After a lifetime studying superannuation, here are 5 things I wish I knew earlier

Amassing the wealth needed to support retirement by regular saving is a monumental test of personal planning and discipline. Fortunately for most Australian workers, the superannuation system can help.

Superannuation uses the carrot of tax incentives, and the sticks of compulsion and limited access, to make us save for retirement.

There are benefits to paying timely attention to your super early in your working life to get the most from this publicly mandated form of financial self-discipline.

I’ve been researching and thinking about superannuation for most of my career. Here’s what I wish I knew at the beginning of my working life.

First, make sure you are getting your dues.

If you are working, your employer must contribute 11% of your earnings into your superannuation account. By July 2025 the rate will increase to 12%.

This mandatory payment (the “superannuation guarantee”) may look like yet another tax but it is an important part of your earnings (would you take an 11% pay cut?).

It is worth checking on, and worth reporting if it is not being paid.

The Australian Tax Office estimates there is a gap between the superannuation employers should pay and what they do pay of around 5% (or $A3.3 billion) every year.

Failing to pay is more common among the accommodation, food service and construction industries, as well as small businesses.

Don’t take your payslip at face value; cross-check your super account balance and the annual statement from your fund.

Don’t make personal donations to the finance sector by having more than one superannuation account.

Two super accounts mean you are donating unnecessary administration fees, possibly redundant insurance premiums and suffering two times the confusion to manage your accounts.

The superannuation sector does not need your charity. If you have more than one super account, please consolidate them into just one today. You can do that relatively easily.

If you’re young now, retirement may feel a very distant problem not worth worrying about until later. But in a few decades you’re probably going to appreciate the way superannuation works.

As a person closing in on retirement, I admit I had no idea in my 20s how much my future, and the futures of those close to me, would depend on my superannuation savings.

Now I get it! Research shows the strict rules preventing us from withdrawing superannuation earlier are definitely costly to some people in preventing them from spending on things they really need. For many, however, it stops them spending on things that, in retrospect, they would rate as less important.

But each dollar we contribute in our 30s is worth around three times the dollars we contribute in our 50s. This is because of the advantages of time and compound interest (which is where you earn interest not just on the money initially invested, but on the interest as well; it’s where you earn “interest on your interest”).

For some, adding extra “voluntary” savings can build up retirement savings as a buffer against the periods of unemployment, disability or carer’s leave that most of us experience at some stage.

If you are building superannuation savings, try to remember you’re among the lucky ones.

The benefits of super aren’t available to those who can’t work much (or at all). They face a more precarious reliance on public safety nets, like the Age Pension.

So aim to maintain your earning capacity, and pay particular attention to staying employable if you take breaks from work.

What’s more, superannuation savings are invested by (usually) skilled professionals at rates of return hard for individual investors to achieve outside the system.

Many larger superannuation funds offer members types of investments – such as infrastructure projects and commodities – that retail investors can’t access.

The Australian Prudential Regulation Authority (APRA) also checks on large funds’ investment strategies and performance.

The really hard work is ahead of you. The saving or “accumulation” phase of superannuation is mainly automatic for most workers. Even a series of non-decisions (defaults) will usually achieve a satisfactory outcome. A little intelligent activity will do even better.

However, at retirement we face the challenge of making that accumulated wealth cover our needs and wants over an uncertain number of remaining years. We also face variable returns on investments, a likely need for aged care and, in many cases, declining cognitive capacity.

It’s helpful to frame your early thinking about superannuation as a means to support these critical decades of consumption in later life.

At any age, when we review our financial management and think about what we wish we had known in the past, we should be realistic. Careful and conscientious people still make mistakes, procrastinate and suffer from bad luck. So if your super isn’t where you had hoped it would be by now, don’t beat yourself up about it.

Susan Thorp is a Professor of Finance at the University of Sydney Business School. This article originally appeared in The Conversation.

Declaration

Susan Thorp is a member of UniSuper. She receives and has received research funding from the Australian Research Council, the Australian Securities and Investments Commission, the TIAA Institute (USA), and UniSuper and Cbus Superannuation funds via ARC Linkage Grants. Thorp was previously Professor of Finance and Superannuation at UTS, a position that was partly funded by Sydney Financial Forum (Colonial First State Global Asset Management), the NSW Government, the Association of Superannuation Funds of Australia (ASFA), the Industry Superannuation Network (ISN), and the Paul Woolley Centre for the Study of Capital Market Dysfunctionality, UTS. She is an Associate Investigator for the ARC Centre of Excellence in Population Ageing Research (CEPAR), a member of the OECD-International Network on Financial Education Research Committee, the Steering Committee of the Melbourne-Mercer Global Pensions Index, the Australian Securities and Investments Commission (ASIC) Consultative Committee, the Board of New College (UNSW) and the Research Committee of Super Consumers Australia, a not-for-profit advocacy organisation for Australian pension plan participants.