Superannuation is something many of us rarely think about until it’s too late. The superannuation jargon can be confusing, and managing your superannuation fund even more so. In fact, MLC’s Wealth Sentiment Survey of more than 2000 Australians found that 40 per cent of people don’t know how much they have saved in super, and almost 50 per cent of Australians do not consult a financial planner, or even have a plan in place for their financial future.
Another study by Sunsuper that surveyed 1000 adult workers found that 28 per cent of employees didn’t know or hadn’t thought about whether they would need to rely on the Government Aged Pension in retirement. The survey also found that 44 per cent of workers don’t fully understand, or feel om to of, their superannuation.
Both studies suggest Australians aren’t particularly keen on plannng for retrement, and would much rather on making the most of ‘right now’ and ‘live in the moment’. Add to those stats that women typically retire with less in their superannuation fund than men, but live for longer, and Australians are facing a frugal future if we don’t start taking control over our own finances as soon as possible.
We asked Mark O’Leary, of KRA Wealth Management and AMP financial adviser, for his advice on managing superannuation at every stage of life, and how to set yourself up for a successful retirement.
“Superannuation is likely to be one of the biggest assets we’ll ever own and it’s never too early to start thinking about it,” says Mark. “Research from AMP has revealed a huge disconnect between how much Australians believe they need to live out the retirement they want, and what they actually need. On average, for Australians to live out the retirement they aspire to from 65, their savings will last just five years. With the average life expectancy being 82.5 years old, that creates a super shortage of 12.5 years.”
Superannuation in your twenties
“Retirement may seem like a long way off for people in their twenties, but it’s amazing how quickly it creeps up on you. While the focus is often on financial goals around saving for a house, travel or investments, engagement with your super early on in your working life will pay dividends in the long term. It can also be an effective way to meet one of those significant immediate goals,” says Mark.
- The recent introduction of the First Home Super Saver Scheme (FHSSS), designed to help young Australians get onto the property ladder, means you can now access some of your superannuation early and use your funds towards a deposit on your first home. There are some rules and restrictions in place. However, for young people set on owning their own home, this can be a great way to get ahead and benefit from the schemes favourable tax incentives.
- Another practical step people in their twenties can take to get their super on track is consolidating any accounts they might have from various part time jobs over the years. As you go from job to job, it isn’t uncommon for young Australians to have multiple super accounts with different providers. Consolidating everything into the one account can save a lot on fees and may result in a better return on investment.
- When you're young, it might suit you to choose a 'growth' or a 'balanced' superannuation strategy as you have time to recover from any negative returns. If for whatever reason the investments don’t work so well, you have much more time to overcome any losses than if you were to leave it until your fifties. And if the investments pay off, you will see greater returns.
Superannuation in your thirties
“The lack of engagement with super often continues into our thirties, with mortgage and costs associated with raising a family often taking centre stage,” says Mark.
- It’s important to continually weigh up the potential benefits of topping up your super against other things you might do with your money. Depending on your situation, you might want to consider salary sacrifice options or voluntary contributions to boost your super balance. Not only will this help you save cash for retirement, it could also help reduce your overall tax bill. And, if you’re eligible, unlocking a government co-contribution can also provide an extra kick to the amount in your super fund.
- It’s also an idea to review your super account to make sure your investment type is right for you, for example, conservative vs aggressive. Many people will simply choose a default investment strategy when they first open a super account and never give it another thought. However, as we get older our financial situation can change significantly, so it’s important to review the strategy around how your money is being invested to maximise the returns.
- Finally, people in their thirties often switch to part-time work or may even stop working to raise a family. Look into spouse contribution options if you have a partner who is still working, as this can unlock tax advantages for the whole family.
Superannuation in your forties
“Your forties are when you might start to think more about retirement but still have a lot of life costs, such as a mortgage or university fees. As you move closer to the halfway mark of your working life, it’s time to start thinking about a more objective based retirement plan. This could involve how you see retired life panning out,” says Mark.
- Average earnings are also approaching a peak, so making extra payments where you can is often a good way to boost your savings. This can be done via salary sacrifice or voluntary payments.
- For people in their forties, it’s also a great time to review what insurance and beneficiary policies are in place for your superannuation should the unthinkable happen. There are different types of beneficiary options, from binding, non-lapsing binding, non-binding and no nomination. Each one has its own legal terms and conditions, so make sure you talk to your trustee to determine what one is best for you.
Superannuation in your fifties & sixties
“Once you reach your fifties and sixties retirement doesn’t seem all that far off. All of a sudden, you start to think more and more about life after work and the retirement lifestyle you want to have,” says Mark.
- This is often the time where people start to quantify retirement with how much they think they’ll need, taking into account the total value of their investments and assets. Fifty and sixty-somethings often also look to increase their contributions to give their nest egg a top up in their final working years. If you’ve been planning and saving for retirement from an early age, you may find that you can retire sooner than you had initially planned.
- On the flip side, like many people nearing retirement age, you mightn’t be looking to leave the workforce just yet. Maybe you want to save more money, or perhaps you enjoy the mental stimulation and interaction. Whatever the reason, an alternative option could be to have access to what’s called a transition to retirement (TTR) income stream. This could provide greater financial flexibility, as you can periodically withdraw money from your super while continuing to work full-time, part-time or casually. There are a few restrictions around how much you can withdraw and tax considerations to factor in, so it’s important to do your homework first if this is something you want to consider.
Superannuation in your Golden Years
“Once you’ve made the move to retirement, your superannuation focus switches from preparation to preservation. Now that you don’t have regular payments going into your account you need to get smart about making your savings last. You might still have cash coming in from a pension or various investment types, but setting up a budget and sticking to it is critical in making the most of your funds in your golden years,” says Mark.
Marks tip: The bottom line: it’s never too early to start thinking about your super. A financial adviser can help you to better understand your super and achieve your dream retirement.
All the advice in this story is general in nature and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
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