earning $80,000, with a $40,000 super balance, and only compulsory super contributions. Assuming a default investment rate of return of 7.5% before fees & tax, their fund would grow to $494,000 by age 65. If they managed to increase that return just 1% pa by investing more aggressively, the result is an impressive $603,000 – a substantial boost.

But the second stage – retirement – is even more significant. That retirement balance of $494,000 is likely to provide a lasting income, excluding Age Pension, of around $33,000 pa (in today’s dollars). The boosted balance ($603,000) also invested at a higher growth rate, delivers closer to $45,000 pa – partly from a higher starting balance (earning while working) but largely from earnings in the retirement phase.

What does this mean for you and your super choices?

History tells us that the strongest long-term returns are derived from growth markets, such as shares and property. However, it is quite common for a typical super fund to include some portion of defensive assets, like cash and bonds. It is worth some serious thinking about the level of risk and the financial consequences associated with your current investments. Then, if you truly are investing for a long timeframe, consider whether you are in fact positioned in an overly cautious manner.

Want to know more?

Join us for our upcoming webinar on super and retirement investment decisions. AGS Financial Group Director and founder Alex Berlee will guide you through the choices and consequences from an array of investment options, including:

  • Return expectations
  • Choices available for your super
  • Specialist investments like tech, small caps and emerging markets
  • How to accommodate growth assets in retirement portfolios

Register today, or contact us today if you need any help or advice.

Register: 13th Feb – 1pm (live)


Register: 14th Feb – 1pm (replay on demand)


Published : 30 Jan 2024

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