There are simple ways to boost your tax-effective savings in super without adding large lump sums of money.
START SAVING EARLY AND USE THE POWER OF COMPOUNDING
Consider two people adding $5,000pa into the same investments and earning 8% pa. The person starting from 25 years old would grow their savings to $1.4m by age 65 but the one started at 45 years old would only have $250k by age 65.
The difference comes purely down the power of compound interest. The 25 year old has grown the capital by earning interest on their interest over 20 years longer than the 45 year.
Even a little bit extra saved from each pay packet can amount to a great deal over a working career.
COMBINE YOUR SUPER ACCOUNTS
Most Australians have more than one super account, which paying more than one set of fees. Fees eat at your super savings without any benefit to you, so make sure you’re paying as little in fees as possible and getting value for the fees you are paying.
Use the ATO’s SuperSeeker website to find out if you have any lost super accounts and consolidate them into one account with a low fee structure. However, be careful to also transfer your life insurance cover as most Australians are also very under-insured.
CHOOSE HOW YOUR MONEY IS INVESTED
Generally, a super fund invests your money into the default, ‘balanced” option, unless you tell them otherwise. For those who have time to ride out market rises and falls it’s usually a better idea to consider a higher growth option instead.
Whilst this option is generally more volatile – so you get bigger swings in value from year to year - the assets it invests in tend to generate better overall returns over the longer time frame of your working life.
PAY ATTENTION TO PERFORMANCE OVER 3 TO 5 YEAR TIME PERIODS
Long-term performance is crucial to making your money grow. If you don’t think a small change can make a difference consider someone with $50,000 adding $4,800 pa and earning 5%pa over the next 30 years – they end up with $535,000.
If that same person earned 6%pa instead they’d end up with $667,000 – an extra $130,000 for just 1% a year in better earnings.
However, also beware considering short-term performance and switching to last year’s best performer. Rather look to the 3 or 5 year performance tables for a more meaningful guide to who is a good money-manager.
ASK QUESTIONS AND GET ADVICE
Some super funds charge an adviser fee which means that you are already paying for the right to have someone help you to understand how your money is being invested and how it’s performing.
Saving for retirement doesn’t just mean putting money into your super fund; it’s also about assessing that fund’s performance and taking advantage of tax concessions to boost your savings over your working life.
So get active, because your super is your money to pay for your future.
We are here to help you get more active with your super – whether using your existing fund or getting far more control and engagement by setting up your own family super fund.
Please don’t hesitate to call our Partner – Wealth Consulting, Michael Rees-Evans CFP® on our office number at top right of this page or by email at email@example.com.
Important note: this information is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.