Super guide: for your 20s and 30s

The argument for contributing to super from as early an age as possible is the benefits of compound interest — the longer your money is invested, the greater it will grow.

If you were to invest $1000 a year for 40 years then you would have $161,924 in your super account at the end of that period, assuming seven percent earning and 15 percent earnings tax.

If, on the other hand, you delayed contributing for 20 years but chose to double the contribution to $2000 a year, then at the end of 20 years with the same assumptions, you would only end up with $77,531 in your account.

So how do you work it so you can enjoy the benefits of compounding but not tie up all your savings?

One of the first things you should do is work out how much you can afford to put into super over and above the nine percent of your income that your employer makes as superannuation guarantee (SG) contributions on your behalf.

In the first instance, check that your employer is indeed making the contributions for you.

It is estimated that you need 15 percent of your income to go into super in order to enjoy a comfortable lifestyle in retirement.

So where does this extra six percent come from?

Co-contribution

One of the key things you might consider, particularly in your 20s, is the government's co-contribution to superannuation. Under this scheme if you are earning $28,000 or less a year, then if you make a $1000 contribution, the Government will match this with a $1500 contribution. The government co-contribution then tapers off up until you earn $58,980 a year in 2007-08, when it cuts out completely.

Sue Merriman, head of technical at BT Financial Group, suggests that if you cannot afford to make the personal contribution yourself, you might have your parents or grandparents make the post-tax contribution for you and you will still qualify for a co-contribution.

Salary sacrifice

Salary sacrificing is where you contribute to super from your gross salary before tax. The argument is that you benefit from paying only 15 percent tax on your money going into super rather than your marginal tax rate. So if you salary sacrifice $1000 extra a year into super, it would give you $850 after tax to invest. If you make that contribution from your post-tax earnings, then, if you are on the top marginal tax rate, that $1000 may have already been whittled down to $550 before you've even started.

Of course, if you are in the throes of buying a house, or already have a mortgage, it may be better to pay that off faster rather than tie your money up in super where it can't be accessed until you are at least 55.

Take control

It's all very well having your nine percent SG, but is your money working hard enough for you? The difference between a six percent return and an eight percent return can be quite substantial when you are looking at 30 or 40 years. If you have not advised your employer of the type of investments you want, then your super contributions will automatically go into a balanced default option. Given you have 30 or 40 years before you retire, a more aggressive investment choice would not harm.

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