For something that is so crucial to our long term wealth and well-being superannuation is something which seems to be only ever discussed by arguing politicians, or superannuation fund ads on TV. The understanding of what it is and what you can actually control to tip the scales in your favour, is often missed or even worse misrepresented. It’s no wonder so many people I come across have such wide and varying opinions on something which is held up as being almost mysterious or “someone else’s money”. It’s my hope that through this series of blog posts to help make super easier to understand.
An analogy that I like to use when it comes to ways to improve your superannuation is to liken it to a car and asking 3 simple questions. Is the hand brake on? What gear are we driving in? How much fuel is in the tank?
Is the handbrake on?
By this I mean what fees are coming out of your superannuation account and how much is it costing. Having high fees slows the growth of your superannuation, just as driving with the handbrake on. Sure you can do it, but you’re not getting to your destination as quickly as possible. Things like administration fees, investment fees, contribution fees, indirect fees, insurance premiums and advice fees. Now don’t get me wrong, fees are not inherently bad, these are just the cost of doing business, but you don’t want to be paying unreasonable amounts. I think the first step is simply being aware of what is coming out of your account, and asking yourself in the space of advice fees and insurance premiums, “Am I getting value for this?” or in the space of product fees such admin fees or investment fees, “Can I do better?”.
What gear are we driving in?
What this means is looking at how is the money is invested. Just as a car has different gears that allows you to travel at higher speeds, superannuation funds have investment choices that can determine the speed that your superannuation can grow at. Certain companies would have you believe that they are able to invest your money better than what the next one can do. But for me, it comes down to asset classes and how on average they perform. Some asset classes, just by their nature outperform others. For example Australian shares have performed better over the long term than fixed interest, so if I was wanting greater returns over the long term it would make sense to have more exposure to that type of asset over the fixed interest. However,like a car travelling at high speeds, there comes a risk, and that’s in the form of volatility. Most people have heard of how stock markets go up and down through the media, this is volatility in action. Values can change rapidly, but be patient and trust the averages. Every up, has it’s down and every down has it’s up.
How much fuel is in the tank?
For this I mean, making sure that we are consistently topping up the superannuation with more money in the form of contributions. Just as if we were on a long road trip we’d need to keep topping up the tank with fuel, so do we need to put money aside to put into superannuation if we want it to last the distance in retirement. Most employees receive 9.5% of their salary in the form of a contribution into superannuation. The big question is if over the course of your working life is if this is enough. If you’re self-employed, there’s nothing forcing you to make contributions, so you may not even be putting aside any money let alone 9.5%. Regular payments to your superannuation, above all else will lead to a healthy balance when the time comes to access your superannuation.
These are the basics of giving your superannuation the equivalent of a car service. So long as you’re doing the fundamentals right, you’re going to be ahead of the pack and the future version of you will be grateful for taking the right steps earlier, rather than later.
