The Sexiest Money Topic- Part One (Must read for 18-45 year olds)
Here we are, finally at the moment where we get to spend a bit of time together on what some would say is the most “boring” part of your life. Some of you may not ever even look at this until the age of 50 years old, it is just not on your radar or priority, which is ok, but you should make it so!
The most important aspect of your financial life is your superannuation and retirement, and if not planned well, can leave you with tens of thousands, and in some cases, hundreds of thousands of dollars less for when you do retire.
Therefore, today I am going to try and simplify superannuation for you, so that you don’t get all perplexed and overwhelmed by the staggering amount of information that you need to know when it comes to your super.
Firstly, the most important aspect of superannuation that is a need to know would be the Superannuation Guarantee or SG for short.
To understand the SG, you need to know what superannuation is first. In all essence, a super fund is a fund that manages your money and invests it based on the return you are looking for and the risk appetite you have. It is simply a vehicle to help you save and achieve higher returns to set you up for retirement, which the government put in place due to the strain on the budget for the pension system.
The government also created the SG scheme, for this very reason, whereby as of this financial year, 10.5% of your before tax take home salary goes towards your superannuation.
In fact, that rate of SG will be going up 0.5% every financial year until it hits 12% in the 2025-26 FY. For an example, if you currently earn $60,000, you are actually earning $66,500 every year, whereby your employer is contributing $6,500 (10.5%) to your superannuation.
Hence, you should be checking your super account at least every six months to make sure that you have been getting your SG from your employer, and if you are a sole trader or self-employed, you should be setting aside some of your pay every week to go towards super, which can come with nice tax incentives. (I will go through tax incentives in part two of the series)
**If your employer has not been contributing to your superannuation, you are entitled to get that back from them, with interest as well. You can call the Australian Taxation Office, who will not only help you to get your super that you are entitled to, but will also calculate the returns that you would have got in the time that your employer had not paid super as well.
Secondly, you need to have some understanding of the different types of super funds/products.
The two main super funds would be an accumulation fund, which is the most common type of fund these days, and a defined benefit fund. The difference, one is simply where you accumulate funds over your working life which is invested to grow a lump sum to draw down from at retirement, and that is the accumulation fund.
The other, the defined benefit fund, which is generally only used in the public/corporate sector of employment, is a fund whereby a formula is used, based on your average salary over the last few years before you retire, the funds you and your employer put in and the number of years you worked for an employer. Most of these funds are closed off now, due to the success of accumulation funds.
Understanding that your fund is most likely an accumulation fund is quite important, if you are unsure, it is best to speak to your employer of super fund. If you do have an accumulation fund, your employer is most likely contributing to your super through the funds My Super product.
The My Super product for most super funds is a low cost, lower risk, diversified option, however as of late we have seen that some funds My Super option has been underperforming compared to their balanced/growth options. That is why knowing the options that your super fund has available for investment, as well as the returns your fund is getting is really important. Which leads us to the third and final thing your need to know… [1]
Thirdly, you need to decide on the fund that is right for you, and knowing what funds have performed best over the long term, whether they have low fees or high and potentially whether they are ethical when it comes to their investing.
The best way to do this is to seek financial advice from a trusted advisor, they will be able to work out your objectives and create a plan that will suit for your retirement or the investment mix that suits your circumstances. Your Super fund actually gives you two free planning sessions, one of those sessions is to allow you to create an investment mix that is right for you or to get your ready for retirement, and the other is for insurance within the fund. Just call your super fund to ask for these added extras.
Another way is to utilise the “YourSuper Comparison tool,” which has been made to compare your superfund to others that are potentially performing better over the short, medium and long term.
You can check out the “YourSuper Comparison tool” here. [2]
You can of course do your own research, however, based on all the products out there, it would take hours of research and trawling through length product disclosure statements. If you have the time to spend 10-30 hours doing that, go for it, but I know most people would opt for the two options above.
Now you are equipped to ride the super train, you have everything you need to at least decide on a fund and understand that superannuation can be made simple. Of course, as you get older, understanding the complexities of superannuation is more important when entering that pre-retirement phase between the age of 45-55 years old.
Therefore, in the next article, I will be explaining the tax incentives you can get out of super, the different ways you can contribute to your own super and most importantly how you can save on tax within superannuation!
Until next time,
Take Back Control
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[1] - https://moneysmart.gov.au/how-super-works/types-of-super-funds
[2]- https://www.ato.gov.au/Calculators-and-tools/YourSuper-comparison-tool/
Disclaimer:
The information on the Take Back Control Website is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
