Do you really know about your superannuation and your retirement? Do you know how much you have in superannuation, how long it will last you, what fees you pay and what you will do in retirement?
There have been a few changes to superannuation with the current government you need to be aware of. Superannuation doesn’t have to be tricky and since it is an important part of your financial independence as you age, you should know how to maximize it.
Simple superannuation basics
When most people say ‘retirement age” what they often mean is preservation age, which is the age you can access your superannuation. Preservation age varies depending on when you were born but is between 55 and 65. With the current life expectancy of 82.10 years in Australia, that is 12 – 27 years you will need to support yourself.
How much the average Australian has and how much you need
The average male Australian has less than $200,000 in their superannuation fund and the average female has almost half that with less than $120,000.
This infographic from CareSuper based on figures from The Association of Superannuation Funds of Australia (ASFA) helps illustrate the gap.
If you have been living a $50,000 per year lifestyle and wish to continue that lifestyle into retirement, then you really only have a few years worth of retirement based on average superannuation accounts. How much you need is determined by your lifestyle.
Your employer is required to pay the equivalent of 9.5% of your income to your super. Check your employment contract for specifics. The average Australian income is around $75,000 a year. If we take out the first few years after university and count from ages 30 to 60, in that 30 years if you earn $75,000 a year, your employer will have contributed $208,125. This doesn’t take into account government super contributions tax, interest, any time off unemployed/with family/illness or account fees.
The Australian Government offers a co-contribution up to $500 for those earning under $48,000 per annum. This means if you are eligible and you contribute extra into your super, even $10 a week which equates to $520 a year you are personally contributing, the government will deposit up to $500 extra into your super account.
According to research by the Grattan Institute, Australians pay an average of one third of their superannuation in fees – one reason is we pay the highest super fees in the world, another is because we haven’t consolidated our superannuation accounts. Many of us have had multiple jobs by the time we are 30. Gone are the days of getting a job and sticking with that employer until you retire. According to the Australian Bureau of Statistics, over 50% of Australians have been employed with their current employer less than 5 years and 20% less than 12 months. If you start working at 15, something part time while at school and change jobs every 5 years, by the time you retire that is potentially 9 superannuation funds and you would be paying fees on all of them, unless you take the time to consolidate your accounts into one and nominate your chosen super fund when you start a new job.
Consolidating your accounts needn’t be difficult and you need to do it now. On May 31st, 2013 the ATO started collecting lost superannuation funds with under $2,000 in. Previously the limit was $200. Would you willingly give the ATO $2,000? If you wouldn’t then you should take the time to consolidate your superannuation accounts and check the ATO’s lost member register for your lost super.
Industry Super Funds
There are many different funds, it can be hard to know which are best. Typically industry super funds have lower fees and great knowledge about your industry, for example CareSuper, which has won Industry Fund of the Year for the second consecutive at the Smart Investor Blue Ribbon Awards.
There are various levels of risk and ways to invest your superannuation within your fund. You may have the ability to change this risk at any time. For example, you might feel safer with a low risk option such as cash, whereas your partner may prefer a higher risk option such as shares. Low risk often means low returns, but is safer. High risk often means higher returns, which can be great for your retirement, but as the risk is greater, it does mean there is more potential to lose money. As with all investments, do your research and invest at a level you are comfortable with.
How to get the most out of your superannuation
Hopefully the above has made superannuation clearer for you, so how do you get the most out of it?
Some insurance such as life insurance is available through your superannuation. Check what is, check the level of cover and stop paying double for insurance. If you were paying for life insurance separately, you could redirect that money to your superannuation account.
As mentioned above, this is a great way to grow your superannuation if you are eligible.
Another option to contribute more to your superannuation is to salary sacrifice some of your salary into your superannuation. This reduces your taxable income, helps grow your superannuation and as a result you may pay less tax but are better prepared for retirement.
Another tip mentioned above, but it is so important. Get all your superannuation together, stop paying excess fees and get a fund that works best for you.
- Watch your superannuation
Instead of being set and forget, be proactive about your finances. Check you balance regularly to see how it is performing and how close you are to your retirement goal.
- Pay yourself superannuation
Many sole traders do not pay themselves superannuation. It is not a requirement by law for them to, but it can leave you severely short when it’s time to retire.
One issue many face is being scammed. The most common scam for superannuation funds are phishing scams where they ask for personal details or require you to click on a link within an email. These scams allow the scammers to glean your information and gain access to your accounts, taking the money and leaving you with nothing. Never give out information or click on links in emails. Always check directly with your superannuation fund yourself.
It is much easier to save when you have a plan. Know how much you need to retire on, what you want to do in retirement and plan accordingly.
Superannuation doesn’t need to be complicated and it is a great way to support yourself when it comes to retiring. With the added benefits such as life insurance, it makes sense to get to know your superannuation better.
Do you know how much is in your superannuation account, how many accounts you have or how much you need for retirement?
What are your retirement plans?
This post contains factual information and my own opinion about super in general. It doesn’t take into account your situation. While I am not personally recommending CareSuper, information about superannuation can be obtained from their website caresuper.com.au and it’s always good to get your own advice about financial matters. CareSuper has paid a fee for me to post this blog about super.
Statistics and information referred to in this post were obtained through the ATO, Australian Bureau of Statistics, ASFA, The Grattan Institute and MoneySmart.