Australians had a combined $2.87 trillion in superannuation assets as at June 2019. Too often, however, we give too little thought to our superannuation.
Because we can't access our superannuation until we retire, it can seem like it is something for our future self to worry about. In fact, our superannuation is something for our future selves to enjoy. We will enjoy it even more if we put a little thought into it today.
Hack your investment strategy
Your super is like any other investment – it should be invested in a way that makes sense given your risk profile and stage in life. When you are younger, you can afford to take on a higher degree of risk as you have a longer period to ride out volatility in the market. Those nearing retirement will probably prefer a lower risk approach as they have less time to recover from a period of downward or sideways market returns.
Many people fail to make an active choice as to how their superannuation is invested, leaving their superannuation in their fund's default option. While the default option may be the right one for your preferences and life stage, chances are it is not. Choosing the right investment option (and updating it as appropriate) can be the difference between ending up with enough superannuation to retire on and not.
1. Hack your fund
Monitor the performance of your superannuation over time compared to other investment options offered by your fund. If yours performs poorly over time, it may be time to switch investment options or even superannuation funds. Look at the returns of the investment options of other superannuation funds on the market. Are they superior to those offered by your fund? Although past returns are no guarantee of future returns, if your superannuation fund consistently underperforms, don't be afraid to look at changing superannuation funds.
When considering switching funds, it is important to also consider fees and insurance coverage. Review the fees your superannuation fund charges and make an effort to understand the type of insurance coverage it provides you with.
2. Hack your contributions
Consider making additional contributions to your superannuation if you can. Contributions to super by employees from pre-tax income are effectively taxed at 15%. This compares to tax rates of 32.5% for those earning over $37,000. You can therefore make significant tax savings if you salary sacrifice some of your earnings into superannuation.
Making additional contributions means you will also make tax savings on the earnings of your contributions. Income earned on your super is taxed at 15% while capital gains receive a one third discount if assets are held for more than 12 months. The impact of your additional contributions and tax savings will compound over time to multiply your superannuation balance.
Foolish takeaway
With a little effort you can ensure you superannuation works as hard as you do. Investing a little time now can pay big dividends down the track, especially when it comes time to retire.
