If you want a comfortable retirement, then you will likely need a sizeable superannuation fund.
While everybody's needs are different, a $1 million superannuation fund is thought to be a good fit for most.
That's because having $1 million available in retirement means you could invest it in a group of ASX dividend shares that average 4% yields and earn $40,000 of passive income from dividends each year to fund your lifestyle.
But how could you build such a nest egg? Let's have a look at your options.
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Building a $1 million superannuation fund
How you get to $1 million will largely depend on when you start the process.
As with all investing, the sooner you start, the better. That's because of the way that compounding supercharges your returns. The longer you leave it to do its thing, the more you benefit.
For example, an investor with a $10,000 superannuation fund at the age of 30 could conceivably grow it to our target amount by the time they are 60 if they add $5,000 a year to their fund each year (based on a 10% per annum return).
And if you're living well within your means and have spare capital each month, you could consider making additional contributions to your super. Not only could this be a tax-efficient thing to do with your money, but it could accelerate your wealth building.
If we circle back to our previous example and adjust our annual contribution to $10,000 per year, you would have a $1 million superannuation fund by the time you're 53, all else being equal.
What about if you're older?
If you're in your 50s or 60s then you may need to make bigger contributions to your superannuation as you may not be able to leverage compounding as much as someone in their 20s to 40s.
Let's imagine you have just turned 55 and have $250,000 in your superannuation. To get that to $1 million, you will need to add $20,000 to your fund for 10 years and generate an average 10% per annum return.
What else could you do?
It's important to keep an eye on the performance of your superannuation fund.
While it may be unnecessary to switch funds if you have a year of underperformance, if you notice a trend of this happening, you might want to move your money to a new fund.
After all, it could make a very big difference over the long term.
For example, $100,000 compounding at 7% per annum would become $387,000 in 20 years.
Whereas $100,000 compounding at 10% over the same period would become $673,000 million. That's almost $300,000 more because of that 3% outperformance.
Final thoughts
Overall, it is entirely possible to build a $1 million superannuation fund. You just need to map out your path to that figure based on your age and capital.
