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The cost of super complacency

 The cost of super complacency

Aussies who have a set-and-forget mentality towards their super funds could be sacrificing the retirement they deserve. The good news is that there are plenty of ways to gain and retain control over your nest egg that could lead to a happier, wealthier retirement.

From getting into a habit of comparing your super fund’s performance to making voluntary contributions into your super to boost your balance, a little bit can go a long way by the time you reach retirement age.

Sunsuper’s Head of Advice and Retirement, Anne Fuchs, said members typically become more interested in their super the closer they get to retirement, but the fund encourages them to “engage early to make informed choices about their future”.

“We’re busy, life is bumpy and for a lot of us retirement is the last thing on our minds, but it really shouldn’t be,” she said.

“Staying on top of your super, particularly around those life milestones can make a huge difference later in life.”

The happiest of returns

One of the key factors of your super fund is the investment return that it makes – also known as its performance. Even a slight variation in long term returns has the potential to make a significant impact on your super balance throughout the duration of your working life.

Case study:

Take Kate, for example. Kate is 25 years old and has just accepted her first full-time job, complete with a $60,000 p.a. salary. She understands how important it is to compare super performance, so she puts the two funds she’s interested in to the test. 

She notes that both funds charge the same fees, but Fund A’s past investment return is 8.5 per cent, while Fund B’s is 7.5 per cent.

Kate calculates that if she was to retire at age 67 with her super in Fund A and it continued to maintain its historical return, her balance could be $494,003. And if she chose Fund B and its future return continued to be 1% less, it could be $398,224.

By choosing the fund that maintained its 1 per cent higher rate of return over the long term, Kate could potentially retire with $95,779 more.

*Source: Moneysmart Superannuation Calculator – refer to its assumptions and disclaimer. Notes: Assumes a starting super balance of $0 and super guarantee contributions only.

Given super is a long-term investment, when comparing super returns, it’s important to look at the fund’s performance over the longer term (5, 10 or more years), as well as factoring in the funds’ fees and other costs. It’s also important to remember that past performance isn’t necessarily an indicator of future performance.

It's also worth doing your research on the fund's investment strategy and options offered so that you can gain an understanding of the asset classes you could be investing in, how your super could be allocated among asset class, and the fund’s approach to considering environmental, social and governance issues in its investment decisions.

“Superannuation is the longest-term investment most of us will ever have, so it is important to know who your super is with and that you’ve weighed up what investment options are right for you,” Ms Fuchs said.

“Online comparison tools can help, or you can contact your super fund.

“As a profit-for-members fund, Sunsuper has committed to building portfolios that deliver for our members over the long term, and has outperformed the industry average over the past one, three, five, seven, 10, 15 and 20 years¹.

“We also offer our members a range of digital tools and calculators, our secure online account portal, mobile app, and access to seminars, education webcasts and expert financial advice about their account for no extra cost.”

Giving a little extra

On July 1 this year, the super guarantee (SG) increased from 9.5 per cent to 10 per cent. It’s scheduled to gradually increase over the coming years until it reaches 12 per cent in 2025. However, you don’t have to wait for the next SG increase to grow your nest egg.

In addition to your employer’s contributions, you may be able to make extra contributions yourself, in the form of pre-tax super contributions or after-tax super contributions. Voluntary super contributions can significantly boost your balance over the life of your career.

There are number of different ways you can make extra contributions to your super, so it's worth exploring what might work best for you.

Here’s a look at the estimated difference contributing an extra 2 per cent could make to your super balance at retirement:

Starting age 25 years 25 years 
Starting salary $60,000 $60,000 
Starting SG 10% 10% 
Extra contributions nil 2% of salary per month 
Investment return7.5%7.5% 
Investment fee 0.85% of balance0.85% of balance 
Tax on earning7% 7% 
 Super balance at age 67 $398,224$468,310

* Source: Moneysmart Superannuation Calculator – refer to its assumptions and disclaimers. Notes: Assumes a starting super balance of $0. 

“Putting more money into your super is the equivalent of putting more sunscreen on when you’re younger, because it is so beneficial over the long term,” Ms Fuchs said.

“Additional super contributions can make an enormous difference to your quality of life in retirement. The interest paid on earnings can cause a ripple effect that gets your balance expanding over time. And you may also be able to lower your taxable income.

“The compounding nature of superannuation means that every little bit you add today will help grow your balance and be there when you stop working.”

Find out how Sunsuper could kickstart your retirement

Every little bit helps

With every little effort you contribute towards the growth of your super, the cost of complacency falls. It's helpful to know the more attention you pay to your super, the less you're likely to feel the burn.

According to Ms Fuchs, there are a variety of journeys into retirement and not all of them are totally planned. 

“Think of super as an aching tooth,” she said.

“If you continue to ignore the tooth, eventually you’ll need a root canal, or it may have to be removed. Alternatively, if you had visited the dentist for regular check-ups and cleans, you may save the tooth from even needing a filling.

“The same goes for your super. Check in on it regularly, look after it and when the time comes for retirement, you’re likely going to be in a much better position financially to enjoy the things that matter to you.” 

Find out more about how Sunsuper can grow your wealth

¹For Sunsuper for life Super-savings accounts. Source: SuperRatings Fund Crediting Rate Surveys - SR50 Balanced (60-76) Index to 30 June 2021. Past performance is not a reliable indication of future performance.

Sponsored Article

This article was sponsored by Sunsuper. While the article has been written in accordance with RateCity's editorial guidelines, the information was mainly focused on products and services offered by Sunsuper. 

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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