Super fee drag worked example: what a 0.5% fee difference costs over 30 years

In an illustrative example of a 35-year-old with $60,000 in super and about $700 a month going in, a fee that is 0.5 percentage points a year higher reduces the projected balance at 65 from about $1,065,000 to about $951,000 — a difference of roughly $114,000. A 1 point gap costs about $214,000. Fee drag grows over time because each year's fee is taken not only from your contributions but from all the earnings already built up, and the money taken out can no longer earn returns. The numbers are illustrative, not forecasts, but the pattern holds for any long-term balance.

This guide is part of the fund comparison checklist section. Use the fee drag projection to rerun it with your own numbers. General information only, not financial advice.

The assumptions

Input	Illustrative value	Why
Starting balance	$60,000	A mid-career balance
Monthly contributions reaching the fund	$700	Roughly 12% super guarantee on an $82,000 salary, less 15% contributions tax: $82,000 × 12% × 85% ÷ 12 ≈ $697
Years	30	Age 35 to 65
Return after fees and fund taxes, low-fee product	6.0% a year	A round illustrative figure, not a prediction
Same strategy, higher fees	5.75%, 5.5%, 5.0%	Fees 0.25, 0.5 and 1 point higher

Contributions are held constant, so the figures ignore wage growth, and they are in future dollars, not adjusted for inflation. Real returns vary every year and can be negative.

The results

Return after fees	After 10 years	After 20 years	After 30 years	Gap to 6.0% at 30 years
6.0%	$223,900	$522,000	$1,064,500	—
5.75% (0.25 point higher fees)	$219,700	$503,000	$1,005,800	$58,700
5.5% (0.5 point higher fees)	$215,500	$484,700	$950,800	$113,700
5.0% (1 point higher fees)	$207,500	$450,500	$850,600	$213,900

Notice how the gap accelerates. With a 0.5 point difference, the shortfall is about $8,400 after 10 years, $37,300 after 20 years and $113,700 after 30. Most of the damage happens in the later years, when the balance is large and each 0.5% is worth thousands of dollars a year.

The method, step by step

The projection compounds monthly:

Monthly rate = annual return ÷ 12. At 6%: 0.5% a month.
Each month: new balance = previous balance × (1 + monthly rate) + monthly contribution.
Repeat for 360 months.

You can check the first year by hand at 6%:

$60,000 grows by about 6.17% over 12 months of monthly compounding = about $63,700
Twelve contributions of $700 = $8,400, plus a little growth on them = about $8,630
Balance after one year: about $72,330

At 5.5% the same year ends at about $72,000. The difference after year one is only around $330 — small enough to ignore, which is exactly why fee drag is easy to overlook.

What 0.5% means in dollars each year

Another way to see it is the yearly dollar cost of the extra 0.5%:

Year 1, balance about $60,000: 0.5% ≈ $300
Around year 10, balance about $220,000: 0.5% ≈ $1,100
Around year 20, balance about $500,000: 0.5% ≈ $2,500
Around year 30, balance about $1 million: 0.5% ≈ $5,000

The fee is a percentage, so it grows with your balance. Over 30 years the extra fees themselves add up to tens of thousands of dollars, and the lost earnings on those fees make up the rest of the gap.

Small balances: flat fees bite harder

Fee drag is not only about percentages. Flat fees hurt small balances most. Illustrative example: a $5,000 inactive account charged $1.50 a week ($78 a year) plus 0.85% ($42.50), a total of about $120 a year, or 2.4%. Over five years at a 6% return before these fees, the account might grow to about $6,700 without fees but noticeably less with them — and if it also pays insurance premiums, it can shrink. The 3% small-balance fee cap limits some fees on balances under $6,000, but insurance premiums can still apply. Consolidating forgotten accounts usually stops this drain; see consolidating super through myGov.

Using the calculator for your own comparison

Find the total yearly fee percentage of each product for the option you would hold (see investment option fees compared). Convert flat fees to a percentage of your balance: weekly fee × 52 ÷ balance.
Choose one return assumption, such as 6%, for the cheaper product.
Subtract the fee gap to get the second return.
Run the fee drag projection twice and compare the results.
Repeat with a lower return, such as 4.5%, to see that the gap still exists in weaker markets.

When a higher fee could still be worth it

A higher-fee product can make sense if it gives you something you value more than the cost:

employer contributions above 12% that only go into that fund;
insurance cover you need and could not get elsewhere on similar terms;
a defined benefit or other feature that cannot be replaced;
an investment strategy that genuinely suits you better, compared on long-term net returns.

Weigh these against the dollar gap. The insurance inside super guide helps with the insurance side.

Frequently asked questions

Why use returns after fees rather than subtracting fees separately?

Super funds report returns after investment fees and fund taxes, so that is how you will compare them. Subtracting the fee gap from one return is a simple way to model the difference.

Does the example include insurance premiums?

No. Premiums reduce your balance too. If one product's premiums are much higher, add them to the comparison separately.

Is 6% a realistic return?

It is a round illustrative figure. Actual returns depend on markets and your investment option, and some years are negative. Use a range of assumptions.

Can fee drag be undone later?

Not fully. Lost earnings from early years cannot be recovered, which is why it pays to check fees early in your working life.

Official sources

Moneysmart — superannuation calculator and fees information
ATO — YourSuper — fees and net returns for MySuper products
APRA — performance test and fund statistics
ASIC — fee disclosure in super PDSs