Most Australians accumulate superannuation directly from their employers. Because it seems primarily out of our hands, many of us don’t take the time to research precisely what our super funds offer, and how to make the most of them. Take the time to understand how choosing the right super fund can benefit you in the long run and ensure a financially rewarding retirement.
The right super fund can significantly impact your retirement
Superannuation forms the primary source of income for most retired Australians, so investing in the right fund is essential for a happy and secure retirement. Putting your money into the right super fund can be the difference between a comfortable retirement with the freedom to travel and pursue your interests or a post-career life with limited choices, perhaps reliant on outside sources for support. In 2016, the Sydney Morning Herald (SMH) reported that more Australians than ever before are working past the age of 70 because of fears they won’t have enough money saved up for retirement. We’re living longer, but that doesn’t mean we’re financially prepared for it. Government assistance is also lessening. The age at which we can access the Age Pension has changed. If you were born before July 1952, you’re eligible for the Age Pension from 65 years. If you’re born after that, then your Age Pension access could be limited until you reach 67 years of age. With less government support on offer, having the right super fund is essential.
Be wary of default funds
Suppose you don’t nominate a super fund when you start a new job. In that case, your employer will automatically pay your contribution into that default fund. As most of us will work for several organisations throughout our careers, it’s easy to see how our super sometimes ends up distributed across multiple funds. It’s better to be proactive and consolidate your super funds into one nominated fund, so you can use compound interest to grow your investment. Fortunately, the Australian Government has made it relatively easy for you to track down your super. The Australian Securities and Investments Commission (ASIC) outlines the steps you can take to track down your lost super. That’s not to say that default funds are bad but having control over your super means the best practice is always to nominate a fund when you start a new job. By doing so, you not only ensure your superannuation is easy to track, but you also know how the super fund will allocate your money.
Choosing the right Super fund
Finding the right super fund is like a happy marriage. You need to find a fund that benefits you over the long term and can deliver the kind of wealth and security that will put you in good stead when you retire. Here are some considerations for choosing the most appropriate super fund for your retirement:
Fund Management Fees
The fewer fees you pay, the better your return. And over the course of a lifetime, it’s essential to be aware that the fees you pay will eat away at your compound interest gains! Also, note that funds with a recent track record of high performance may increase their asset management fees as they grow more popular. This is why it is better to look at long term performance over at least five years and weigh it up against the fund’s fees.
This seems like a given, but it’s not uncommon for superannuation recipients to overlook this key metric. It’s easy to be swayed by short term benefits, compelling advertising, and cheap fees. Still, a strong history of stable performance should be priority number 1 for selecting your super fund.
You or your employer may be able to contribute more than the standard 9.5% superannuation to your fund. Doing so may provide you with certain benefits such as a government co-contribution. For example, if you earn under $51,021 per year (before tax) and make after-tax super contributions, you should be eligible to receive matching co-contributions from the government.
Part of your research into a super fund should look at what sort of services they offer, such as web portal access, reporting, or other complementary financial services. Some super funds even offer financial advice.
Markets can be volatile. See what kind of insurance the fund offers and how much it will cost you. Weigh up the benefits against the performance of the fund.
Plan over the long term
Like many financial investments, long term performance is a better indication of success than temporary swings and short-term negative returns. Solid performers with predictable growth patterns are what you are looking for. Aim for about five years’ worth of history. If there’s good growth there, you’re onto a winner. By the same token, top-performing funds over the past 12 months might not offer the best value for your money. Choosing a fund with an excellent short-term reputation might cause you to pay increased fees and is no indicator of future performance. Funds with gains over the long term should offer better opportunities for your super growth.
Things to Consider with a Self-Managed Super Fund
Self-Managed Super Funds (SMSFs) give you more freedom over where to invest your superannuation. This comes with many important benefits and risks to be aware of.
On the plus side, SMSFs can offer:
- Better choice of investment: Trustees in an SMSF can access shares, cash accounts, term deposits, high yield cash accounts, income investments, property, collectables and more.
- More flexibility: Trustees in an SMSF can adjust their contributions more freely.
- Better alignment with personal goals: Because SMSFs are managed by a small group of contributors, it is easy to align your own personal investment goals with those of the trust.
On the downside:
- Fees can be high: Particularly when the SMSF has only a single contributor. Consider adding several trustees to the SMSF to mitigate the expenses.
- More’ hands on’ means more effort and risk: Running your own SMSF will require more effort and forethought. Further, your SMSF financial advisor is probably going to seek premium remuneration for their work. Considering that the vast majority of investment professionals fail to beat the market, it’s worth comparing your fund manager’s returns against index fund returns (which many industry super funds invest in). You might just find that once you take into account all of the extra costs and risks, going with a super fund could be the better choice for you!
Talk to Your Employer
Employers may contribute to different funds or be bound by policies that directly affect your super over the long term. Know where you stand when it comes to superannuation, with both your fund and employer. Though it might seem like a long time away, it’s never too early to start planning for your future and retirement.
If you’re at that age where you should be building your retirement fund, but instead, you’re struggling with debt - you may need professional debt assistance to get your financial goals back on track. If that’s the case, get in touch with a Credit Counsellors debt advisor on 1300 003 328 for a free and confidential debt assessment. Your super is your future – make sure you’re starting from a solid financial foundation so you can enjoy your retirement.