We all know superannuation exists to fund our retirement someday, but few people take the time to research their options and maximise the benefits.
It can be overwhelming to think about and most people tend to choose a fund offered by their employer until they finally reach retirement age and perhaps realise they do not have as much cash saved up as they would like.
But there are ways to make your super fund work best for you — and the younger you start, the better.
Here is everything you need to know to get the most out of your nest egg.
How should a person choose their superannuation fund?
Curtin University tax clinic founder and director Annette Morgan told NCA NewsWire there were many factors to consider, such as insurance, fees, the variety of investment options, advice availability and online services.
“People can review the performances or comparisons of funds, such as fees etcetera, via checking online with the annual Canstar superannuation review,” she said.
Steps Financial director Antoinette Mullins told NCA NewsWire that while fees were important, the value for money was even more crucial.
Ms Mullins said it was worth paying fees for features you actually need.
“Different types of fees include an administration fee — sometimes these are a fixed dollar fee and/or a per cent of your account balance — but also the fee for managing the investment you’re in,” she said.
“Investment options that suit your needs and goals, plus comfort level and understanding is critical.”
Ms Mullins said people should also look out for insurance benefits offered through the fund.
“Super funds differ a lot on this, so ask based on your age, occupation, gender and even benefit amount that you need,” she said.
Other benefits like ease of management and online tools, and extra services or discounts on loans were also worth checking, she added.
Super Consumers Australia director Xavier O’Halloran told NCA NewsWire the key to building up retirement income was to choose a fund with strong long-term performance and competitive fees.
“The average fees for someone with a $50,000 balance are around one per cent,” he said.
“This is a good rule of thumb to figure out if you’re paying too much, though some high-performing funds have much lower fees than one per cent.”
Mr O’Halloran said the tax office also provided a great comparison tool online.
What is the best way to measure the performance of your superannuation fund?
Ms Mullins said consistent long-term performance was a good measure of the quality of any investment.
“Short-term market movements can throw this out, but it’s how a fund recovers and positions itself for the long haul, that will have the most affect on your money,” she said.
Ms Morgan said checking your superannuation fund’s performance against others online was useful.
“You should always keep an eye on your superannuation fund to ensure you are aware what is happening within your fund,” she said.
“But it should be noted that superannuation funds will fluctuate over time, going both up and down depending on market factors.
“Keeping an eye on fee increases or changes to the insurance components is always a must as well.”
Mr O’Halloran said superannuation was a long-term investment, so people should not worry about which funds performed the best last year.
“Seven years is generally a reasonable measure to judge performance – this is what the super fund comparison tool uses,” he said.
Is salary sacrificing a good idea to beef up your superannuation?
Ms Mullins said starting earlier in life — even if retirement was 40 years away — meant a person could benefit from compound interest.
“Like a snowball rolling down a hill, it gathers size and speed – your smaller contributions earlier in life can grow over time,” she said.
“The best advice I can give to young people at the start of their working career is to contribute a small amount – even just $50 per pay period or month.
“Do it before you miss spending it and each time you get a salary increase, add a little extra.”
Ms Morgan agreed that putting money towards superannuation was a good idea.
“But superannuation is locked away til we retire in our 60s, so you need to consider that when deciding on how much extra you might want to contribute to your superannuation fund,” she said.
“Life comes in cycles and at times we may have the extra money to contribute — mainly in younger years when there is no mortgage or kids to consider, and then again after the mortgage is paid and kids are more self-sufficient.
“The flexibility to contribute to super is great as you can decide yearly if you want to make some additional contributions depending on your circumstances.”
Ms Morgan noted the government allowed tax deductions for superannuation and offsets to encourage people to put funds towards their retirement.
“Salary sacrificing is whereby the contributions towards superannuation are paid from your pre-tax dollars and paid directly into the super fund by your employer,” she said.
“It should be noted this is treated as an employer contribution and taxed at 15 per cent in the super fund.
“You can also make voluntary contributions, which are not taxed, or lastly pay it from your own funds and a tax-deductible contribution.”
Mr O’Halloran said salary sacrificing could be a tax-effective way to build up retirement income, but it depended on people’s individual circumstances and goals.
“You need to think about the standard of living you’d like in retirement,” he said.
“Using tools like the Moneysmart retirement planner, you can figure out what kind of retirement income you’re on track for and whether you’ll need to make extra contributions to cover your costs.
“A lot of people don’t realise that between a mix of their savings, super and the age pension they may be close to reaching their targets already.”
How much money should a person have to retire?
The Association of Superannuation Funds of Australia releases a retirement standard that compares a comfortable and modest retirement lifestyle, and helps people understand what they can afford.
Ms Mullins said it was a good indicator of how much money a person needed, based on the life they want.
“If you want more choice in where you travel to, how often you eat out and what discretionary spending you can afford, then you need to be a self-funded retiree and cannot rely on what the age pension can provide,” she said.
Mr O’Halloran warned many people still had multiple superannuation accounts without realising it.
“This could see you end up with less retxjmtzywirement income through paying unnecessary fees,” he said.
“You can get on top of your super via MyGov to see all the super accounts and consolidate them in one place.”
