For most Australians, superannuation represents their largest single investment after buying their own home. The more you know about your super and the more control you have over it, the greater your chance of living your retirement income goals. Here are some of our simple tips to boost your super and build wealth in preparation for retirement.
Get to know the benefits of superannuation:
Taking more interest in your superannuation is important given that 9.5% of your salary (increasing to 12%pa over time) is contributed into your superannuation via compulsory employer superannuation guarantee (SGC) payments each year.
Understanding how superannuation works will help you to make better decisions on how best to manage, invest and contribute to your superannuation in order to maximise wealth in preparation for your retirement. Superannuation is taxed at a concessional rate to reward you for locking away your savings and to encourage you to save more for the future. There can be advantages to the way your superannuation contributions are taxed and the income earned in the superannuation fund can also be favourably treated for tax purposes. There are some significant tax advantages too when it comes time to take money out of the fund.
Focus on what matters:
When it comes to your superannuation there three key factors that will impact your final balance.
1. The first factor is how your superannuation is invested.
Typically it will be invested in accordance with your risk profile which determines the amount of income producing assets (cash and fixed interest) and growth assets (shares and property) to invest in within the portfolio. The higher the allocation to income assets, typically the more defensive or conservative the portfolio. The higher the allocation to growth assets, typically the more risk required to generate the return. Understanding which mix is right for you will depend on your attitudes to risk and return, investment time frame and objectives.
2. The second is the long-term investment earnings (after taxes and fees), also referred to as the performance of your superannuation fund. Your superannuation balance will be accumulating and compounding over a long time frame and it’s important that you keep track over how it is performing over time. Whilst you shouldn’t be watching the balance daily, it is important that you and your financial adviser review the performance of the fund on a regular basis. Fees and taxes are important. Every superannuation fund deducts administration fees for running the fund and investment fees for investing the assets of the fund.
3. The third factor is how much and how regularly you contribute. If you’re employed then your employer is obligated to invest 9.5% of your salary into your superannuation each year. This required contribution amount will slowly be increasing to 12% pa over time but in reality even this amount isn’t likely to be enough for most retirees. Many people will need to put some extra money into superannuation in order to top up the balance and afford a more comfortable retirement. There are many ways you can contribute to superannuation and even a little amount contributed often will help to boost your retirement capital over time.
Check for lost super and consolidate multiple accounts:
If you’ve changed jobs or regularly moved house, you may have multiple superannuation or even lost superannuation accounts. Our checklist outlines the process for finding your lost super. If you have multiple superannuation accounts then you can often benefit from putting all your superannuation into a singleaccount. This will help to save costs by paying only one set of fees, reduce paperwork and make it easier to keep track of all your money. Before consolidating superannuation it pays to check whether termination fees apply and whether any insurance cover or other benefits will be lost. You should seek advice.