By Fiona Harris

Make no mistake, putting off contributing to super will cost you in the long run. Making early contributions to super will significantly boost your retirement benefit. By how much? Some number crunching demonstrates it best.

According to actuary and superannuation consultant Colin Grenfell from SuperEasy, a net 9% contribution on a weekly salary of $1000 earning 7.5% per annum in a balanced portfolio could mean a retirement benefit in today’s dollars of $39,310 over 10 years.

Sounds good. But invest it longer and after 20 years, this amount jumps to $94,020 and after 40 years to a whopping $276,300.

The beauty of contributing early to super is it allows you to fully maximise the benefits of a long term investment such as superannuation.

Thanks to compounding, any interest or dividends earned from your investment which are reinvested will help grow your capital base enabling you to earn a higher rate of return. The key to the strategy is of course time. Delay will only make it harder for you to achieve your desired retirement benefit.

Again this is best demonstrated with numbers. The Association of Superannuation Funds of Australian’s Research Centre calculates that to achieve a gross income in retirement of $21,000 per annum requires contributions of 9% of wages paid over 35 years. But it says delay this strategy by five years means an individual would have to earn at least 3% or more per annum to make up for it.

Take for example a 25-year old who starts contributing 9% of their salary super today and does so for the next 40 years. Grenfell calculates they might accumulate a superannuation retirement benefit of 5.313 times their annual salary at age 65. However, if the same person deferred contributions until they were 45 years old, they might accumulate a superannuation retirement benefit of only 1.808 times annual salary by age 65.

Grenfell’s alarming analysis assumes net contributions or employer contributions less administration fees and costs, death and disablement insurance premiums and 15% contribution taxes, grow at 4% per annum in proportion to salary.

He also assumes all net contributions are invested weekly in a balanced portfolio earning a 7.5% per annum investment return.

These assumptions mean at the end of each year the accumulated value of the balanced portfolio can be expressed as a multiple of the annual salary at that time. So at the end of 10 years the accumulated value of the balanced portfolio equals 0.756 times the assumed 10 year annual salary.

For example based on a weekly salary of $1,000:

Weekly contribution: 9% x $1,000 = $90
Annual salary: $1,000 x 52 = $52,000

After 10 years: $52,000 x 0.756 = $39,310
After 20 years: $52,000 x 1.808 = $94,020
After 40 years: $52,000 x 5.313 = $276,300

While the above analysis is alarming, and certainly the best remedy is to start contributing today, Grenfell says the analysis also highlights levers investors can pull to help re-write their retirement benefit future.

That is, by regularly monitoring your super investment ensure you are on target to achieve the retirement lifestyle you desire.

This means if your salary change for the better, but your investment performs below 7.5% per annum for example, you will need to rely more heavily on increasing your personal contributions to super to achieve your end goal.

The analysis also highlights the importance of reviewing your investment strategy.

So, dependent on your retirement goals and investment time horizon, you may choose to take a more aggressive approach to investing and invest in a growth style portfolio which has a higher expected investment return.