Young & Invested: Why should I care about my superannuation?
Better late than never to review your super.
Welcome to my column, Young & Invested where I discuss personal finance and investing for Gen Z and Millennials. This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 9
Admittedly, I never bothered to review my super until I began working full time last year- and I’m sure I’m not alone in this.
This edition was largely inspired by a midweek Reddit doomscroll on one of my favourite forums.
Prior to my first full time job, I spent almost 9 years working part-time in retail and hospitality in blissful ignorance of where my super was going.
When I was 19, I received a letter from my employer-elected super fund stating my account was being closed due to fees and insurance eroding my employer contributions. Shocked is probably an overstatement, but I was irritated to say the least. Changes to superannuation policy in 2021 meant that these automatic insurance issues have been resolved, however this left me disillusioned with super for a few years.
A Vanguard study found that younger generations were disengaged when it came to their superannuation, with 37% having no clear retirement plan – and this doesn’t surprise me. Not everyone has a share portfolio, but all of us have a super fund. So why do we not care?
The reality is, failing to review your super is like cutting a hole in your wallet and walking around as the money falls out. Choices ranging from the fund you’re with, to your portfolio allocations, all have a significant impact on your retirement outcomes. Here’s how to calculate exactly how much you should have in your super at retirement.
What is super?
For those like the Redditor who are not well-versed with the concept, superannuation has been around since the 80s. However, in 1992 the Superannuation Guarantee was introduced. This required employers to make a mandatory contribution into a fund on their employee’s behalf.
Unlike what we’ve heard in the news recently about super-funded housing, the system was designed with only one purpose in mind – to provide for Australians during their retirement phase. Your contributions are invested on your behalf and only accessible once you reach preservation age or have extraordinary circumstances in which you may withdraw.
Australia currently has the fourth-largest pension system globally, behind the United States, Canada, and the United Kingdom. However, projections indicate that we will become the second-largest global pension market within the next decade, driven by increases in the Superannuation Guarantee and continued strong investment performance.
Figure 1: Australia to be the second largest pension system within the next decade.
Asset allocation matters
Super asset allocation refers to the composition of your retirement portfolio. The most popular offerings are ‘pre-mixed’ options in the form of ready-made, diversified investment portfolios comprising multiple asset classes including shares, property/infrastructure, cash and fixed interest. The pre-mix you choose will be based on factors such as risk appetite and investment horizon.
Pre-mixed options generally range from conservative, balanced, growth and high growth. The investment objective of each is to deliver a return that is higher than inflation. The primary differences between the pre-mixed options will be set by the investment objective, which determines how much of a return above inflation each option seeks to deliver. This return goal will inform asset allocation decisions for each pre-mixed option.
Each investor differs in their retirement horizon, need for cash flow and risk appetite. Those with a shorter time frame who skew older or simply prefer investments with lower volatility should generally allocate a higher portion to defensive assets rather than growth.
Conversely, investors who have longer time horizons, lower concern about volatility and wish to maximise potential returns, should have a higher allocation to growth assets. Below is an example of Morningstar’s risk profiles and subsequent strategic asset allocations.
Figure 2: Morningstar Risk Profiles and Strategic Asset Allocations. Source: Morningstar.
You can find more about how to pick your super option here.
Being engaged early on with your super matters.
Something as subtle as switching to a more appropriate asset allocation can have significant impact on your retirement returns.
AustralianSuper currently has the largest number of superannuation accounts across Australia, with 90% of members in the balanced option. This option is generally a 70/30 split between growth and defensive assets.
Given the average age of an AustralianSuper member is 42, one could argue that most people are more conservative than they need to be for their age. A superannuation lifecycle investment strategy automatically adjusts for the most appropriate asset allocation based on age.
According to Australian Retirement Trust, those under 50 years old should be allocating 100% to a high growth pool – contrary to what it appears that most Australians are doing.
Figure 3: Lifecycle investment strategy in action. Source: Australian Retirement Trust. 2024.
The best option is one that suits your time frame and risk tolerance, as well as meets your circumstances and retirement goals. As a young person with a few decades till retirement, I allocate my funds into the highest growth option available and intend to keep it that way for some time.
Why maximising early matters
Between stressing about purchasing a home, investing in the market and working towards a successful career (all while taking advantage of all youth has to offer), who has time to worry about super?
It can be hard to care about retirement at a young age given how far retirement is away. Immediate needs often taking priority. But whether it’s a simple balance check or changing your allocation, we simply cannot afford to not care about super.
In Shani’s article why you shouldn’t wait until 35 to take your super seriously, she refutes the claim that you can wait till your 35 to take super seriously. The power of compounding makes delay a costly proposition. Shani found that waiting till you’re older to change to a more aggressive asset allocation results in smaller retirement pool. Below is her example of the difference in retirement balances based on different asset allocations.
Figure 4: Difference in retirement balances per asset allocation. Source: Shani Jayamanne. Morningstar. 2024.
The superannuation guarantee requires employers to pay contributions of a mandated percentage of earnings. In July 2025 this increases to 12% from the previous year’s 11.5%. Many people assume the mandated minimum will be enough to take them through retirement, however this is increasingly not the case.
Interestingly, employees of the public service receive ~15% which leads to the discussion of whether that is the optimal contribution for a comfortable retirement.
Simply relying on mandated contributions of 11.5% may not suffice. In a recent article by Mark LaMonica, he runs a scenario on the optimal contribution to achieve 70% income replacement upon retirement. Mark finds that simply contributing the mandated minimum in a balanced super allocation for 40 years, will result in only being able to replace 50% of income at a 4% withdrawal rate – a suboptimal result.
In fact, Mark’s hypothetical scenario estimates it would take contributions of 16% to reach 70% income replacement at a 4% withdrawal rate. With most investors being too conservative in their asset allocation, it may require a considerably larger contribution.
Review your own financial situation and goals and understand if these extra contributions are right for you. Often, they involve the sacrifice of other financial goals.
The sacrifice dilemma
Like most people my age, I am faced with the dilemma of investing in the experiences I have today or investing for my retirement in 40 years (hopefully).
It’s easy to get swept up in enjoying my youth forgetting that I must build a retirement nest egg. Taking a trip to Europe in my 20s sounds a lot more appealing than navigating Rome with a walking stick at 65. And that is not to discredit those doing exactly that at 65. Rather, credit to them – even my 25 year old knees struggle with the cobblestone steps.
But why is this a dilemma young people are increasingly facing? Summers were seemingly endless now they’re reduced to four weeks of annual leave and the occasional public holiday. From a psychological perspective, a study on the perception of time shows that we’ve already lived most of memorable life by 25. Therefore, there might actually be some merit in prioritising experiences earlier in life.
Figure 5: Time perception and age. Source: Parth Chopra. Surya Blog. 2024.
So, what do we know?
Time escapes us, each passing year represents a smaller percentage of the total life we’ve lived. But we also acknowledge that the bare minimum superannuation contributions may not be enough upon retirement. We can also hypothesise the likelihood of even reaching retirement and living to enjoy the fruits of our labour.
Ultimately the best financial advice is to be prepared for all outcomes. Betting on your age of death and living vicariously until then is not something I’d advise.
The average super balance for 25-29 year olds is approximately $24k. If you’re reading this and feeling behind, it is never too late. Irrespective of what you’ve done till now or any decisions that have led you here, the best way forward is to understand your current circumstances then decide what the best course of action is from here. Hopefully this article is a starting point.
The ability to weigh up the benefits of contributing to a comfier retirement versus indulging in present-day expenses, reflects the privilege of having disposable income in the current economic climate – something that many young Aussies are currently struggling with.
