“When obstacles arise, you change your direction to reach your goal;
You do not change your decision to get there.”
Superannuation – Stairway to heaven, or is it?
Superannuation is a common investment savings vehicle that runs over the term of your working life, designed to provide you with the retirement income stream when you no longer work.
The money comes from a combination of:
Compulsory employer contributions
Called Super Guarantee (SCG) currently 9.5% of your salary, will gradually increase to 12% in coming years.
Ideally you will add your own money to accumulate a required retirement nest egg.
For low-income earners, if you meet eligibility criteria.
From 1st July 2005 employees are able to have a super fund of their choice. Employer is required to provide a “default fund” in case an employee has not made such a choice.
Issues discussed with clients in relation to superannuation
- Fees and charges (entry, exit and ongoing)
- Investment options – is your investment well diversified?
- Is your super investment in line with your risk profile?
- Are there any extra benefits you need to be aware of?
- How do insurance benefits compare in relation to price and features? – This is crucial if you have a pre-existing medical condition or are 60 years of age or older.
- Is your insurance best placed within a super policy or should it be outside where you have more control?
- Will your death benefit be paid to your chosen beneficiaries? Superannuation has many rules, therefore not everyone qualifies to be a beneficiary.
- Who decides on your beneficiaries – you or the super trustee?
- Are you able to decide yourself on your insurance cover or is it pre-determined by the superannuation fund?
- Are you able to include Income Protection cover and if yes, how long is the benefit period?
The more you dig, the more questions will arise.
Superannuation has become the second biggest investment for most Australians (after the family home), therefore it only makes sense to pay a close attention to it at any stage of your life.
It is particularly important though for over 55s. Most clients tell me that they worry they might not have sufficient time and funds to build a nest egg big enough to support them for the reminder of their life once retired. This is when a professional advice can add a real value in order to introduce relevant strategies to “speed-up” the process of growing your super savings and maximising the retirement benefit.
Advantages of superannuation savings:
- Professional investment management within most super funds
- Great choice of superannuation funds
- You can contribute additional money as a one-off lump sum or a savings plan (subject to contribution limits)
- You are able to easily diversify your investments
- Concessional superannuation contributions could reduce your Income Tax
- Reduced tax rate on investment earnings (maximum 15%) whee comparing to Marginal Tax Rate of most working people.
- Balance is “locked away” for long time – until you meet conditions of release – which can be an attractive benefit for people who love spending money – and that’s most of us!
- By locking funds for such a long time, your money has time to benefit from compound interest. The longer it is invested, the better the outcome.
Disadvantages of superannuation savings:
- Balance is “locked away” (benefit for some, negative for others)
- There are costs associated with superannuation accounts and investments within it
- Ongoing government changes and growing uncertainty of superannuation rules
The last listed disadvantage is exactly the reason for this service title
Superannuation has lots of benefits for many, especially if you are not too far from your retirement. In this case you most likely should concentrate on savings within the superannuation environment (however be aware of contribution limits because very high penalties apply should you exceed those limits). Consequently concentrate on receiving a high quality Retirement Planning advice inclusive of Age Pension benefits (if applicable) to ensure your retirement is a pleasant one and your money will support you for life.
On the other hand, if you are a younger investor, considering your long time-frame till retirement, continuous unpredictable government changes of superannuation rules, do some proper planning. First of all don’t put all your eggs into one superannuation basket – or you may end up with lots of money you have no control over and no access for a very long time. Therefore consider other investment vehicles as well and compare your options.