Your super – are you in it for the long term?
January 9th, 2013 | Financial Planning, Investment Advice, Superannuation
Superannuation is specifically designed to help you save and invest for your retirement – it’s all about helping you take control of your own retirement, rather than rely on the age pension. Changing the way you think about super can make a major difference to your long-term plans.
It’s your money
When you first start in the workforce, your super money is out of sight and out of mind. At this early stage of your working life, retirement is still a lifetime away and you probably have more pressing concerns, like paying off university fees, saving for your first overseas holiday, or buying your first car.
Fast forward a few years and the picture can be quite different. For many people, super becomes their primary retirement savings vehicle, thanks to the regular Super Guarantee (SG) payments their employer makes. SG payments have gradually become a part of our working lives since being introduced in 1992. The 9% SG payments are set to increase to 12% over the next seven years to help Australia’s ageing population save more for their retirement.
Less prepared for retirement
Australians are becoming less prepared for retirement, despite the SG increase. After five years of market uncertainty, it’s understandable that many Australians are cautious of putting extra money into super.
According to the latest research by the Association of Superannuation Funds of Australia Ltd (AFSA), a “comfortable” lifestyle requires approximately $42,000 annually for a single person and $56,000 for a couple. A “comfortable” budget enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of things such as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel. This assumes, of course, that you also own your own home and the mortgage is paid off prior to retirement.
Super is tax-effective
Your super is a tax-effective way of saving for your retirement. Money in super is taxed differently to your other investments and is designed to reward you for investing for the long term – when you put money in, while you’re earning investment returns and when you take money out, in retirement.
Pre-tax (concessional) contributions you make to your super up to $25,000 per year and investment earnings on super are taxed at a maximum rate of 15%, which is lower than most people’s marginal tax rate. When you withdraw super money after age 60, the withdrawal is tax free.
A wide range of investments
Depending on where you are in your life, super providers offer a variety of investment options which may be suitable for your investment style. Conservative funds invest more in low-risk assets that may deliver more consistent returns. Balanced funds usually attempt to strike a balance between risk and return. Growth funds typically invest more in high-growth assets with more risk of volatility.
There are plenty more options for investors keen to exercise more control. Platforms give you access to managed funds, shares, term deposits and exchange-traded funds. Interestingly, an increasing number of Australians are establishing their own Self Managed Super Fund – as at 30 June 2012, Self-Managed Super Funds held the largest proportion of super assets accounting for 31.3% of total super assets (source: Quarterly superannuation performance June 2012, Australian Prudential Regulation Authority, 23 August 2012).
What type of investor are you?
To get the right investment mix you will need to think about:
– when you want to retire
– how much you will need to enjoy a comfortable retirement
– how much risk you are prepared to take on
In general, older investors are more concerned with protecting their assets, while younger investors are more comfortable with risk to achieve higher returns.
A New Year – a new plan
The New Year is the perfect time to put a revised plan in place to boost your super. For advice on your superannuation and financial goals for 2013, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.