Simple way to boost super by $429,000 in just one move

Too many Australians ignore their super fund, but with just one move, the average Aussie could boost their fund by $429,000.

ANALYSIS

Because the Government seems to constantly change the rules, superannuation generally isn’t the go-to investment option for most Aussies.

But squeezing an extra 1 per cent out of your super fund will give the average Australian over $400,000 more in super at retirement, so it’s worth having on your radar.

Consider this example.

Based on a 21-year-old starting out in the workforce on $58,604, the average Australian income for this age bracket, based on employer contributions alone your super balance is expected to grow to $1,261,062 by a retirement age of 65.

But if you can find a way to get your super working just a little bit harder for you, generating an extra return of only 1 per cent on your super money would see your super grow to $1,689,976 – an uplift of $428,914.

So how do you get there?

There are a few key things you can do to get the most out of your super money, and when you nail these areas you’ll go a long way to setting up your super for success.

Choose quality investments

Ultimately, your super fund is an investment account, so the one thing that will have the biggest impact on your super growth over time is your super investment performance.

When you’re choosing investments, there are a lot of different ways to be right, and a lot of different approaches that can work. But there are only a few that work consistently year on year.

The main choice you need to make here is whether you want to invest with an actively managed investment, or take a passive index fund approach.

You need to choose whether to put your money into an actively managed investment or take a passive index fund approach. Picture: iStock

With an actively managed investment, you have an investment manager who is ‘actively’ trying to perform better or differently to the overall sharemarket. With a passive index fund, your investment will track the overall share market and market returns.

There are a lot of advocates for both approaches, and your choice here comes partly down to your investment preferences and philosophy – but the numbers don’t lie.

Research shows that in Australia, passive index funds perform better than actively managed investments more than 82 per cent of the time, and globally the outperformance of index funds is even higher. For me personally, and when advising my clients we favour an index fund approach to deliver reliable, consistent returns over time.

Index funds in my view also have the very real advantage that the only way they can go to zero is if every single company in the country goes bust at the same time – a doomsday scenario that seems highly unlikely.

Make your choice, but choose wisely.

Choose a low-cost fund

Once you’ve chosen your investment approach, you should look for a fund that offers the investments you want at a low cost. Cheapest isn’t always best, but if you’re comparing two funds that have similar investments, choosing the lower cost fund will mean more of your investment returns are growing your fund balance instead of just covering fees.

Consolidate your super

When I was younger and working different random jobs through university, I ended up with half a dozen different super funds. By the time I got motivated enough to consolidate them, most of the money had been eaten away by fees and insurance premiums.

Accumulating super funds is an easy thing to do, with most new employers automatically setting you up with a new super fund when you start with them, unless you tell them otherwise. Running multiple super funds means you’ll be paying two sets of fees, and may even be paying for extra insurance you don’t want or need.

Make sure you aren’t paying fees and insurance across more than one super fund. Picture: Unsplash

Once you’ve chosen a quality super fund with solid investments, stick with one fund until you have a good reason to change. This will minimise your super fees over time, and keep all your money in the same place working together and working for you.

One word of warning when consolidating super or changing super funds around insurance: Most super funds automatically give you insurance cover for life, total and permanent disability, and income replacement when you open an account. If you aren’t thinking about this insurance cover when changing or consolidating super, this insurance cover can be lost.

If you’ve had any health issues since joining your super fund and taking out your insurance cover, this may impact your ability to get new insurance cover. This means that if you ‘give up’ insurance cover, you may be unable to get new cover to replace it in the future on the same terms, or even at all.

As much as Aussies typically feel like they’re bulletproof, the reality is that most Australians are underinsured – step carefully here.

Consider extra contributions

Because retirement feels like forever away most people aren’t rushing out to contribute money to their super that they could save and invest outside super. But because of the low tax rates on super investment earnings, along with the fact you can get tax deductions for making contributions to your super fund, extra super contributions are worth considering.

In my experience, making even small contributions to your super fund comes with an advantage that’s worth even more than the extra money you get into your fund.

I’ve found that as soon as someone starts making extra contributions to their super fund, however small they are, they immediately start paying more attention to what’s going on with their fund.

You look more at the performance, fees and how your fund compares. You also get more motivated around growing your superannuation, something that will have big benefits over time.

Consider making even tiny extra contributions of as low as $10 per month, and then increasing this over time. You can have your employer take these contributions from your pre-tax income, so you’ll hardly even notice the difference in your after-tax pay. You can even do this when you get a pay rise so you don’t feel it at all.

The wrap

Your super will be one of your biggest investments in the future. Because super is often not front of mind, it’s easy for this investment to be a little neglected, sitting on the list as something you don’t have to worry about until you’re old.

Your super doesn’t need a lot of your attention or time, but a little goes a long way here. If you can squeeze just a bit more out of your super fund, it will have a huge impact over time and go a long way to improving your lifestyle in the future.

Choose good investments, a low-cost fund, and keep your money consolidated through your career and you can have confidence your money is working hard for you – not just your super fund provider.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, the Author of the new book, Replace your salary by Investing, and the host of the Mo Money podcast.

Ben runs regular free online money education events to help you make better money choices and get ahead faster. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.