The $314k super mistake you could easily be making

There’s an easy mistake people make when choosing a super fund and it could cost the average Aussie $314,000 – or even more.

Most super funds copped a hit in 2022, with rising inflation and interest rates in Australia and around the world sending investments into a spin.

On top of interest rates, we’ve seen the Russia Ukraine conflict driving investor uncertainty and leading to some cooling off in global share markets.

If you’ve been keeping across your super fund balance, you’ve probably noticed a decline in the value of your super investments. But how does your super fund compare? And what should you even be looking for when comparing super funds?

Small numbers make a big difference over time

Differences in your super fund returns can seem small when you look at them as a percentage number, but these can seriously add up over time.

For example, a 30 year old with a super balance of $50,000, who earns the Australian average annual income of $90,329 and receiving only mandatory employer contributions of 10 per cent, if their super fund grows by 8 per cent (before taxes and fees) their super balance at age 65 is projected to be $620,388. If their fund earns an additional 2 per cent each year, their projected super balance at age 65 is $935,204.

This is an increase of $314,816 or over 50 per cent, showing that small percentage differences over a long time have a serious impact. This means you need to choose your super fund carefully if you want to get the best outcomes for you.

Just a small percentage point can make a huge difference to your superannuation.

Take advantage of comparison tools

These days there are a heap of comparison tools and websites that can allow you to see how your super fund compares. You can compare fees, investment performance, and features to provide a quick snapshot of your fund and ideas on some potential alternatives.

There are plenty of tools out there but my favourite is the ASIC MoneySmart superannuation comparison tool which is provided by the Australian Government and doesn’t have any advertising or promoted fund options.

When using these tools there are a couple of things to keep in mind. Be aware firstly that past performance doesn’t guarantee future performance, particularly because investment options can change their strategy or management over time.

Also consider that superannuation is a long-term investment, meaning comparing over short time periods can be problematic – instead look at both the short and long term returns on the options you’re comparing to get a more complete picture of how they stack up.

Compare fees

Fees are an important consideration when choosing the best super fund for you, and small percentage differences in your fees will make a big difference to how your super fund grows.

But fees aren’t the only important thing. Good investment performance is critical and as you can see from the example above has the ability to more than cover slightly higher fees.

Use a price comparison website to get the most out of your super. Picture: iStock.

What’s important here is that you’re getting value for money from the fees that you’re paying.

If you value certain features or benefits from your super fund, such as the ability to buy exchange traded funds (ETFs) or direct shares, better quality insurance cover, or a slick user experience you might be prepared to pay a little extra. But if you’re paying for features you’re not using, then your money is going to waste.

Understand what you want and what’s available from your different super options, then you can compare the fees against funds with similar features.

Don’t set and forget

Don’t get me wrong here, your super fund shouldn’t need a lot of your time and attention. But, the superannuation market is highly competitive, products tend to evolve (and get cheaper) over time.

This means that even if you’ve taken the time to compare and select the very best super fund for you today, you should check in again each year to give you confidence your fund is still the best choice for you.

Keep checking in with your super fund to make sure you’re getting the best deal. Picture: iStock.

Beware of insurance when switching

Many Aussies (and young people in particular) fall into the trap of thinking they’re bullet proof and don’t need insurance, but research done by the Australian Financial Services Council statistics show we have a huge underinsurance gap in Australia.

Having personally seen the huge difference good insurance can make to someone that needs it, I think insurance is an important part of being smart with your money.

Most super funds by default give you a certain amount of life and disability insurance (and some income replacement cover) automatically when you join. The details of insurance policies can get quite complex and there are some rules around what you can claim on for a new policy vs. one you’ve had for years, so tread carefully here.

If you don’t think about your insurance cover when switching funds, you can end up losing the cover which can be a serious problem if something goes wrong. If you’re looking to switch your super, take the time to understand the insurance cover you have in place now, what’s offered by your new fund, and what benefits you might be giving up if you switch.

This way you can make an informed choice and make the right moves for you.

The wrap

Upgrading your super fund can be a powerful way to accelerate the growth of your super fund. It can be hard to cut through all the noise and figure out what’s best for you, but the results are worth it.

Take the time to see how your fund stacks up and what your alternatives are. Look at the fees you’re paying and what you’re getting for them to make sure the value is there for you. And be mindful of your insurance so you avoid trouble in the future.

And compare regularly, to give you the confidence the fund you’re in today continues to be the best for you into the future.

Ben Nash is a finance expert commentator, podcaster, financial advisor and founder of Pivot Wealth, and Author of the Amazon Best Selling Book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. 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.