How to get the most from your Superannuation
Today we have a couple of posts for our Australian Readers. In this – the second – our resident Australian contributor Raj Padarath has some great info on how to get the most from you Superannuation. Over to you Raj!
Superannuation is perhaps the most important investment vehicle that the majority of Australians do not fully understand or appreciate the power of, so the aim of this article is to highlight the incredible benefits that can accrue to personal savers as a result of smart super strategies.
The effectiveness of superannuation savings essentially comes from the fact that it is linked so strongly with your employment. Essentially, by having a job, the government is able to require your employer to guarantee your comfort and income in requirement by setting aside an amount (based on a percentage of your salary) to be accessible when you ride off into the sunset after your working life ends. It’s essentially like having a trust fund being funded by your employer and guaranteed by the government.
As for the benefits, the government derives savings from having to pay less pensions if its citizens are able to provide for their own retirement. However, personal benefits also accrue, with generous tax concessions available to voluntary super contributions. In addition, pensions are only about a quarter of what an average working person would earn in Australia, so although it may be tempting to rely on the government to lend a helping hand when you retire, the reality is that with an aging population and more people exiting the workforce than entering it, your quality of life and what you can afford on a pension will almost certainly be lower than if you do some smart planning for your retirement fund yourself.
There are other personal benefits too. Put it this way, would you let your postman change the oil in your car and service it? Probably not. So if you’re a teacher, doctor or tradesperson, would you be the best qualified person to be managing your own money for retirement? Of course not. Superannuation funds have legions of advisers and experts whose sole function it is to get the best returns for their investors. In addition, because of the system we live in, you are free to choose whichever provider suits your needs the best, whether it is an industry fund or one provided by a financial institution. Even within those providers, there is a level of choice about options and asset classes you may wish to invest in.
Perhaps the most powerful feature of superannuation is the ability to utilise the awesome power of compounding interest. If that seems like an exaggeration then consider this, Albert Einstein once referred to compounding interest as one of the most powerful forces in the world. Granted he was talking about physics rather than finance, but the underlying principle remains the same. A base amount, continually reinvested will grow exponentially. Still not convinced? Well how about some numbers. $100,000 reinvested over 7 years at a rate of return of 10% will result in an amount of over $200,000. So you can double your investment every 7 years at this rate of return. Impressive. Especially when you consider that the average working life is about 45 years, which means there are close to 7 periods in which the return could be achieved. Even allowing for shock events such as the technology stocks crash of the early 2000’s of the Global Financial Crisis, this would still equate to a return in excess of one million dollars.
There are several steps that can be taken to ensure these returns are gained. The first is to make sure that all your accounts are consolidated and combined in one fund. The average Australian has between 5 and 7 jobs in their lifetimes, and each of those employers will have contributed a little or a lot to your overall super balance. The other major advantage you can bring to yourself is having qualified professionals on your side. There are a lot of advisers out there, but a great starting point is to visit Suncorp to find your superannuation in Australia, and look at the options you can then pursue.
Whether it’s finding your lost super from years ago or learning how you can grow the balance you’ve already got, some basic skills and strategies learnt from the best can really make an incredible difference in the long term. Super is a long term investment, so make it work for you.