For many working professionals, the ability to ‘set and forget’ your super savings for retirement and let time do the work can be an attractive strategy. However, by being a little more hands on while you’re still young, it can pay extra dividends when you retire.
Here are some quick and easy ways to become more involved in setting up and managing your super for your future.
Bring your super together and save
Do you have multiple super accounts with different funds acquired throughout your working career with different employers?
If so, you are paying fees and charges on every super account you have.
It is easy and quick to track down all your past super accounts and consolidate them into one account, thereby ending up with only one set of fees and charges to pay.
legalsuper members can get started by going to https://www.legalsuper.com.au/consolidatesuper Other superannuation fund members should consider contacting their fund or their MyGov account for assistance.
The magic of compound interest
Once all your different accounts are rolled into the one fund, your new single consolidated account balance will be larger than each of the previous individual smaller account balances.
As well as saving on fees and charges, you will immediately begin to reap more of the benefits of compound interest.
Put simply, compound interest pays interest on both the money you deposit – and the interest you have already earned on those funds. The larger your account balance, the greater the compound interest. By comparison, simple interest is only paid one time on the amount initially deposited – think a fixed term deposit.
As the Australian Securities & Investments Commission (ASIC) MoneySmart website says: “The power of compounding helps you to save more money. The longer you save, the more interest you earn. So start as soon as you can and save regularly. You’ll earn a lot more than if you try to catch up later.”
Volunteering now feels good later
Superannuation is designed to help people save for the life they would like to lead in retirement.
With an eye to this future, Superannuation Guarantee (SG) law mandates that most employers must pay a minimum of 11 per cent of an eligible employee’s ordinary time earnings (OTE) as super into a superannuation fund.
However, the more money you can put into your super now, the greater the potential benefit in the long-term.
With this in mind, it is worth considering making additional voluntary contributions to your super account if possible.
If your compulsory SG contributions total less than $27,500 in a financial year, you can choose to make additional voluntary super contributions from your salary up to the $27,500 limit. These additional salary sacrifice or personal tax deductible contributions, also known as concessional contributions, are taxed at the favourable concessional tax rate of 15 per cent (if you earn less than $250,000 per annum) compared to your marginal tax rate, which in most cases will be higher.
As well as choosing to make voluntary concessional contributions up to the $27,500 cap, eligible super fund members can also make what are called non-concessional (after-tax) contributions. These contributions also carry attractive taxation advantages. The current after-tax non-concessional contribution cap for 2023-24 is $110,000. Depending on your circumstances you might be able to use the bring-forward rule to contribute up to $330,000 in a single year.
As part of considering making voluntary contributions to super, it is also worth looking into the possibility of (i) spouse contributions to your super including claiming a tax offset for a spouse contribution, and (ii) contribution splitting where you can split certain concessional contributions with your spouse. These are both subject to eligibility requirements, and you can read more on the legalsuper website at https://www.legalsuper.com.au/super-retirement/super/growing-your-super/spouse-contributions
Closing the super gap
On average, women aged between 60-64 retire with around 24 per cent less super than men but live five years longer.
There are a number of well-documented reasons for this life-affecting disparity including the gender pay gap and women being more likely to take time off paid work to raise children and perform other primary care-giving duties.
To find out how you can make the most of contributions and optimise your super account, asking your super fund is a good starting point. We also have helpful articles and resources on our website at https://www.legalsuper.com.au/mind-the-super-gap legalsuper is focused on empowering our members through education, helping all members to better leverage super and have confidence in financial security.
legalsuper is also a member of Women in Super, a not-for-profit organisation. Through Women In Super, we advocate for a super system void of gender-based inequality. This includes advocacy for topics such as super and paid parental leave, workplace gender equality and women on super fund boards.
Re-examine your investment strategy
When you joined a super fund, one of the decisions that needed to be made was how your super contributions would be invested.
It might be that you chose a conservative investment option – one which carries less risk but comes with lower returns – or you may have opted for a high-growth investment approach with its greater risk but potentially higher returns. Or you might not have selected an option and been placed in the Fund’s default MySuper option.
Whatever you decided at the time, it is prudent to review your investment strategy every few years to see if it is still the best fit for you.
At legalsuper, for example, members can choose from (and mix and match) the following investment options: MySuper Balanced; Cash; Conservative; Conservative Balanced; Balanced Growth; High Growth; Australian Shares; Overseas Shares; Balanced Index; Balanced Socially Responsible; and Direct Investment.
It is possible to easily change your investment options at any time (at no cost), and the reality is that people quite often take a particular approach to investing earlier in their work life (often higher-risk/higher-reward) and then change to a more conservative approach as they close in on retirement – while others might decide on the opposite approach. It all depends on your individual circumstances and the financial goals you have in place now and for retirement.
legalsuper is here to help
If you would like assistance with any aspect of your super, including the topics raised in this column, legalsuper has dedicated experts waiting to speak with you. Book a complimentary appointment with our national Client Service team today at https://www.gobookings.com/au/clients/directory/
Legal Super Pty Ltd ABN 37 004 455 789 is the Trustee of legalsuper ABN 60 346 078 879 and holds Australian Financial Services Licence No. 246315 under the Corporations Act 2001. The information contained in this document is of a general nature only and does not take into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the information and obtain and read the relevant legalsuper Product Disclosure Statement (PDS) and Target Market Determination (TMD) (available at legalsuper.com.au or by calling 1800 060 312) before making any decision in relation to legalsuper. Past performance is not a guide to future performance.