Ben Nash has revealed the 1 per cent that could make all the difference in your retirement. \u00b7 Ben Nash <\/p>\n
If you ask most young Aussies<\/a> how they feel about superannuation<\/a>, you usually get the same response. That\u2019s it\u2019s confusing, a little boring, and something that you don\u2019t need to worry about until you\u2019re old.<\/p>\n Super<\/a> has a reputation problem. It feels a bit like a black box, and because the benefits are decades away, most people don\u2019t pay super much attention.<\/p>\n But the truth is that super doesn\u2019t suck. <\/p>\n In fact, it\u2019s one of the most powerful wealth building tools every Aussies has at their disposal – but only if you use it the right way.<\/p>\n RELATED<\/p>\n Small decisions now create a huge difference later.<\/p>\n At the most foundational level, superannuation is just an investment account with tax perks<\/a> and rules around access.<\/p>\n You and your employer put money in<\/a>, that money is invested, and it compounds over decades.<\/p>\n The real kicker is the tax treatment \u2014 all contributions and investment returns inside your super fund are taxed at a maximum rate of 15 per cent – which is far lower than most people\u2019s marginal tax rate<\/a>.<\/p>\n That tax efficiency is one reason super is such a powerful tool to build your investments and wealth.<\/p>\n The real magic happens when you combine tax savings with decades of compounding.<\/p>\n That\u2019s where the fund you choose makes a huge difference to your results.<\/p>\n Consider this example.<\/p>\n A 30-year-old today earning the Australian average full time income<\/a> of $95,000, who would be receiving around $11,400 each year into their super fund based only on the compulsory employer superannuation guarantee (SG) contributions.<\/p>\n After the 15 per cent super contributions<\/a> tax, that\u2019s $9,690 invested each year, or $807 each month.<\/p>\n In this scenario, these contributions grow until age 65 at a return of 8.33 per cent (the after tax equivalent of the long term return on the Australian sharemarket of 9.8 per cent).<\/p>\n In this case, the final balance at age 65 would be around $2 million.<\/p>\n But if the fund returns are just 1 per cent lower at 7.33 per cent, the balance at age 65 would be closer to $1.57 million.<\/p>\n This reflects a difference of $435,000 in your retirement savings \u2014 almost half a million dollars \u2014 from just one percentage point difference.<\/p>\n And it\u2019s worth noting that this is based only on your employer contributions, and not putting in a single dollar extra over your entire working career.<\/p>\n If you put extra money in, the difference gets even bigger.<\/p>\n The problem is that around 80 per cent of Australians<\/a> (the majority of people) stay in their employer\u2019s default super fund without ever checking where their money is going.<\/p>\n These \u2018set and forget\u2019 funds often invest into a mix of shares and property, but also include more exotic (and expensive) investments like infrastructure and private equity.<\/p>\n When it comes to investing, there are a lot of different ways to be right, but it\u2019s worth noting that complexity doesn\u2019t guarantee better performance.<\/p>\n In fact, the statistics show that basic index funds outperform all other investment types more than 80 per cent of the time over the long term.<\/p>\n For this reason alone, these options are definitely worth considering \u2014 as something that could deliver you that 1 per cent extra return over the long term.<\/p>\n If you\u2019re young with decades for compounding to do its work, ensure you choose investments that give you the best chance of consistent performance over the long term \u2014 this could be one of the single most important decisions you make about your future.<\/p>\n If you\u2019re young with a long time until retirement, and you have other financial goals like buying property, building up your personal investments, or saving to start a family or business, you\u2019re unlikely to want to tip all of your money into your super fund.<\/p>\n And there\u2019s absolutely nothing wrong with this, most of the time it makes total sense to do both.<\/p>\n But at the end of the day, your super fund has money in there right now, and is growing every year with the money coming in from your employer \u2014 so it\u2019s important you make sure this pot of money is working as hard as possible for you, not just your super company.<\/p>\n If you do nothing else with your super, it\u2019s critical you make sure you\u2019re in the right fund, with the right investment option, as early as possible.<\/p>\n This will allow your money to grow and compound at a solid, consistent rate over time, and deliver you serious benefits into the future.<\/p>\n What this means is that you need to choose a solid investment option that will grow the money inside your super fund.<\/p>\n This is normally the best place to start, before you start looking at the super fund itself.<\/p>\n Here you want to set your investment strategy, whether it\u2019s index fund investing, ethical investing, or whatever the case may be.<\/p>\n Ensure you\u2019re choosing an investment strategy that will set you up for long term success.<\/p>\n And given the stats mentioned above on index funds, consider having these as part of the mix.<\/p>\n Once you know what investment strategy you want to follow, you can then short list the super funds that will give you access to the investments you want, and rank them on price and features to make sure you\u2019re getting value, and not paying more for the same thing you can get cheaper elsewhere.<\/p>\n When you have solid investment options at a reasonable cost, your super is set to grow and deliver you the results you\u2019re looking for over the long term.<\/p>\n And the sooner you make these changes, the more time your money has to compound at higher rates.<\/p>\n Super isn\u2019t boring. It isn\u2019t irrelevant, and it doesn\u2019t suck.<\/p>\n It\u2019s one of the most powerful wealth building vehicles in the country \u2014 but only if you use it properly.<\/p>\n The difference between a decent fund and the right fund can be hundreds of thousands of dollars by retirement.<\/p>\n That\u2019s not pocket change – it\u2019s the difference between \u2018just getting by\u2019 and \u2018living comfortably\u2019.<\/p>\n Super might be locked away for now, but the choices you make today decide what your life will look like in the future.<\/p>\n Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth<\/a>. Ben\u2019s new book, Virgin Millionaire; the step-by-step guide to your first million and beyond is out now on Amazon<\/a> | Audiobook<\/a>.<\/p>\n