4 THINGS YOU CAN DO TODAY TO IMPROVE YOUR SUPER - Without affecting your budget
If retirement feels a long way off, it can be difficult to give it the attention it deserves. Especially when you’ve got life to live and bills to pay.
Luckily, your employers are required to put away 9.5% of our pay into your Super on our behalf. So if you earn $50 000 a year, you will receive $4 750 in contributions to your Super. It’s your money – you just don’t get to spend it yet. Properly nurtured, this will go a long way to providing a reasonable retirement income. So how can you get the most out of it?
Here are four things you can do today that will dramatically improve your retirement lifestyle, without affecting how you spend now.
1. Find your lost Super
If you have changed jobs, moved house or changed your name, you could be one of the millions of Australians who has money sitting in a lost Super account. In fact there is over $18.2 billion in Super money sitting in over six million Lost and Unclaimed accounts held by the Tax Office.
You can find your Lost Super with time and patience. Start by visiting the ATO's Super Seeker Guide.
2. Round up all your Super and put it in one fund
Like most young Australians, chances are you’ve had a few jobs to help get through education, whether during the vacation or part time during terms. If so, its odds on that you have more than one Super Fund. In fact 3 out of 10 Australians with Superannuation have more than one Super account.
The more funds you have, the more fees you pay. Most funds have a fixed administration fee regardless of how big or small your balance is. Multiple accounts usually mean unnecessary fees eroding your retirement savings.
Consolidating your Super means transferring it to one fund, which can save heaps on fees.
3. Choose the right fund
Most Australians have the right to choose where their Super contributions go. There are hundreds of funds to choose from. So how to choose the right one?
It comes down to getting the right balance of fees, performance, features, investment options and insurance to meet your needs. Everyone is different – there is no one right answer.
Generally low fees are good. Higher fees generally get you features and options rather than better performance. Past performance is not a great guide to future performance, but some funds have maintained outperformance over lengthy periods. Don’t look too much at short term returns – look to see how the fund performed over a 5 to 10 year period. If you have poor health or a risky occupation, the right super fund can be the most cost effective source of insurance. In some cases the only source.
4. Invest it - the way that's right for you
A Super Fund is like a container for your Super savings. The return comes from how the Super Fund invests your savings. The biggest driver of returns (before fees) is the type of assets chosen. In other words, it matters more how much of your money is invested in shares than the amount allocated to (say) Telstra. This is called asset allocation.
Some assets (like shares, some property and some infrastructure) are capable of growing much faster than inflation but come with a greater risk of loss. This is a particularly important characteristic when you are investing for the very long term. These are called Growth Assets (Finance people aren’t particularly imaginative).
Other asset types (like cash and bonds) tend to produce low but steady returns with a low risk of losing money. These are referred to as Defensive Assets. Get your asset allocation right to get the return you need at a risk you are prepared to accept.
For long term investments like Super, mixing Defensive and Growth assets in the right proportion can deliver higher long term returns with less variability and risk.
Generally, if you target a higher return you need to accept a higher level of risk. If you are not prepared to take an appropriate level of investment risk, you may need to make greater contributions to deliver the same level of retirement income.
Sherpa Says: That’s it – your Super is sorted. Now you can get on with living the life you want with the money you have.
Once you’ve completed these four simple actions, you can sit back, relax and let time work its magic. When you’re a little older, your home loan is well on its way to being paid out and you’ve got your bills under control, then come back and look at making additional contributions.
Vince Scully | LifeSherpa
With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Vince founded the Calliva Group; a fund manager, product issuer, advisor and lender to Government and private clients. Vince is an advisor to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie bank’s infrastructure team.