Episode 14

Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future

Have your Super set up – do yourself a favour!

  1. What will kill your retirement? Not looking at your super now.
  2. Would you trade 15 minutes now for $350,000 in 30 years?
  3. That is all this episode is, little things now for the future self – not hard, and your future self will thank you.
    • Tips on what you can do now with little effort or sacrifice to maximise your future

 

What is super?

  1. Most people think of superannuation as just something your employer pays into, which you can’t access until you turn 60
    • Even though your employer pays into super, that is your money! 9.50% on average
  2. Don’t care and why would you right? Out of sight, out of mind and decades away from becoming relevant.
  3. If you could log into your bank account and click a few buttons to save a few hundred dollars a year, would you?
  4. The real cost of super is opportunity cost – doing nothing now will hurt
    • Any problem ignored long enough will grow – until it is too late
    • Pay attention and make it work – don’t regret the future
    • One thing I hear clients say all the time is ‘I should have looked at this years ago’ – regret is worse than the effort

Real use of super

  1. Forced savings – YOLO safety net.
  2. It allows me to diversify my investments and secure my future. My businesses can fail, go broke but at least by the time I am 60 I will have enough in my account to sustain myself for the rest of my life.
  3. Tax effective investment account – if you are investing for the long term, why not use?
    • Same investment of 10% p.a.: Compounding returns of 8.5% p.a. vs 6.1% p.a.
    • $20,000 over 30 years = $231,000 vs $118,000 – or almost double the money

 

What are your options:

Super is a vehicle to invest funds for retirement – A car is a vehicle

  • You can get a Mazda, or Mercedes but the aim is to get you from point A to B!
  • Like cars there are different types of super accounts with different features

 

Retail 

  • A Master Trust is a superannuation fund in which a large number of members deposit their money.
    • The trustee of the Master Trust pools the money together and purchases interests in the underlying investments, typically managed funds.
    • The value of the investments of each member incorporates the fees, franking credits and some taxes from the underlying investments.

WRAP account

  • External super trustee but you have control over investment decisions
    • You get a cash account
    • Then you select third party investments – Managed funds, Direct Shares, LICs, ETFs

Industry

  • Industry super funds are multi-employer funds (employer associations and unions)
    • Investments – limited to around 10 multi-sector investment options (eg. Growth, Conservative, Balanced), limited insurance options

 

What to do to make sure you make the most out of it?

  1. Pay attention – get the right investments
    • Cars: You can have a Ferrari but if the driver (investments inside the account) is awful, the car may crash! Not getting to point B!
  2. Make sure your contributions are going in there
  3. Treat it like your own, because it is – If you think you don’t have any investments, well you do in your super
    • Managed funds are investments – just doesn’t look like it with industry funds

 

Strategies:

  1. Consolidate accounts
    • Like a lot of people, I had different employers
      • 4 super accounts v 1 account – Each costs $80, plus $300 in insurances ($380 total)
      • $1,500 p.a. : $20,000 in super = 8% costs – good luck for investments to beat this
  2. Check your costs – Some accounts are higher than overs (in the last Furious Friday ep)
    • Admin fees: Standard is about $78 which is good for lower balances
      • The platform I am with costs $175 p.a, but it’s worth it. Any managed fund I want, any direct shares (Australian or International).
    • Investment fees (MER/ICR) – these can be hidden
      • Recently industry funds went from very low to about 1% – Disclosure required
      • The higher the MER – the lower the net returns depending on investment strategy
      • Don’t get caught out.
  1. Insurances or not?
    • What is your situation like?
    • Do you have dependents and debts? Or are you paying for something you don’t need?
    • If you are studying still, with many super accounts you are probably over insured!
      • Don’t pay for things that you don’t need.
    • If you are a professional – Chances are you are paying too much for the cover
      • Standard Covers – Same premiums for all – Builders vs Accountant
      • Premiums – statistical likelihood for claims
  2. Investments – Depends on the account.
    Premix – Balanced for someone who has 30+ years might not be the best choice.

    • Higher levels of volatility can be good for regular contributions
    • Example: 15 mins for $300k
      • Earn $60k p.a. growing with 2.5% and starting super balance of $30,000
      • In 30 years: Super earning 6% = $707k, or 8% = $1,060k
      • Doesn’t have to be earnings but reduced insurance costs as well
  1. Contribute – Tax savings and asset gain
    1. Salary sacrifice when on a decent marginal tax rate – Earn $100k, each $100 you put in there is $60 less you have in pocket, but $85 more into your super account.
    2. Non-concessional – Lower MTR – Can get up to $500 from the government in government co-contributions (free money!)

 

What’s right for you?

  1. Type of account
    • Retail – Lots of options
    • Industry – low options, standard based on risk profiles
  2. Investment options
    • Long term growth
    • About to retire – protect your capital
  3. Boost your super
    • Cut costs or consolidate
    • Make effective contributions

Most important things – Pay attention

  • Don’t regret the future wishing you had consolidated your super or reduced your costs 20 years from now.
  • Doing the right things now means that your eventual retirement can be more financially secure!

 

Thanks for listening!

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