Like many Australians, when you hear the word superannuation, you might put it into the too hard or too complicated basket. But your financial future depends on what you do with your super now.
People can be concerned about super due to statements they may have heard about this type of investment. We’ve taken the time to bust some of the common super myths and set the record straight.
You need $1 million to retire
You may have heard it mentioned before, to have a comfortable retirement you need $1 million in super. For most of us, that figure can be daunting.
But we have some good news for you. You don’t need that much. ASFA details that for a comfortable retirement, a couple will need $640,000 and a single person will need $545,000. For a more modest retirement, you don’t need anywhere near that. ASFA puts the figure at just $35,000 for a couple and $50,000 for a single person.
How is that possible you might ask? The age pension makes it achievable and is something that people often omit from their calculations when working out what they will need in retirement.
Right now, the full age pension is approximately $23,823 for an individual and $35,916 for a couple. If you have a paid off home by the time you reach retirement, the lump sum you need in super suddenly becomes more achievable.
Super is just like other investments
The main reason that superannuation is different from investing directly in shares, property, bonds or cash, is that you can invest your retirement savings into assets that are taxed at a lower rate.
Investments that are held outside of super are taxed at your marginal tax rate. Which could be as high as 45% plus Medicare Levy. Investing in super, on the other hand, is a more tax effective option.
My compulsory super payments will be enough
For anyone that started their career from 1992 onwards, you would have had your employer making compulsory superannuation payments since the time that your career started.
This may make you feel at ease that you will have enough from the employer contributions to retire on. However, if you are on a low income or take time out of the workforce for any reason, such as raising children, you are unlikely to have enough super to fully self-fund your retirement.
For older workers who have not had compulsory payments through their whole career, it can be wise to top up your retirement fund with additional voluntary payments. Similarly, those that are self-employed and involved in the gig economy need to factor in making their own payments to prepare for retirement.
I can’t control my super
When superannuation was first introduced back in 1992 some employees were tied to the super fund that their employer made them join. However, this changed in 2005 and workers can choose the fund they wish to invest their retirement savings in.
At the current time, there is a wide choice of super funds available that offer you more control than ever before. Most funds now offer more investment options than just conservative, balanced and growth, allowing you to be in control of what asset class mix you choose. Self-Managed Super Funds, while not for everyone, allow even great control of your investment strategy.
I will lose my money if the market crashes
Your superannuation should be invested based on your risk profile. Which will likely change over time as you age.
With the help of a financial adviser, you can better understand what risk profile and investment mix are right for your individual circumstances. While market fluctuations can occur, over time your fund performance and associated risk profile will mean you can feel confident as you approach your retirement years.
It’s important to make sure your super is working for you. Get in touch with one of our super experts on (08) 9367 8133 to ensure you are well equipped to enjoy a comfortable retirement.