Superannuation or ‘super’ is money put aside during employment to fund retirement.
This money is put into your nominated Super Fund and invested on your behalf with the aim of growing your nest egg.
If you are over the age of 18 and earn more than $450 weekly, your employer typically must contribute 9.5% of your wage into your chosen super fund. This is known as the Super Guarantee.
You may also choose to top up your super with your own money by making voluntary contributions. These contributions can be salary sacrificed (made before tax), or post-tax.
Building a nest egg for retirement throughout your retirement is vital. The Australian Government has made this more achievable with superannuation.
Super is significant as it allows people to fund their retirement without relying solely on the modest age pension. If you understand and take control of your super from a young age, you gain the potential to live a comfortable retirement thanks to the power of compound interest.
Super funds
Super funds hold your money and invest it on your behalf for a small fee. There are many different types of super funds including:
- Industry Funds
- Retail Funds
- Self Managed Super Funds (SMSF).
Industry Funds are not-for-profit funds and operate with their members in mind. Meanwhile, retail funds are administered by financial institutions or banks, and aim to generate corporate profits through commissions.
Fees range from fund to fund, so it is important to ‘shop around’ when selecting a fund. Industry Funds generally charge lower fees than retail funds, who seek to generate corporate profits through commissions.
Portfolio Options
You can choose where your money goes (to an extent) by selecting an appropriate portfolio. Each super fund has a wide range of pre-selected investment options.
Portfolios can include:
- Conservative (low-risk)
- Moderate (medium risk)
- Growth (high risk)
Each of these offer different investment risks and estimated returns. A ‘risk’ here is the chance of losing money.
If a growth portfolio is selected, money is invested in more volatile areas like property and shares. Conservative portfolios tend to choose ‘safer’ investment options like cash or government bonds.
Choosing the right super portfolio is important. While having your super invested in the volatile property market may provide more long-term returns, it also comes with more risk.
If you’re fifty years away from retirement, growth options are great as you have time on your side to tolerate more risk and potentially gain in the long-term.
Voluntary Contributions
Relying solely on employer contributions to retire may not cut it, especially if you want to live a comfortable retirement.
This is especially true for women, who have an average of 47% less super than men, according to Women in Super.
By making voluntary super contributions, you can grow your super exponentially.
Takeaway
If you’re young, it’s probably not worth stressing about Super yet. Just remember: when it comes to super, more is better.
Super is complex, these are only the basics. To learn more, visit ASIC’s MoneySmart or the First State Super blog.
In the meantime, here are some actions you can take to make sure your super is on track:
- Play around with Industry Super’s Retirement Calculator
- Consider making voluntary contributions to boost your super
- Make sure your fund is charging reasonable fees
- Look into switching portfolio options to maximise growth
- Make sure your employer is paying your super (!)
- Check your super balance every six months
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