It can be all too tempting to ignore your superannuation. After all, you can't access it until retirement. But if you take the time to optimise your superannuation strategy early, you will reap the rewards when it comes time to cash in.
Here we look at 2 easy ways to maximise your superannuation.
1. Choose a suitable investment strategy
Too many of us forget to update our investment options with our superannuation fund, leaving our money in the default option. In order to maximise your superannuation, you should choose an option that suits your stage of life. Your choice of superannuation option can have a major impact on how much money you end up retiring with.
While you are young, you can typically afford to take on greater levels of risk – if the market falters, there will be plenty of time to allow it to bounce back. For those nearing retirement, a more conservative strategy may be appropriate as there is less time to make up for capital losses. This doesn't mean, however, that your superannuation should be invested in bank deposits – doing so leaves you at risk of missing out on returns and running out of money.
Work out how many years you have until retirement and therefore, how much risk you can afford to take on. By taking on greater risk, your chance of seeing greater returns is increased which will hopefully leave you with more to retire on. As the number of years to retirement decreases, you can adjust your risk accordingly.
Look into the investment options your superannuation fund offers – most funds offer a range of options from conservative to more aggressive. You may even be able to choose individual fund managers and allocate proportions of your superannuation between them. Look into your available options and allocate your superannuation according to the appropriate level of risk.
2. Consider switching funds
Many of us are guilty of going with the default fund offered by our employer instead of doing our research and choosing the best fund for us. Look at how your superannuation fund is performing compared to others. Compare the returns on your investment option to those of similar options offered by other funds. If your fund consistently performs poorly, it may be time to switch it up.
This could mean simply changing investment options within your superannuation fund, or it might mean changing funds entirely. You might also need to change funds if your fund doesn't offer the investment options you want.
Remember though, performance isn't everything – there are also fees and insurance to consider. Check out the insurance cover you get under your existing fund and compare it to the cover you would get under a new fund – this will avoid any nasty surprises if something goes wrong.
Keep an eye on fees too. Fees eat into your investment returns, ultimately leaving you with less to retire on. Fees can vary greatly between funds, so make sure you understand the fee structure of your current fund and of any fund you are looking to switch to. Over your lifetime, a small increase in fees can lead to a large reduction in returns.
Foolish takeaway
By taking these two steps, you can go a long way to optimising your superannuation and ensuring maximum returns in retirement.
Taking the time to understand your super may be taxing, but it is worth it – your future self will thank you.
