Asking for a Friend: How Do I Make the Most of My Super Fund?
I’m not sure about you, but when I think about superannuation I categorise it as a “later problem” that I can focus on pre-retirement—after all, shouldn’t I focus on buying a house, or injecting some cash directly into my savings first? But, after reading some wise words from financial experts over the last few months, it turns out that superannuation is something we should be paying far more attention to as young professionals. Because after all, the goal is to retire with a healthy bank balance. In fact, Head of Wealth at ING, Cathy Duncan, believes that it could be our greatest asset, “your super is an asset and for many young professionals is their most valuable asset. You might have more in your super than the value of your car, but many spend more time tending to their car than their super, because a car is more tangible. Unlike a car, super sets you up for your future. Taking control of your super now can set you up for the long run.”
So, to make the most of this valuable long-term asset, we asked Duncan to give us some basic training when it comes to making the most of our super funds. Whether you have a handful with a random amount of your pay sprawled across them, or, you’ve stuck with the one your first employer chose for you, below are some key tips growing your super.
What should we look for when choosing a superfund?
Don’t always assume the super fund your employer provides is going to be the right one for you. Some things to consider when selecting a super fund are:
- Does it offer competitive fees?
- What kind of investment options does it provide?: Does it give you the flexibility to manage the investment types yourself (if that's something you want) and does it have a good selection of investment options?
- Does it have a strong performance track record? How has the fund performed over time?
- Does it have insurance cover included and is that enough?
What are some other ways women can empower themselves further in retirement.
Women tend to live longer than men but face unique challenges when it comes to retirement savings. According to the Hilda 2017 survey, Australian women retire with an average super balance of $230,907. For men it’s about twice this amount.
Lower pay, or time out of the workforce to raise children, can make it challenging to build a reasonable amount of super. If you’re considering taking time off work to accommodate family commitments, think about setting aside some money to make non-concessional contributions whilst you’re off work or seek professional advice to determine whether salary sacrificing a bit more when you come back into the workforce is the right option for you. If you have a partner, they can make contributions on your behalf and they may be able to claim a tax offset on the contributions made to your fund.
What are the potential benefits and consequences of using your superannuation to buy your first home?
Under the First Home Super Saver Scheme, eligible first home buyers can make concessional and non-concessional contributions into your super which you’ll later be able to release (along with associated earnings) to put towards a first home. The maximum amount that you can release through the scheme is $30,000.
The benefit lies in making concessional contributions—before tax. These will be taxed at 15 percent once they reach your super account. So, for example, if you make a concessional contribution of $500, you’ll get taxed $75, meaning $425 hits your super fund. Had you decided to take this money as normal take home pay, you would have only got $350 in your pocket (depending on your marginal tax rate). So in other words you’re able to save more and faster if you save through the new scheme.
When you release the funds the ATO will withhold tax that will be calculated at either:
- your marginal tax rate less a 30 percent offset
- 17 percent if the Commissioner is unable to estimate your expected marginal rate.
How can we generate the most out of our super funds?
Firstly, think about consolidating your super: If you’ve had more than one job, it is possible you have more than one super account and this can be a waste of money. Fees can keep getting deducted from your accounts, even those you don’t have money going into. Think about choosing just one that works for you. But make sure you speak to a professional to ensure this is the right thing for you and you are not going to lose out on insurance cover or other benefits.
Secondly, consider things like fees, insurance and investment options to find the most suitable account. For instance, if you want greater control of where your super is invested, pick a fund with flexible investment options. You can also make more contributions: Give your super a little kick by making voluntary contributions. There are two different types of contributions you can make:
- Concessional contributions: Those made before tax, like employer and salary sacrifice contributions. You can ask your employer if they can redirect a portion of your pre-tax income to your super. Make sure you seek relevant financial advice before doing so to make sure this is the most appropriate option for you.
- Non-concessional contributions: These are payments you make from your after-tax salary or personal savings. The limit for most people under 75 is $100,000 each year. Your spouse can also make contributions for you, and you might be eligible for government co-contributions if you earn less than a certain amount in a financial year.
- Decide how you’ll invest your super: It’s easy to just tick a box on a super form and forget about it. If you want to be a bit more hands on, consider asking your super fund about investing in things that mean something to you. Being able to choose types of investments can help you create diversity in your super portfolio and reduce the concentration of risk.
- Set your retirement savings goal: Think about the life you want to lead in your retirement, and how you want to get there. How much super you will actually need and how can you get there. ING has a retirement calculator that allows you to enter your age, income and super balance to see your potential retirement income. If it’s not what you need, you can investigate salary sacrificing or making other contributions to boost it.