Dear readers, after all my learning through both pained experience and secondary research over these past 12 years, I have come to this conclusion:
If you don’t look after your money, no-one else will.
If you think that Super is someone else’s problem, don’t believe it. It’s yours to manage, with annual reviews to make sure you are on track to live comfortably, when the time comes.
Keep the management costs low by selecting your Super Fund manager wisely, make sure you put in more than any life insurance and fees coming out, and if over 50, increase your sacrifice to super to make contributions up to 17% a year, if at all possible. (My own super fund has benefited from my active management, even if I cannot put in as much as 17%).
Sometimes in hardship, some people consider drawing on their Super fund. And if it means a lot to you not to be declared in bankruptcy, then OK, but people also consider accessing it for things like renovations. Generally middle-class Australians are being squeezed out of receiving age pensions (with asset tests) because of the new demands via our ageing population. So, if you dip into your Superannuation now, you will be sacrificing your own lifestyle down the track. There are online calculators which allow you to see different scenarios of how your Superannuation alters with more contributions (after 15% tax).
Wealth Building Through Super
Wealth building via your Superannuation has both advantages and disadvantages. You can now lend more against the super fund’s assets, but it must be with the intention of keeping the investment long term. You can do this through a SMSF tied to a unit trust (via a qualified SMSF specialist). General superannuation accounts through a retail manager or industry fund do not qualify for lending.
A disadvantage of a smaller SMSF might be that your Superannuation is not diversified. Some people intent on wealth building might put all their pennies into one property or asset type and very little else, and that is not a sound strategy for most. Don’t take this as gospel, but I’ve read that over $200,000 makes an SMSF, with its higher costs, work out better.
Super and Working for Yourself
It doesn’t matter if you’re starting small either. Adding more to your Super through salary sacrifice or voluntarily (if you work for yourself) every month automatically is a great idea. As you can see from the chart, it helps your fund along toward $150,000+ — despite being low paid. This chart is from the perspective of a SELF-EMPLOYED worker, so rather than a paltry $43,000, this lady would have $160,000 after putting in 11% from after-tax income (which equals $4,950 p.a. or $412 per month).
Looking after your Super is about making the most of what you’ve got, i.e. getting good value through solid asset allocation for the long term (for example, 30% defensive/70% growth — this would depend on your life stage), with lesser fees and minimum tax.
The next step is to add to what you’ve got, and at the same time keep aside an emergency fund – so you don’t have to break into your Super during an unforeseen event.
If you’d like to know more about managing money and investing for the novice, please see my book How to Control Your Financial Destiny. (You really don’t need to know anything about finance to understand it).
This post has been written as an educational tool, so it may not be appropriate for your individual circumstances. Consult a gifted and qualified financial adviser before making a financial decision.