Most people could have more in their superannuation if they made better decisions now.
Every working Australian needs a super strategy – here are some ideas:
- Advice Financial advice isn’t a guarantee that you’ll have more for retirement but it raises the likelihood of making good decisions. A good financial planner doesn’t just ensure your money is in the right investment options for your life stage and goals, they also find a way to put in more contributions and make tax-effective choices.
- Salary sacrifice Consider a salary sacrifice arrangement to top-up your super contributions and get more money working for you. If your employer pays extra contributions from pre-tax dollars straight into your super fund (up to your ‘cap’), you are only taxed at 15 per cent on the money, not the higher rate you’d pay if the funds were taken as income.
- Costs If you’re paying more than 1 per cent per year in fund management fees, you should ask why. There are super funds where you pay around 0.7 per cent management fee; so if you’re paying 1.7 per cent, you’re losing one per cent per year that you didn’t have to lose.
- Options Your weighting between defensive (cash, fixed interest), growth (equities, property) and balanced options should be calculated according to your risk profile, goals and life stage. Typically, young people shouldn’t be in cash, and those about to retire shouldn’t have all their money in equities. Work out where you should be in terms of risk, return and time.
- Change Avoid changing your options depending on fund performance: they’re historical rankings so you’re likely to buy into hot funds too late and withdraw from the underperformers too late. Invest in the market, not the fund.
- Insurance Paying for life insurance in your super fund is popular. But take a closer look: the premiums might be rising, eroding the cost advantage; your income protection insurance might give you less cover than a retail equivalent; and your death cover is possibly not indexed to inflation. Remember, you can create your own life policy with a retail insurer, and instruct your super fund to pay the premium – it’s called a ‘rollover’ and gives you more control.
- DIY Self managed superannuation funds (SMSFs) promise more control over assets and a chance to buy investment property. But you’ll also have an annual compliance burden with the ATO and professional fees to pay. If you want more control, consider a wrap account which allows you to actively manage shares, managed funds, EFTs, term deposits and index funds at a low management fee.
- Longevity If you’re a woman who retires at 65, you might have to fund another 25 years of living. So at a time when you want to revert to defensive cash investments, you should also leave some money in growth assets. How much is enough? Talk to an adviser and get it right.
Start thinking about a super strategy today. You may thank yourself in the years to come.