We all know we have this thing called superannuation. We also know we don't get it until retirement. I want to show you the most important factors of setting up a quality super fund for a quality lifestyle later in life.
Once you turn 60 and retire will have access to a massive pool of money that will need to look after you when you are no longer working.
While 60 may be decades away, it can still pay off BIG TIME if you consider these five things before you get there.
Seriously, there are hundreds of thousands of dollars at stake, and for only a little time and effort now, you can relax with MUCH MORE later in life.
Here is my list of five things to kick start your super and turn your hundreds or thousands into millions.
#1 – Know what your super fund is
When you start a new job, either casual part or full time, they give you the option to select your own super fund. Some organisations might make it mandatory to select their specific preferred fund.
In your earlier years, you may have overlooked this. If you waived your choice of fund at a old workplace, then you may have a few superannuation accounts open.
Just ask your current employer for details on where your super contributions are sent to. You can follow up directly with the fund, getting yourself online access or at least statements sent to you periodically.
#2 – Consolidation (aka roll your super into one account)
Multiple jobs may mean multiple super accounts.
Each fund gives you the option to merge or roll over all your live accounts into their fund through either a form or online form.
You can easily find this info on any super funds website.
What they will ask you for is permission to find all the super accounts you have. They'll put the money sitting in those into one account (they might call this “rolling over” or “consolidation”).
Pick the super fund you like the best in terms of fees and performance.
Doing this saves you any worry later on and means you have one account and a total understanding of your pool of money that is being kept for your retirement.
If you have done these first two points, then you are on the right track to taking control of your future.
Now let's go into more focus.
#3 – How it performs (a good rate of return)
Your super fund performs like other financial products. If the share market goes up, if interest rates go down or if property prices changes, these can all affect your account.
That's because superannuation funds invest in all these things on your behalf. All funds perform, but there are some exceptional funds that do it consistently.
Most fund websites will have a table of performance showing their investments of 1,3,5, or 10 years. It gives you a sign of how your money might have grown over those time periods. Check these out to understand what rate your super is growing at your fund.
A great independent site that tracks and compares all the Australian super funds is SuperRatings. This body hands out performance awards yearly and will tell you who is top dog in each various investment area.
#4 – The fees you pay (is it a low-cost super fund)
You might have seen some ads about low-cost super funds.
Super funds are like banks, and they charge you to hold their money.
There are varying fees that many funds use, but in most cases it is a fixed weekly or annual fee for having the account and then a percentage of your account balance to cover the costs of investing.
For example, $1.50 per week, then .20% of your account balance is charged each quarter. There should be a page titled Fees on all super funds' websites.
Many experts recommend industry super funds because of their low cost structure (as it runs them only to profit members) as opposed to retail funds (those run by banks and profit run business).
Basing a decision on fees is smart, as the amount you pay over decades can be significant. Cross reference this with performance figures of your fund though as more fees may get you better returns, or vice versa.
You should also be able to find the fees it has charged you in a super statement or log on online to check for this information.
#5 – What asset allocation do you have (where it's invested)
This one is the last point, and it is more advanced or for those who really want to affect their retirement savings.
Each fund has multiple options for you to pick from where your money goes. You can put it in shares (both local and overseas), fixed interest, property or other types of assets.
By default they should put your money in a growth option by default, which is the government regulations for those under 45 opening a super account. This is a great starter option as it has a mix of the assets above. So doing nothing here is fine as your should already be in a well-performing option.
For those who want more control of their own destiny, you can ask your super fund to put all your money in one asset allocation or specify the mix of assets you'd like to spread your money across. For example 100% Australian shares or 50% property 50% international shares.
See the performance tables on your fund's site to know how well each asset is performing. Maybe Australian shares have had a great 5 year period, growing 15% compared to fixed interest is consistently at 4% or so.
There are also some funds that have accounts that let you trade your super account money as cash on the stock exchange. A handy way to trade if you don't have the cash in your own bank account. Talk to your fund about this as there will be a few requirements before you can open an account like this (such as minimum account balance).
Still, if this seems a bit over your head. Here is a short video from MoneySmart that can help
Your superannuation will be yours, so spend the time maximizing it's results
So there we have the five tips I would suggest to anyone who wants to really beef up and take charge of their superannuation.
Money can get complicated, but Super is designed to be set and forget for most of your working life. Taking these five steps can get you 85% of the way there with a little upfront work and minimal ongoing management.