Sort Out Your Superannuation in Your 20’s
The earlier you can sort out super, the better. If you set yourself up with a healthy account now, your future superannuation balance is looking a lot brighter.
You also have a choice how you invest your superannuation! Keep reading to find out how…
Keep the good times rolling…
Choosing a fund
Choosing a fund is one of the biggest decisions you can make to do with your superannuation. Which fund, or funds, hold your savings can have a significant impact on how much money you have for retirement, so it’s a good idea to do some research with an advisor before deciding on a super fund.
You do have choice
Choice in superannuation means you have the right to decide into which fund your superannuation is paid. Each fund has different fees, investment options and benefits, and offers a different return on your money. Most people choose a fund that best suits their personal needs.
Super choice must be offered or access to choose fund recommended by your employer for your SG contributions. Your employer will be required to pay a penalty if this is not offered.
Some people, usually those who are covered by industrial agreements and members of certain defined benefit funds, who are not able to choose their super fund.
What if I don’t choose a fund?
Many super funds offer simple My Super accounts.
MySuper accounts are designed to be simple for people to understand and to help people compare funds more easily, based on a few important differences.
If you didn’t nominate your super fund to your employer and just went with the fund your employer chose for you, your future super contributions will automatically be paid into a MySuper account.
MySuper
MySuper is designed for fund members who are not involved with their super. It is a ‘one-size fits all’, and therefore may not be the best solution for everyone.
Things to understand are:
• What is the level of investment risk you want?
• What are the investment returns you want?
• What are the fees?
For people who want their superannuation to be more tailored to their needs, a non-MySuper account may be the best for them..
What does my employer have to do?
Your employer is required to give you a standard choice form, within 28 days of beginning a new job.
A youthful super account
Many young people will have a super balance.
If you have a full time, part-time or even casual job and you earn more than $450 in a calendar month your employer is required to make super contributions to a fund on your behalf at the rate of 9.5 per cent of your wages.
If you are aged less than 18, super contributions are only payable if you work more than 30 hours per week.
Multiple Super accounts
Multiple accounts can cost you dearly over time. Each account will typically have an administration charge. The more accounts you have, the more administration fees you will pay.
As well, with each account there could be associated insurance cover, with deduction of premiums of $200 or more per account.
Consolidate your super
If you have had more than one job, it is likely that you also have multiple super accounts, especially when you are happy to use your employer ’s time.
Transferring all super accounts to one account may help you save money and simplify super account management.
Making contributions
A little can go a long way. Contributing an extra $50 a month could add tens of thousands to your final retirement savings balance.
While it can often feel like you don’t have enough spare money to put some into your super account, investing even a small amount into your super now can make a big difference to your retirement.
To boost your super, you can make before-tax contributions, such as salary sacrifice, or after-tax contributions. You may also be able to top up your super with government co-contributions or via contributions from your spouse.
Choosing an investment option
• No two people's financial situation and investment requirements are the same.
• To cater for these different needs, most superannuation funds offer you a choice about how your superannuation money is invested.
• Funds offer a range of different investment portfolios you can choose from. You can also choose to spread your super money over multiple investment portfolios.
• One advantage of investment earnings in super is they are taxed differently to your other income.
The maximum tax rate on superannuation investment earnings is currently 15 per cent, compared to the marginal tax rate applied to your investment earnings and income outside superannuation, which could be up to 45 per cent.
Investment options
Most superannuation funds will offer a range of investment options for you to choose from. These will vary in their level of risk and the kinds of assets held within them.
You may see terms such as Growth Funds, Balanced Funds , Conservative Funds, and Cash. Also, investment options like Australian Equities, International Equities, Sustainable Shares, Property, and Fixed Interest.
Investment choice can have a big impact on your final retirement savings
Over a working lifetime, the same amount of money invested in different investment options can produce different results.
It’s important to get advice and understand the different options available to you and the potential impact it could have on your investment earning.
How much risk do I feel comfortable taking?
What type of return am I seeking for my money?
How long will I be investing for?
Your age is very important when it comes to making an investment choice.
How long you expect your money to remain invested, will have a significant impact on the investment mix that is most appropriate for you.
If you are young and have a long time until you will need to access your money, the short term ups and downs that can occur when investing in higher risk options such as shares may not be so important.
History has shown that over the long term, short term fluctuations tend to be outweighed by the higher returns from the 'riskier' types of assets.
If you will need access to your money soon, it may be more appropriate to protect it by investing in assets that are considered lower risk, even though this may result in lower returns over the medium to long term.
Another consideration is for people entering retirement who still have 20-30 years to plan for. Depending on your appetite for risk, it may still be appropriate to invest some or even most of your savings in 'growth' products for the longer term.
Sorting your super doesn’t have to be complicated. It’s an important step to take and shouldn’t be ignored due to overwhelm. Get in touch with us today if you have any questions! You can also watch my video below on a Youthful Financial Plan.