This ‘nurture your super' blog is extracted from our E-book, ‘The Step by Step Guide to Retire Early in Australia’. If you would like to read the entire E-book today, click here.
Nurture Your Superannuation
It’s quite possible that for most Australians, superannuation will be their biggest retirement asset. By 2025, 12% of an employee’s income will be paid into a superannuation fund by their employers, so it’s easy to see how this is likely to be the case.
Any further contributions made voluntarily will only serve to boost those funds; and considering that we all want to have a lump sum big enough to retire on comfortably, it makes sense that we would put some money aside, with the express purpose of building our ‘nest egg'.
Because it is a savings vehicle for retirement, superannuation is governed by strict rules which prevent you from accessing these funds prior to meeting a condition of release, which for most people is retirement. Put simply, superannuation is a tax structure which has highly favourable tax rates designed to encourage you to save for your retirement. The tax treatment is so good, in fact, that by 60 years of age all investment earnings and withdrawals are tax free. This is essentially no different from investing in a tax haven, but it is legal!
Here Are Some Ways To Nurture Your Super:
Choose a cost-effective fund
Fees differ greatly between super funds; industry super fund advertisements illustrate that. However, what the advertising fails to demonstrate is that there are considerably more cost-effective options available now in the market, that also offer greater flexibility than industry funds can provide. Being aware of what you pay and making conscious choices to only pay for what you get value from, is one way you can improve your end balance.
Select investments wisely
Investment selection is fundamental to performance. With so many investments to choose from though, it is challenging to confidently navigate the options so getting the right advice will pay off in this regard.
Maintain an appropriate asset allocation
Asset allocation will typically have the greatest impact on return. For example, if 100% of your money was in cash during the GFC, your portfolio would have almost certainly achieved significant outperformance, well above other investors who had exposure to the share market. On the other hand, if your portfolio remained in cash through the recovery post-GFC, your portfolio would almost certainly have suffered significant underperformance.
Spreading funds across different assets reduces risk and smooths return. By taking active asset allocation tilts at different stages of the market cycle, you can create overall outperformance through the cycle, so it is a highly desirable strategy to consider.
Remember that in most circumstances it makes sense to set up a pension when you are allowed
Setting your super up into a pension at the right time will deliver the best after-tax outcome.
Mindful superannuation is a significant retirement asset. it is an essential part of achieving a comfortable retirement and good advice can make a significant difference to your end balance.
We’d love to help you nurture your super and would be happy to share our extensive knowledge about super and retirement with you if you would like contact us.
More information can be found at the Australia Taxation Office's website.