Get the most from your super

Changes to superannuation in last year’s budget may have reduced the amount of money going into your retirement account. Add that to low or even negative returns, and it’s more important than ever to make sure your super savings are working as hard as possible for you.

Understand Changes

The government has cut its co-contribution for low and middle-income earners this financial year. For every extra dollar you put into super, up to $1000 a year, the government will now put in a maximum $1 instead of $1.50. The government’s co-contribution starts to drop when your annual income gets above $30,000.

In a move that’ll hurt higher income earners, the government’s halved the amount of before-tax contributions you can make to super each year. From July 1 it falls from $100,000 to $50,000 for people over age 50, and drops from $50,000 to $25,000 for those of you under 50. This will really affect people that are salary sacrificing extra contributions from their pay, like those over 60 using the transition to retirement strategy, and the self employed.

Make extra contributions

Average retirement balances are around $140,000 for men and just $70,000 for women. If you want to retire on half your current salary you will need to contribute 12 per cent of your earnings every year of your working life. Many financial planners recommend you contribute as much as 15 per cent to ensure a comfortable retirement. That’s a big difference to the 9 per cent your boss is paying. It’s up to you to make up the difference.

Sure, co-contributions and before-tax deductions have been cut back this year... but they’re still pretty good. Take advantage of them if and while you can.

You can also make after-tax contributions directly to your superfund.

Take an interest

The reality is as companies reduce hours, freeze pay increases and stop paying bonuses a lot of Australians don’t have extra cash to contribute to super. Make up for it by taking an active interest in the thousands of dollars you have in retirement savings and get your money working for you.

Many super funds run seminars to explain what their funds are doing, how they are performing and current market conditions. Go along and listen. Read the business section of the paper to follow market moves and look at weekly “wealth” or “money” lift outs for expert opinion and information on how different superannuation options are performing.

Reassess your strategy

Don’t rely on investment choices you made when you entered your fund to set you up in retirement. As markets change, and you get older, you need to adjust your investment strategy. What are your goals? Are you being too passive or too aggressive?

The closer you get to retirement the less risk you should take. Instead of investing in growth funds look at balanced funds, which put some money in stocks and the rest in safer investments like property and fixed interest.

It’s much easier to focus on growth if you’re under 50. You’ve got time on your side to get back any losses. Generally, the younger you are the more risks you can afford to take.

It’s all about finding the right balance for you.

Add up fees

Super fees may seem small in percentage terms, but can have a huge impact on your retirement savings in the long run. Look at your statements and find out much your paying each year.

Super funds usually change an administration fee of around 1 to 1.5 per cent of your balance each year to cover their general expenses. They also charge an investment fee of up to one per cent or so for actually managing your money, the more complex your investments the higher the fee. The other area where they can get you is member account-keeping fees, which are often a few dollars a month. Also find out about one-offs like contribution, switching and exit or termination fees.

Add up how much you’re being charged each year. Compare that to other fund managers to check you’re getting a good deal.

If you have more than one superannuation account, roll them over. Multiple funds mean you’re paying multiple fees, which would be eating into your retirement savings. You may also be paying two or more lots of life insurance premiums, which are often automatically linked to super funds.

If you’ve lost track of any super funds you can search online through the ATO’s SuperSeeker.

Comments

+8 #2 2010-07-05 20:46

Koshie. My husband and i have been putting into our super now for some time but I feel scared that we will lose more of our hard earned income with the ups and down of the market. We are in mid 50s and don't plan retiring for another 8-10years yet and wonder if we should continue to do this or stop.

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