How Is Super Calculated In Australia?

Understanding how super is calculated in Australia is integral in your preparation for retirement.

You should calculate how much to contribute to super, how much your super will be worth at retirement and how long your super will last in retirement.

There’s a simple way to calculate each of these.

How Is Super Calculated In Australia?

Let’s cover off on each of these calculations and show you how you can apply these calculations to your very own situation.

Calculation of Super Contributions

If you’re an employee, it is a requirement for your employer to make super contributions into your super account for you, known as Superannuation Guarantee (SG) contributions.

The standard SG contribution rate is 10.50%. This means your employer needs to contribute 10.50% of your wage into super for you on at least a quarterly basis.

For example, if your wage is $80,000 per year, you would be earning around $20,000 per quarter, meaning your employer would be contributing $2,100 per quarter into super for you.

Self-employed people do not receive SG contributions. In fact, there is no mandatory requirement for self-employed people to make contributions into super. Making contributions into super is done at their own discretion.

Read: How Contributions Work For Sole Traders

Calculation of Super Returns

Calculating what your super balance will be at retirement is the sum of contributions, plus earnings, multiplied by the number of years until retirement.

You may decide to use only the SG contributions received by your employer in your calculation, or you may include voluntary contributions, such as salary sacrifice or after-tax contributions. If you are self-employed, you might decide to make personal concessional contributions and/or non-concessional contributions.

Investment earnings within your super accumulation account is determined by how your super is invested, or the investment option you have chosen. Most super funds have a variety of investment options for you to choose from, ranging from conservative (low risk/ low return) to aggressive (high risk/potentially high return).

If you do not choose how you would like your super invested, your super fund will choose for you. Personally, I consider this to be one of the largest mistakes made by Australians, particularly younger ones.

The investment return you choose will have an expected long-term return objective, which you can find out by reading the information documents provided by your super fund or the investment manager. Depending on the investment option chosen, your average long-term investment return expectations will often be between 1% p.a. (cash) and 10% p.a. (shares), depending on your comfort with risk.

Most super funds offer pre-mixed investment options, such as defensive, moderate, balanced, growth and aggressive, each with their own level of risk and expected returns.

If I were to calculate how much my super would be worth in 10-years’ time, I could use the following calculation (assuming a starting balance of $300,000; SG contributions on an $80,000 p.a. wage and a long-term average investment return of 6% p.a.):

Opening Balance$300,000$322,185$345,501$370,007$395,762$422,831$451,281$481,181$512,606$545,634
Employer SG Contributions$8,100$8,100$8,100$8,100$8,100$8,100$8,100$8,100$8,100$8,100
less: Contributions Tax (15%)$1,215$1,215$1,215$1,215$1,215$1,215$1,215$1,215$1,215$1,215
After-fee Earnings (6% p.a.)$18,000$19,331$20,730$22,200$23,746$25,370$27,077$28,871$30,70756$32,738
less: Earnings Tax (15%)$2,700$2,900$3,110$3,330$3,562$3,805$4,062$4,331$4,613$4,911
Closing Balance$322,185$345,501$370,007$395,762$422,831$451,281$481,181$512,606$545,634$580,346

This calculation can be completed using something like Microsoft Excel, or you may even choose to use this superannuation calculator.

Calculate How Long Your Super Will Last

The final step is to calculate how long your super will last in retirement. There are a number of ways to do this.

The factors that determine how long your super will last is based on the investment earnings within the account, fees and the amount withdrawn from your super each year in the form of income streams and/or lump sums.

Related: How Long Will My Super Last In Retirement?

For many people, the Centrelink Age Pension can provide supplementary income to assist in covering living expenses, reducing the amount of super you use each year and helping your super last longer. It is for this reason that a retirement calculator which includes Age Pension income in the calculations should be used, such as this one.

If you find your super runs out too soon, you may consider working longer, contributing more to super, or using one of these retirement planning strategies.

There you have it. These are the various ways that super is calculated in Australia – from contributions, to projected balances at retirement to the longevity of your super in retirement. How much super do you need and how long will your super last in retirement?

Hi, I hope you enjoyed reading this article.

If you want my team and I to help with your retirement planning, click here.

Thanks for stopping by - Chris

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