Superannuation is so often “out of sight – out of mind”.
It builds away slowly in the background but it’s not something we think about for months or even years.
But it’s a core part of our financial health, so it pays to check in every year.
Top 5 things to check
1. What is your balance?
Check how much you have and compare it to last year.
Our super money isn’t going to move in a straight line. It’s held in investments, which rise and fall with the market, but it is important to know where you are sitting in any one year. “Treat this as data,” Finder personal finance guru Sarah Megginson said.
“You shouldn’t necessarily be panicking or taking action based on that, you’re just noticing.”
2. Where are you invested?
You can choose how you want your money to grow – whether in high growth, balanced or conservative portfolios.
Where and how you invest might depend on where you are in life, Ms Megginson said.
Importantly, you have control over your investment profile.
“When you’re younger, you have more time ahead of you, so you can afford to, if you choose, to have your funds in a higher growth fund. That means higher returns, but also higher risk. As you get older, you might want to move them out of those riskier investments into something a bit more stable,” she said.
“The great thing is, you have a lot of control over your super. You can shift the percentages. You might be 45 and have 70 per cent in a higher risk growth fund, and 30 per cent in a really conservative fund … there are a range of different risk profiles you can choose from.”
3. What insurance do you have, and do you need it?
Your insurance needs will change over time, so it’s good to check what insurance policies you have in your super and whether you think you still need them.
The usual products include life, TPD and income insurance.
4. What fees are you paying?
You want to make sure you’re getting a good return for the fees you are paying.
“I get feedback from people who say, ‘I don’t even know what a good fee is meant to be,” Ms Megginson said.
“That’s where you can do a little bit of research and find out, are these fees reasonable, am I paying too much? Am I getting really good service, advice and support having my money in this particular fund? Or can I get better value elsewhere?
“The difference between even just 1 per cent per year in fees can be the difference of tens of thousands of dollars by retirement, or, depending how far you’ve got ahead of you, then six figures.”
5. Look to the future
Most super funds have a tool to forecast what your super is going to be by the time you retire based on your current circumstances.
“Those tools are really helpful, because it can help you connect to the future,” Ms Megginson said.
“If you see, ‘oh, I’m actually on track towards a million bucks here’. If you can actually see where you are going, it can help you to feel a bit more motivated about it all.”
Big mistakes to avoid
Have you consolidated all of your funds?
Have you consolidated all of your money into a single fund?
For a lot of people, this is the quickest and easiest thing you can do to save money and start growing your wealth.
That’s because we pay fees to professionals to manage our super money.
So if your money is spread out between different funds, you’re losing more money in fees, and that means less money for you in retirement.
Missing out on extra contributions
Every dollar matters and a lot of Aussies think you only get super from your employer.
But we can also add to our balances and bump it up on our own.
You can put in concessional contributions of up to $30,000 each year and claim these as a tax deduction.
You can also put in non concessional, or post tax contributions, from your own savings.
Alongside this, you can bump up balances through spousal contributions or government co-contributions.
Withdrawing or accessing super early
There will be extreme circumstances where drawing on your super money early might make sense, but the majority of experts agree that it is generally a mistake to pull out money before retirement.
That’s because when you withdraw money, you lose potential returns from the power of compounding, and that means a lower balance and more financially challenged retirement.
Can kids get on the super train?
Yes. Parents can set-up a super account for their children if they have entered the workforce and are earning an income, even in just part-time or casual roles.
And putting in even just very small amounts of money at such a young age can yield astonishing results.
Ms Megginson is the author of the upcoming book “How To Raise Rich Kids” and says she is living out the miracle of compounding with her 15-year-old daughter.
Together, the pair put in $19.25 a week into the youngster’s super account, with Ms Megginson first transferring her portion into her daughters’ bank account, before it is then moved into super.
“I did the numbers on it based on averages, an average return of 8 per cent per year,” she said.
“If we just did that for five years, from age 15 to 20, if we put in this money, and it worked out that over those five years, we would be contributing $5000 of our money, for her to have this, but with the government co-contributions and the return as it grows, she would have between $40,000 and $45,000 in extra wealth by the time she retires. It’s an incredible amount and it’s a way parents can make a real impact from just $20 a week.”
More than that, just making kids aware of super and its impact on their lives is critical, Ms Megginson said.
“Start having conversations with your kids about this stuff early,” she said.
“Super is complicated … I really wish I had known more. In your 20s, the idea of retiring at 65 is so far away, you don’t really engage with it much. But of course, that (your younger years) is the most powerful time. Even if you’re just putting in an extra $5 a week, that can make a huge difference as it compounds.”