You don't have to be a mathematician to understand the benefits of compound interest.

To sum it up, compound interest is interest calculated on an initial sum of money, which includes all of the accumulated interest of previous periods.

Basically, you earn returns on your returns. And the best example of the benefits of compound interest can be found in your superannuation account.

As part of the ABC's personal finance project, we were asked to investigate the pros and cons of contributing to your super early.

Bryn Cotterill says as a young professional in her early 30s, she feels she is best placed to act on her super now.

"The trouble is I have competing demands with mortgage payments and so I'm simply not sure where the balance lies between catering for my current vs future needs," she said.

So we've had a look at what you should consider if you want to take advantage of compound interest.

Let's get up to speed on how your super works

Simply put, superannuation is a fund that you contribute to and that your employer contributes to with the idea of setting you up for retirement.

"It is the fund, the pot of money that you will draw on to support you after work, to support you in your old age, along with perhaps things like the pension," ASIC MoneySmart's Laura Higgins said.

That pot of money is then invested in different assets — including perhaps bank accounts, property or shares — which earn an income.

Next, that income is reinvested in your super account and is able to earn more income — commonly referred to as compounding.

Getting on top of your super early is REALLY important

Experts say the earlier you start contributing or getting on top of your super, the better off you'll be in the long run.

"The more you put in at an early age, the longer it's invested," Wealth Planning Partners financial adviser Amanda Cassar said.

"So investing for the long term will provide a better result than trying to pick the highs and lows [of the market].

"Time in the market is more important than trying to time the market."

But there are risks as well, especially with higher-growth investment options being riskier over the short term despite usually achieving higher returns over the long term.

The important point, experts say, is the earlier you're in, the longer you've got to recover your losses if you lose money.

To get more of an idea of maximising your super investment options, read our super guide here.

Keep across changes to the law

Currently, the super guarantee means your employer is required to pay 9.5 per cent compulsory super into your account.

But there were plans to increase this to 12 per cent by 2025, although the Productivity Commission last year urged the Government to conduct a review before increasing the superannuation guarantee rate.

In response, Treasurer Josh Frydenberg announced a sweeping review into the retirement income system last week, which will examine the age pension, compulsory super and voluntary savings.

On top of this, changes to the law from July 1 meant if you've got an inactive account with a low balance (which means you haven't contributed to your account or engaged with your fund in the past 16 months and it has a balance of less than $6,000), your super might be automatically transferred to the tax office.

Changes were also made so that super accounts with low balances are not eroded by insurance premiums and fees.

Adding $1k annually in your 20s could become $80k in retirement

Aspire Retire financial planner and co-founder Olivia Maragna says a few thousand invested in your 20s can turn into a lot of money by the time you retire.

"It's normally between 10 to 15 years to double your investment … if you go off 15 years that gives you a pretty good idea of how your investments could perform," she said.

Take a 25-year-old with a super balance of about $5,000 for example (this is not based on a real example, although the calculations have been made using the ASFA compound interest calculator).

If you began contributing $1,000 each year from 25 to 35 years old at an interest rate of 5 per cent each year, you would end up with more than $20,000.

Putting money into superannuation early will have a much bigger payoff than leaving it late. ( ASIC MoneySmart )

To give you a better idea of the benefit of compounding, you could compare the above strategy with someone who decided to start saving 10 years later at 35 years old.

Say they had the same deposit amount and interest but contributed $2,000 each year.

Even doubling their regular deposit amount, they'd still have less at the end of 10 years than the person who started earlier. You can compare the two in the graph above.

Ms Maragna says that's because by getting in early, the compound interest has time to keep accumulating.

"For example, $10,000 goes to $20,000 and to $80,000 by the time you get to 60," she said.

"So just from saving a little bit extra each week when they're in their 20s, that turns into $80,000 later on."

You should start to get an idea of what you should be saving

The key takeaway Ms Maragna says is that the longer you leave your super, the less time you'll have to grow it before you retire.

"If you leave it to five years before you retire you've got five years of growth on it," she said.

"If you're doing it at the age of 20, you've got 45 years of that sort of compounding and it's accelerated from that point of view."

But if you're wondering how much you should have saved, most experts agree there is no hard and fast rule on how much you should have by each age.

According to the ASFA, average superannuation balances at the time of retirement in 2016-17 (assumed at the time to be age 60 to 64) were $336,360 for men and $277,880 for women.

To give you more of an idea of what to have saved for your age group, the ASFA's consumer group, Super Guru, has a calculator to give you a benchmark of how much you should have saved for an individual in a comfortable retirement:

Age Super balance 15 to 19 years Unclear 20 to 24 years Between $5,000 and $17,000 25 to 29 years Between $24,000 and $54,000 30 to 34 years Between $61,000 and $93,000 35 to 39 years Between $102,000 and $143,000 40 to 44 years Between $154,000 and $195,000 45 to 49 years Between $207,000 and $257,000 50 to 54 years Between $271,00 and $330,000 55 to 59 years Between $345,000 and $415,000 60 to 64 years Between $430,000 and $503,000 65 to 69 years Around $523,000

So, should I be putting all my money into super?

Ms Higgins says for those of you asking yourselves this question, there "isn't just one answer that suits everyone".

"Superannuation will not always be the best place for people to put more money," Ms Higgins said.

"But for some people — and depending on where you are in your career and what else is happening in your financial life — it might be the right thing."

If you're a ways off retirement, experts say it's important to keep in mind that the money you lock away in superannuation usually can't be accessed until you stop working.

"Superannuation is just one part [of your financial strategy]," Ms Higgins said.

"You might also have other investments, you might also have been invested in property that makes up part of your retirement.

"So you need to look more broadly at what your retirement finances will be made up of."

This article contains general information only. It should not be relied on as financial advice. You should obtain specific, independent professional advice from a registered financial planner in relation to your particular circumstances and issues.

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