How my super fund’s impressive performance has actually cost me thousands

Over the past 10 years, my super fund has achieved a return of more than 10%, an impressive rate by any measure.

So why am I kicking myself? Because I could have so much more.

You see, all along I should have been making concessional contributions, which are personal super contributions that enjoy special tax advantages.

The 'free money' mindset I left behind

When I first moved to Australia, I came from the United States where they have a retirement scheme called the 401(k). Unlike superannuation, it’s a voluntary scheme, but the principle’s very similar: get tax breaks for funding your own retirement, get penalised if you take it out early.

One of the perks of the 401(k) is the employer match, if your employer offers it. Mine at the time did. They would match 50% of what I put in, based on up to 6% of my salary.

For example, if I was making $50,000 and I contributed 6% of my salary ($3,000) per year, my employer would put in an extra $1,500. Read almost any US-based financial subreddit and you’ll hear over and over again that it’s a ‘no-brainer’ - not just for the tax benefits but for the literal free money from your employer.

I remember first arriving in Australia in 2008 and wondering if there was a similar ‘no-brainer’ tactic related to superannuation.

That’s when someone told me about salary sacrifice. Everyone’s situation is different, but it’s the closest thing to a super ‘no-brainer’ you can find here. There’s no free money, but the tax advantages are undeniable. However, at the time, it sounded confusing and my then-employer didn’t offer it anyway. So I gave up, and that was that.

How the idea got lost

What no one told me was that you could achieve the exact same thing by making a personal concessional contribution from your after-tax money and simply claiming the tax break when you did your tax return.

I suppose I could have looked it up, but this was 2008 or so. The internet wasn’t what it is today, popular guides like The Barefoot Investor hadn't been published yet, and I was younger and a bit more naive - so I  quickly set my sights on the next exciting Australian adventure: hunting drop bears.

As if imaginary, the entire idea just went ‘poof’.

By the time it came to mind again, life had moved on. I had gotten married, acquired a mortgage, had a child - disposable income wasn’t what it used to be.

I’m actually lucky that my super has done so well. I’m right around where I should be for the industry's comfortable retirement standard for someone my age, and I’m closing in quickly. Pretty good for someone who didn’t start contributing until he first arrived on shore at the ripe old age of 30.

But I could have so much more.

The cost of those missed concessional contributions

Back in July of this year, we ran some numbers here at Mozo, calculating the potential impact just one single concessional contribution could make over the lifetime of your fund.

We found that Aussies who put just $2,000 in their super over the course of this financial year (which equates to $1,700 after the 15% contributions tax is deducted), could see that additional amount grow to $10,628 over 30 years, an increase of 525% from the amount that initially entered your super.* 

And that’s just based on a 6.3% rate of return.

Now imagine if I had been putting in $2,000 per year, every single year, from age 30 when I arrived in Australia until the age of 40 when real adulting started to take up much of my disposable income. Not to mention the fact that the types of returns I've been getting, at least over the past 10 years, have been well above that 6.3% rate.

Now that’s a missed opportunity if ever there was one. And trust me, I'm still kicking myself. But they say the second-best time to plant a tree is today, which is why I'm finally getting started now, even if it means squeezing every last cent out of my budget to make it work.

A word to the wise

So, word to the wise folks. Consider concessional contributions. The tax benefits and extra retirement savings are well worth looking into. 

Of course, this is just my story, and everyone’s situation is different - so it’s always best to consider financial advice for your personal circumstances before you jump in. 

* These figures represent the hypothetical additional amount you could have in your super including your initial post-tax concessional contribution and assumed investment growth. Calculations assume a future net investment return of 6.3%, which was drawn from long term average net returns on MySuper products according to APRA performance data. Past performance is not an indicator of future performance.