What To Do With Super In Your 20s
Go for growth in your 20s
If you have 40 or so years until retirement, low fees can make a huge difference.
'In your 20s you are not normally focused on putting money into super for retirement all those years away," says Frances Easton, executive director at Alman Partners. 'However, a decision you make now could make the difference of you retiring early or working until you are 80. Considering your super is going to be invested for around 40 years before you get your hands on it, a difference of 1% or 2% in long-term returns can make a massive difference."
The advice from the experts is that you should take on more risk and look at growth options as time is on your side.
Take An Interest
'It's your hard-earned money – take an interest in it now," says Claire Mackay, the head of advice at Quantum Financial. 'Pick a super fund that works for you, be mindful of the fund's fees and investment options." Don't just let your employer choose for you.
Think About Saving For A Deposit
Super is definitely important but you should consider getting onto the property ladder first. 'Balance locking away savings in super versus saving for a home deposit carefully," says Chris Smith, founder of VISIS Private Wealth. 'However, don't leave a contribution strategy too late because as you get to a substantial capital value your opportunities begin to increase."
It's important to keep an eye on your fund's fees. 'You should be looking for fees of 1% or less," says Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney. You might be surprised at the effect fees can have on your balance at retirement. Let's say you're 25, earning $50,000 a year and have $20,000 in super and are paying 2%pa in fees. At age 65 you'll have $195,257. By switching to a lower-cost fund you would have $39,611 more at 65.
Maintain One Account
Avoid setting up new super accounts when changing jobs, or if you do set up a new fund transfer your existing balance to the new one. 'Keeping your super in one place can make a significant difference to your balance at retirement due to the benefits of compounding," says Philpot. Not only will you pay only one set of fees, there are other advantages, such as a reduction in paperwork, and it also makes it easier to keep track of your super.
Don't Forget It When You Move
In your 20s it's common to move around from one house to another, or maybe you'll move to another state, or work overseas for a year or two. Just make sure you keep your fund informed of your whereabouts so your super doesn't become inadvertently 'lost". There are a lot of organisations you need to notify when you move but your super fund should be near the top of the list.
Get The Government Top-Up
Give your super a boost by taking advantage of the government co-contribution scheme. For the 2017-18 financial year, if you earn less than $36,813 and make an after-tax contribution to super of $1000 the government will top that up with $500. You'll get a part payment if you earn between $36,813 and $51,813.
Pay Attention To Insurance
Your super fund will automatically give you life and total and permanent disability (TPD) insurance when you join. The premiums come out of your super account, so will lower your balance over time. This might not be a problem but if you're young and single with no dependants you'll need to think about whether you really need the amount of insurance the super fund has nominated for you. If not, consider reducing it – just don't forget to increase it if your circumstances change.
Learn as much as you can about investing. Read books, sign up to newsletters and consider completing a free course at asx.com.au.
For a range of information on what to do with your super in your 30s, 40s, 50-65 tips, checklists and links to SuperGuru calculators, visit www.superboosterday.com.au before 15 September 2017 and follow the three-step guide to make a pledge to boost your super.
Tips from Money Magazine
Super Booster Day
Fewer than five per cent of Australians aged under 45 are currently contributing extra to their super. That coupled with a shortfall of $25,000 a year for couples and $20,000 a year for singles between the full Age Pension and what it costs to have a -comfortable' lifestyle in retirement, means Australians need to act now and start boosting their super.
According to ASFA's Retirement Standard, to have a comfortable lifestyle, single people need $545,000 in retirement savings and couples need $640,000. At this time, fewer than 20 per cent of single people and 30 per cent of couples aged over 65 are able to achieve this at retirement. Currently, the average super balance at retirement is $292,500 for men and $138,150 for women – a big gap from the current ASFA 'comfortable' level.
This is why Money magazine and ASFA have once again joined forces to bring back the Super Booster Day campaign, to highlight the long-term benefits of making additional contributions to super.
Money magazine editor Effie Zahos said, 'I've always been a strong supporter of topping up your super and I encourage all Australians to take advantage of the tax benefits it has to offer." 'You can enjoy tax savings if you top up your super using your pre-tax income. These contributions are generally taxed in the super fund at a maximum rate of 15 per cent. In most cases, this tax rate is less than the marginal tax rate. If you can't make regular payments, a one-off after-tax contribution can help you supercharge your wealth," she said.
From 1 July, you will generally be able to claim a tax deduction for a personal contribution to super without needing to set up a salary sacrifice arrangement with your employer. ASFA CEO Dr Martin Fahy said Australians should invest in their super to reap the rewards of the magic of compound interest.
'It's particularly important for young people and women to engage early with super," he said. 'It's an ideal way to build wealth and even small amounts can make a big difference in the long term."
If you're 40, have $50,000 in super, earn $70,000 a year and only rely on the Superannuation Guarantee, by the time you're 67 you'll have $388,000 in super.* That's around $150,000 less than you need to lead a comfortable lifestyle.
So to pay yourself forward and for a range of information, tips, checklists and links to SuperGuru calculators, visit www.superboosterday.com.au before 15 September 2017 and follow the three-step guide to make a pledge.
There are also 5 x $1000 prizes up for grabs. By pledging, you can go in the running to win $1000 for your super – simply tell us in 25 words or less what your dream retirement looks like.
Super Booster Day is supported by: CBUS, ING Direct, QSuper, Sunsuper and UniSuper Join other Australians and make your pledge to 'Pay yourself forward' by Friday 15 September 17, so that you can have the lifestyle you want in the future. www.superboosterday.com.au