Want to get your super fighting fit? Here’s where to start

In Australia, we’re lucky enough to be blessed with a retirement system considered one of the best in the world. Compulsory superannuation, introduced in 1992, means workers can be assured some level of savings once they retire, rather than having to rely on a government pension.

Among the many reasons why our super system is so envied is the control people have over it. Workers can not only select their super funds and shift if they’re unhappy with performance, but can also choose exactly how their super contributions are invested.

It’s never too early to start thinking about your super, even if retirement feels like a long way off.Credit: Marija Ercegovac

While retirement might seem a long way off, keeping an eye on your super at all stages of life is key to setting yourself up for a comfortable retirement. There are numerous things you can do now to ensure your super is in top shape and your future is taken care of.

But before we get into that, let’s get back to the basics.

What is super, and why does it exist?

In Australia, superannuation is a mandatory saving scheme where workplaces pay employees a minimum of 11 (soon to be 12) per cent of their salary or ordinary time earnings. This money is paid into an account managed by a super fund, and can be accessed once you turn 60.

The concept of super goes back to 1862, when it was introduced for public servants in Victoria. From there, several private companies started introducing it as a benefit for employees. In the early 90s the Superannuation Guarantee was legislated under the Keating government, meaning it was compulsory for employers to pay employees super Australia-wide.

So what do super funds do with your contributions? Expert investors at those funds invest member contributions in a range of assets and stocks, in pursuit of delivering the best possible long-term returns for their members.

Funds invest in a range of things such as Australian and international shares, residential and commercial property, cash, bonds and fixed-interest securities. How much of your super contributions are invested depends on your fund and how its super products are mixed. The main product mixes and their average returns are as follows:

• Growth: Typically 85 per cent invested in shares or property and 15 per cent in fixed interest or cash. According to super research provider Chant West, over the past 15 years, the median growth fund has returned 9.4 per cent per year on average. This is the option most Australians are invested in.
• Balanced: Typically 70 per cent invested in shares or property and 30 per cent in fixed interest or cash. Over the past 15 years, balanced growth funds have returned 6.5 per cent per year on average.
• Conservative: Typically 70 per cent invested in fixed interest and cash and 30 per cent in property and shares. Over the past 15 years, balanced growth funds have returned 5.3 per cent per year on average.

On June 30 every year, your fund’s investment earnings are then paid into your super account. You have the power to look at your investment earnings via your fund’s online portal, compare performance with other funds and change if you’re not happy.

Quyen Truong has been in the finance industry for over 20 years. She’s worked in financial services at banks, super funds and is now a co-director at Bruining Partners, a Perth-based financial consultancy. She is passionate about people turning attention to their super.

“It was introduced as the government could foresee an ageing population and increased reliance on our pension system,” says Truong. “Super means you’re not going to rely a hundred per cent on the aged pension and have another nest egg to draw upon.”

There are a few phases to super. “The accumulation phase is when your contributions are going in.” This includes employer contributions or extra personal contributions you might make (more on that later).

“When you retire, super then goes into a ‘drawdown’ or a ‘pension’ phase, which is when you start taking money from your super account to pay for your expenses and lifestyle. When it does enter that phase, super can actually still grow because it’s still invested.”

Why is it important to care about your super?

Super performance is not naturally on everyone’s radar, especially at a younger age considering how far off and intangible retirement seems. But it is critical to give it some love as early as possible.

For anyone rolling their eyes, you’re going to turn more attention to it eventually, so you may as well start now and reap the rewards. This is a lesson well and truly in delayed gratification.

Often, we hear of people starting to care about their super balance in their 50s when retirement is nearing. Sadly at this point, they’ve already missed out on many years of compounding interest. Compound returns are earned on your total super account balance, meaning the more you have in your super account earlier in life, the greater your balance will be when you retire.

“Outside of a home, superannuation is the largest asset that most people would have in their lifetime. It can be quite a tax-effective vehicle,” says Truong.

During the accumulation phase, super contributions and earnings are taxed at 15 per cent. Outside of super, investments are taxed at your marginal tax rate.

When you get to the draw-down or pension phase in retirement, super investment earnings are taxed at zero per cent. “There is no other kind of investment you have, like an investment property or shares, that are taxed at zero per cent,” says Truong.

It’s worth considering the time you might take away from the workforce at different stages of life and finding ways to bolster super to account for these absences. “On average, women retire with 50 per cent less superannuation earnings than men. So it’s particularly important that women especially pay attention to their super.”

If you’re currently 30, you should have $59,000 in your super for a comfortable retirement; $156,000 if you’re 40 and $281,000 if you’re 50.

“This is due to the ‘motherhood penalty’, where women still typically take more time off to care for a child. When they decide to go back to work, sometimes this is part-time.” This reduces super earnings.

Then, there’s the other side of life, when people might take time off to care for elderly parents. “That time out of the workforce means employers aren’t contributing to super.”

When can I access super, and how much do I need?

Bruining Partners director Quyen Truong.

Super is generally only accessible when someone reaches their preservation age. This age ranges between 55 and 60, depending on your day of birth. People born 1965 and after can start accessing their super at 60. For those born before 1965, it could be as young as 55. Take a look at the ATO’s exact preservation dates of birth and age here.

In terms of how much super you should have, this is a contentious question, and usually, it depends on what kind of retirement you’re aiming for.

The Association of Superannuation Funds of Australia’s (ASFA) ‘super balance detective’ is a handy tool for advising what your current super balance should be, to ensure a comfortable retirement.

According to the calculator, if you were 67 and to retire today, you’d need close to $584,000 for a comfortable retirement. That means if you’re currently 30, you should have $59,000 in your super for a comfortable retirement; $156,000 if you’re 40 and $281,000 if you’re 50.

There are very limited circumstances when someone could access their super before retirement. These include if someone is experiencing severe financial hardship, incapacity to work or diagnosis of a terminal illness.

What are some common super misconceptions?

Truong says one of the biggest super falsehoods is people thinking they have plenty of time to look at their super and as such it’s not worth worrying about it now.

“It comes back to, do you want a modest retirement or a comfortable one?” she says. “The other misconception is thinking the Centrelink age pension will be enough. It’s generally not. It provides a baseline standard of living.”

The amount someone can get from Centrelink is informed by their income (which includes super payments) and assets (including whether you own a home). The maximum pension for a single person is $1116.30 per fortnight and for a couple $1682.80.

“For instance, if you don’t own a home and might still be renting, $900 a fortnight will probably not be enough.”

Another misconception Truong says is that people feel they might not have enough money or be too young to seek financial advice. “It’s never too early to get financial advice. You can think about it as getting a health check on your super and finances.”

This is the first part in our six-week Super Fit series, covering everything you need to know to get your superannuation in its healthiest possible shape. Come back next week for our next piece on how to choose a good super fund.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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This story was created in partnership with Colonial First State. The content is independent of any influence by the commercial partner.