Superannuation is a fact of modern life: the government wants you to save some of your earnings for retirement, and it makes available very generous tax benefits to allow you to build a nest egg.
There’s an opportunity to do very well out of super.
Here are my top 10 tips.
- Have a goal: Get online and find a superannuation calculator and see how much you’ll need to save so you can live the way you want to in retirement.
- Be informed: Understand your options with industry, retail and self-managed funds. Investigate how the options within your fund invest in different asset classes to give you varied risks and returns.
- Know about compound: The compound effect means the interest on your capital creates more capital, which means you earn more interest. A regular contribution from your employer further increases this effect.
- Always top up: When you add top-ups to the employer’s super contribution, the compound effect increases and you have a powerful wealth-growing tool.
- Be advised: Even one hour spent with a qualified adviser is money well spent. If you’re starting a self-managed fund, you must have expert tax advice from an accountant or solicitor (SMSFs are regulated by the Tax Office).
- Spread risk: Most Australians are not well-served by being 100 per cent invested in cash or equities. Think about diversifying. This leaves you less exposed to a single economic force or event.
- Invest according to life stage: If you’re in your 20s, having all your balance in cash will not give you much growth over the years. And if you’re about to retire, being heavy in equities may expose you to too much volatility. Construct a portfolio that is life-stage appropriate, giving yourself a mix of assets that suits your plans and tax status.
- Cut costs: In superannuation, small amounts can make a big difference, so reducing costs boosts your super. The ‘MER’ quoted on each fund is the percentage of your balance paid annually to the fund manager. MERs vary from about 0.7% to 1.7%. On a balance of $100,000, that 1% difference means $1000 going to the manager, rather than into your savings. Also, be aware what funds charge you to lodge paperwork and alter investment options – these costs vary wildly.
- Lift returns: Cash deposits are safe and the first $250,000 is government-guaranteed. However, cash has low returns that inhibit the compound effect of your savings. Look at alternatives such as fixed-interest and bond-hybrid funds. Find where you can get better returns for low risk.
- Plan your estate: An important part of superannuation is providing for your family. Access cheap life insurance through your super fund, and remember to complete your binding nomination: you get to specify the beneficiaries of your super balance.