Strong families, build strong communities and strong communities build strong nations. Strong nations are built on the foundations of compounded savings, not excess consumption.

Welcome to Australia. From first settlement, migrants have come to Australia seeking opportunity, working hard, and saving; leaving a legacy for future generations.

Along that journey, Australian’s have always had to strike a balance between centralised and bureaucratic governance and freedoms for those doing the work, making the investments and taking the risks, to take ownership of the outcomes.

In an ideal world, everybody should have their own retirement savings; savings which are sufficient to support their lifestyle and living standard, cover all healthcare costs and leave a legacy. I say leave a legacy, because all the savers I know, have always lived within their means, it’s just not in their DNA to spend it all and ask for more.

With the current government inquiry into “Legislating the objective of superannuation”1 , there seems to be some gaps around things like: where the savings have come from, who they belong to, and what ordinary Australians can achieve with compounding returns.

To illustrate my point, I will use Australia’s Average Weekly Ordinary Time Earnings (AWOTE2).

  1. If you started your career as a 20 year old in 1972, earnt AWOTE3  your entire career, saved 10% of your income and were able to invest at a 10% rate of return, by the time you retired as a 70year old, in 2022, your savings would be worth $2.14 million. Not bad for a starting salary of $4,711.
  2. However, if the Government took a ‘modest’ 15% of the income you saved each year, a mere $31,985.30 over 50 years, your balance would drop by 15% ($320,000), to $1.82 million. (It’s as if you were saving 15% less)
  3. Taking it one step further, if the Government took 15% of the income you saved, plus 15% of your investment returns your balance would drop by 45% ($961,000), to $1.18 million. (The miracle of compound interest.)

For an Australian earning an average income, for 50 years, a 15% tax on their savings and their investments, will consume 45% of the sacrifices they have made (saving instead of spending) and the risks they have taken, and they will still have to navigate, what could potentially be, a 30 year retirement.

I don’t dispute the need for tax, but the current Government’s 2022-23 budget forecasts4  are that they will take $607billion this year (or 24.5% of GDP) and spend $644billion (that’s right, they are budgeting to run at a loss of $36billion). For everyone who saves, you know that there are choices and sacrifices you need to make. You don’t get to have every pet project. But you also know, in the long-run it’s worth it. You will have your financial security when the inevitable ‘crisis’ comes; the GFC, Covid or some other geo-political event.

Public services are critical to Australia’s long-term success. There is no disputing the value of: education, healthcare, law and order, border security, defence and a plethora of other taxpayer funded, government administered, services. The point of the illustration, is there is a genuine trade-off between a ‘modest’ tax increase, to fund current spending and the compounded value of those savings in decades to come. A tax on consumption, is a trade-off between what you consume today and what the government spends today. A tax on investment, to fund current government consumption, has a very real impact on Australia’s future.

During your lifetime, you will no doubt have many goals. They are likely to include: looking after yourself and your family, buying a home, paying all debts and being financially independent in your retirement. As a consequence, when the government changes the rules and lifts the taxes in one area, you will redirect your savings to another area.

Arguably, Australia’s current success, is in no small part, due to our willingness and ability to save and invest and no doubt, the current $3.3trillion super pool has funded a lot of investment and created a lot of jobs. The three most important things that will determine your retirement savings are:

  1. How much you save.
  2. The length of time you have been saving.
  3. The after-tax return on your savings.

How much you save, matters.


If your career started in 1994, and you earn an average income (AWOTE), only saving the superannuation guarantee amount, which you invested 100% into Australian shares5, less a 1% fee and 15% tax; your balance would have been around $27,000 in 2004, $120,000 in 2014 and $320,000 in 2022.


However, if you had increased your savings to 12% of your income; your balance would have been around $50,000 in 2004, $194,000 in 2014 and $486,000 in 2022.


But all is not lost, if you find yourself on path A and you want to be on path B before you retire, assuming the rules don’t change and your investments can average 8% after tax, you will need to save an additional $350 per week. This could be contributed to super, or invested into a bigger and better home, or maybe a negatively geared investment property or a fully franked share portfolio, but whichever way you decide to go, if you can save more, you will have more.

The length of time you’ve been saving, matters; (compulsory super has only been around for 30 years6). Have you ever heard the saying, you need money to make money, it’s true. If we take option A above, it took 10years to save $27,000, it took 20years to save $120,000 but ‘only’ 8yrs to grow from $120,000 to $320,000.

If I assume you stick to the strategy, of only saving the SGC (Super Guarantee Contribution) amount each year and your investments average 8% after tax (and the rules don’t change), then your $320,000 in 2022 will grow to $650,000 in 2032 and $1.6million in 2042. (The miracle of compounding returns).

In short, the SGC scheme is a 50 year plan and it is only once your investments start to generate more than you can save, that it really kicks into gear. If you started with zero, contributing 12% of your income, earning 8% after tax on your investments, it will take 20 years for your annual investment returns to outstrip your annual savings and believe it or not, it will take 40 years to get halfway. In that last decade, at 8%p.a. compound after tax, your savings will more than double, giving you the nest egg you need, to maintain your lifestyle and living standard and cover all healthcare costs during a 30 year retirement.

The net investment return, matters.

If you take option A above, but assume the funds were invested in cash7, instead of shares, your balance would have been around $24,000 in 2004, $78,000 in 2014 and $126,000 in 2022. What’s more if you continue with a 100% cash strategy, and let’s assume the rate of return on cash averages 4%, then in 2032 you will have around $270,000 and in 2042 you will have $522,000, less than 1/3rd of what you could have achieved by investing in productive assets, such as shares and property. Cash is important for liquidity, but it’s not great for wealth accumulation.

So, when you hear someone complaining about company profits and property prices, just know there is a connection between investment returns, profits and how much you will have in retirement.

I don’t dispute the need for rules, but some days, it is hard enough working out how to save, let alone where to invest. No wonder Australian’s find the relentless rule changing so ‘frustrating’.

For the cynic in me, the current ‘debate’ can be summed up by five key themes;

  1. Not taxing you, is costing the Government.
  2. You are only allowed to accumulate so much, before the cost to the Government is too high.
  3. The Government has some ‘nation building projects’ that you need to invest in.
  4. When you retire, the Government will control what you have access to and when.
  5. This is not yours to leave as a legacy.

The actual proposed objective for super is on pg.98 of the consultation paper; to “preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

Sounds okay, but when you read the report and it contains sentences like the following on pg. 109, “The focus on delivering an income makes clear that the purpose of superannuation is not for minimising tax on wealth accumulation or enabling retirees to leave tax-effective bequests.” You begin to wonder:

  • If it’s not for minimising tax on wealth accumulation, what is it? The marginal tax rate + medicare, for someone on the average income is 34.5%. To put this in perspective, for someone earning AWOTE from 1972 to 2022, saving 10% of their income and investing at a 10%p.a. rate of return: If there was 0% tax on savings and investment their balance in 2022 would be $2.14million. If there was a 15% tax on savings and investment their balance in 2022 would be $1.18million. If there was a 34.5% tax on savings and investment, (e.g. saving outside of super and paying the marginal tax rate) their balance in 2022 would be $540,000. In other words, if the Government only takes 15%, and you save for 50 years, you will no-longer qualify for the age pension, but if the Government takes 34.5% you will qualify for the age pension.
  • To suggest super enables a tax-effective bequest, is to ignore the fact it is the only asset in Australia that attracts a death tax. To be clear, if the only contributions that have been made to your super are employer contributions, and on your death, the beneficiary is not your spouse10, then the Government will take 15% of the balance. So, if you die with $1million in super, the government takes $150,000.
  • If the focus is on ‘delivering an income’, does that mean you are no longer free to use your savings as and when you like? What if you want to pay off your home loan, take a holiday, buy a car, help your children with a deposit for a house? Does the Government intend to stop ‘lump sum’ withdrawals?

Having assumed we couldn’t save responsibly and hence making super compulsory, they now assume we can’t spend responsibly. How did the average Australian ever survive without the government regulation?

The chart below captures three key messages;

  1. Compounding takes time to accelerate. The gap between the ‘15% Tax’ scenario and the ‘34.5% Tax’ scenario sits at around $75,000 after 30 years; material but not insurmountable. But after 50 years, the gap has exploded to $640,000 and is expanding at over $100,000 per year.
  2. The after-tax rate of return maters. To bridge the gap between 34.5% and 15% you have two choices, either save more (20% of your income for 50 years) or earn more on your investments (14.4% p.a. for 50 years). Arguably both options are virtually impossible. a. In of itself, a 50 year career is a very big assumption, it leaves no time for: retraining, upskilling, unemployment, health challenges etc. b. Saving 20% of your income for retirement will arguably impinge on your ability to look after yourself, your family, buy a home and many other worth while goals. and c. Earning 14.4% per annum, compound, for 50 years is almost unheard of.
  3. So while a zero tax rate on income and savings, sounds too good to be true, there is a tipping point somewhere between 15% tax (superannuation) and 34.5% tax (the marginal tax rate on average income) where it becomes virtually impossible for the average Australian to attain financial independence.

Australia’s superannuation system must work for the ‘average’ Australian. If it doesn’t, the burden on future Australian taxpayers will be too high to sustain current living standards. The government must strike a balance between their tax take today, what they spend today, and what future taxpayers will be able to afford.

Philosophically the ‘average’ Australian, should be able earn a sufficient income to look after themselves, their family, buy a home and be financially independent in their retirement and the tax system needs to respect and balance all of these goals.

Anyway, I’m sure the government will receive plenty of feedback on their inquiry (closing date for submissions 31 March 2023).

My job is to help clients navigate these changes, so if you would like to talk about your strategy, please call 07-3334 4856

Ken Howard CFA LLB BEcon

Authorised Representative 259290

Morgans Financial


  3. AWOTE was $4,711 in 1972, $15,912 in 1982, $30,539 in 1992, $45,073 in 2002, $70,158 in 2012 and $92,029 in 2022
  5. S&P ASX 200 Accumulation Index
  6. Which is why balances are still small, but they should double and double again in the next 20yrs, assuming they are invested in property and shares and the rules and tax rates don’t change.
  7. CMA $50,000 deposits
  9. Under the title ‘Deliver income’
  10. Or a tax financial dependent e.g. a child under the age of 18, which you don’t tend to have when you are 70.

More Information

Ken Howard is a Private Client Adviser at Morgans. Ken's passion is in supporting and educating clients so they can attain and sustain financial independence.

If you have any questions about your financial plan or your share portfolio, your strategy, investments or would just like to catch up, please do not hesitate to give me a call on 07 3334 4856.

General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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