Demonstrating the importance of your investment decisions and making contributions both during working life and after retirement.

You might think that the contributions you make to your super provide most of your retirement income, but the Russell 10/30/60 Retirement Rule states that if you maintain 65% of your portfolio in growth assets:

  • 10% of your retirement income will be made up of contributions
  • Investment earnings during your working life make up 30%
  • Earnings after retirement provide 60%.

If your superannuation doesn’t achieve appropriate returns, you could be left behind and need to contribute more to get the same outcome.

Case study #1 - Oliver, 25

Oliver has just started work and currently has no savings in super. He saves $20 a week until he retires at 65. If we assume Oliver withdraws these savings between age 65 and 90, then:

  • 11% of the amount he receives will be made up of the original contributions
  • 33% will be investment earnings made prior to his retirement
  • Earnings after retirement will make up 56%.

By contributing under $80,000 during his life Oliver has achieved extra retirement income of almost $725,000, on top of what his employer’s contributions will provide.

Case study #2 - Tai, 50

Tai’s own savings in super have already accumulated to $60,000 (including investment returns) over the years. She decides to contribute a further $50 a week until she retires at 65. If we assume Tai withdraws her savings between age 65 and 90, then:

  • 13% of the amount she receives will be made up of the original contributions
  • 31% will be investment earnings prior to her retirement
  • Earnings after retirement will make up 56%.

By contributing under $75,000 to super during her life Tai has achieved extra retirement income of over $565,000, on top of what her employer’s contributions will provide.

Both cases demonstrate not only the importance of setting up your investments to deliver an appropriate level of investment returns, but also the power that even small contributions can have to enhance your final situation.

Assumptions

  • Contribution amount increased with inflation of 3%p.a.
  • Investment return of 7%p.a.
  • Results have not been adjusted to reflect the outcome in today’s dollars
  • Percentages have been rounded to the nearest whole number

 

*Bob Collie and Matt Smith. “The 10/30/60 Rule: Where do Defined Contribution (DC) Plan Benefits Come From? It’s Not Where You Think.” Russell DC Insights, January 2008