fbpx

The ‘Retirement Ready’ series: Superannuation

By Damian Gibson

Financial Adviser, Elevate Wealth Solutions

 

A COMMON concern among pre-retirees is not having enough money in super to retire comfortably.

Your final super balance when you retire is influenced by several factors along the journey.

Here we will delve into a few factors and explore what you can do to help increase your super balance.

 

Investments:

It is a common myth that super itself is an investment.

Super is in fact a legal structure that provides access to investment options, where your money is invested on your behalf.

One of the most important aspects of super is ensuring your money is invested in line with your risk profile.

Your risk profile is the breakdown of how much of your money is invested in growth assets, such as shares, property, infrastructure and how much is invested in defensive assets, such as cash, bonds and fixed income.

For example, an investor with a high-risk tolerance seeking a 10 per cent average return and an investment timeframe of 10 years would be suited to an investment with higher weighting to growth assets.

Most super funds generally provide several different investment options that range from conservative to high-growth options.

If you were to open a super account and did not choose your own investment, it is likely you will be invested within the funds default option (which might not align with your investment preferences or financial goals).

 

Fees:

Unfortunately, super fees are unavoidable. However, they can be reduced.

Reducing your super fees is one of the easiest ways to boost your balance.

Typically, super funds charge two main fees: admin fees (also member fees) for administration of your account, and investment fees for management of your investments.

Admin fees can be charged as a flat fee, percentage, or a mix.

Investment fees are commonly charged as a percentage.

Super fees vary significantly and are sometimes very hard to understand.

According to a 2019 Productivity Commission report, some super funds intentionally make it hard for members to understand fees by publishing inconsistent and unclear information.

This makes it difficult for members to know where they stand in comparison to alternative super products.

Although some super products offer low fees, unfortunately the nation’s superannuation industry is still entrenched with high fee charging super products.

Reviewing your super fees and comparing to alternative super providers might mean you can reduce your fees, resulting in a big difference to your balance upon retirement.

 

Contributions:

Contributing money to super is one of the most common and effective ways to boost your balance.

There are two types of contributions you can make: concession contributions (CC) and non-concessional contributions (NCC).

CC are made from pre-tax income and are taxed at 15 per cent when they enter your super account.

CC include your employer contributions, salary sacrifice and personal deductible contributions.

They are limited to $25,000 per year.

NCC are made from your after-tax income and are not taxed when they enter your super account.

NCC include any personal contributions that you do not claim as a tax deduction, spousal and government co-contributions.

These contributions are limited to $100,000 per year.

Making additional super contributions not only increases your balance but also provides additional benefits such as paying less tax and compound interest over time.

It is important to remember your super is not a ‘set and forget’ strategy.

Despite your age, reviewing these aspects of your superannuation can significantly impact your final super balance.

The world of superannuation can be quite confusing, so seeking professional financial advice is a great first step to better understand how your super account compares.

 

*The information contained in this article is general in nature and does not consider your personal situation.