If you're a young Aussie, you may be wondering what the deal is with investing in super.
Superannuation or "super" is the foundation of our entire country's retirement plans as the Government looks to reduce the burden on the pension system.
And while super can offer a number of great benefits, there are also enough drawbacks to make the average Aussie wary of investing in super.
So, is it worth investing in your super if you're a young Aussie worker?
Young Aussies can benefit from extra super
Superannuation is one of the simplest and most effective ways to boost your investment returns. Super accounts are tax-advantaged and contributions are taxed at just 15%. For context, if you earn over $18,200 per year, each dollar above that will be taxed at a minimum of 18 cents per dollar.
These tax advantages can mean big things for your after-tax ASX returns.
One of the big benefits of investing inside of super is that your return on investment (ROI) receives a boost for the exact same investment. That means those Telstra Corporation Ltd (ASX: TLS) shares could be performing even better for your retirement account.
Another huge benefit of investing in a large industry fund is access to investment opportunities you would otherwise never have.
For instance, your diversified holdings in a multi-billion-dollar fund such as AustralianSuper could give you access to commercial real estate, private debt and other investments. These illiquid investments aren't available to your average ASX investor and can provide good risk-adjusted returns.
… But there are drawbacks
For all its benefits, there are a few huge drawbacks to investing in super for young Aussies. Chiefly, liquidity and regulatory risks within the system.
The Aussie super asset pool is set to swell in coming decades, thanks largely to the mandated 9.5% Superannuation Guarantee. This form of forced savings also makes super an attractive target for any governments looking to improve the budget.
The age at which you can access super is already climbing, and who knows where it will be by the time young Aussie workers retire in 30–40 years.
Your super is also untouchable for decades, so you must account for the opportunity cost of locking that money away .
If you want to buy a house soon or want to retire early, additional super may not be ideal.
What's the best decision for investing?
The answer to this question will always come down to the individual and their circumstances. Super is a great way to boost your returns but who knows when you'll get to enjoy those gains.
If you're in a low income tax bracket, then the tax benefits may not outweigh the opportunity cost.
It's best to sit down and work out what's best for you before making a call on your financial future.
