What to do with your super in your 50s
Your super has to last a long time, so a well-planned structure, taking full advantage of incentives, will maximise its future value
1. It's your money so take control
The longer you delay organising your retirement strategy, the more complex the solution that will be required.
This relates directly to your superannuation where you may not have sufficient time to grow the balance. This may force you to take a higher than normal risk with your investments to catch up.
Furthermore, current legislation has led to a greater restriction on how much you can put into super through salary sacrifice and on an after-tax basis.
2, How many funds do you have?
Many individuals will have multiple jobs over their working life; this may result in the opening of a standard default employer super fund for each position. If this is the case, you may have two, three or four separate accounts with a portion of your overall retirement savings within each.
To assist in uncovering lost super, the tax office has a search function which matches lost funds to your tax file number.
In addition, individuals are now able to view their active super accounts through their personal myGov portal, also providing the ability to consolidate and roll over the balance to your preferred fund.
3. How are you invested?
Super accounts provide multiple investment options and varying allocations to growth or defensive assets. While your fund may provide you with these options, it often carries a "default" investment allocation which provides a diversified selection of growth and defensive investments. This investment approach is not always appropriate for everyone.
For instance, you may be risk averse, preferring exposure to defensive assets to minimise the likelihood of balance decreases due to an investment market drop.
On the other hand, you may be open to an increased level of risk, typical of growth-based assets such as domestic and international shares and exchange traded funds (ETFs). At the very least ensure that the investment mix suits your needs and is appropriate for the market conditions.
4. Risk and return
Understand the risk-for-return equation of your investment selections.
All investments carry a level of risk and you should be aware that typically the higher the return the higher the risk. One great myth, though, is that an investor thinks that by simply taking more risk they are automatically entitled to a higher return.
Defensive assets often provide a more stable capital value over time but will not provide a high level of growth. In comparison, exposure to growth assets will provide the opportunity for increased capital growth but will also expose your investments to a higher risk of decreasing in value.
This risk-return trade-off highlights the importance of understanding your personal risk tolerance and the risk profile of your selected investment options. Additionally, in times of uncertainty and high volatility don't be impatient by investing simply because the return on stable investments such as cash is so low.
5. Are you paying too much?
Ongoing administration and trail fees on legacy products are one aspect that many people do not take particular notice of when looking into their super account; however, these fees are one of the biggest drains on your balance over its life.
These fees include administration fees, charged directly by the super fund.
These fees can vary between fixed dollar fees per year to percentage-based fees. No matter the fee structure, it is essential to ensure they are within an appropriate range and are not excessive compared with other providers.
In addition, some super funds carry an ongoing adviser trail fee. This fee is paid to an external adviser who established the fund with you and continues to receive an ongoing fee while the accounts are open.
Often this fee cannot be turned off. If you have this type of fund and you are not receiving advice or service from your adviser, you might be costing yourself money.
6. Unnecessary insurance
Many people utilise their super to fund life and TPD insurances to assist in managing personal cash flow.
I have seen one client with multiple super funds, each with insurance benefits eating away at the balance.
Insurance cover typically is indexed and premiums will increase every year. You should periodically review your insurance needs to identify any areas where you may be able to reduce your insurance cover and reduce the costs.
It is important to understand and review your ongoing insurance needs to ensure they are appropriate while remaining cost effective. If you have multiple funds all with default insurance you may be really costing yourself.
7. Understand your needs
It is important to understand how super works and how you can benefit from a well-constructed retirement strategy.
Adopting an effective retirement plan earlier in life can dramatically enhance the future benefits.
To make good decisions, I recommend learning a little about the rules and investment options. I would start with the tax treatment within super and the contributions you make and make sure you cover off on your options for withdrawing from your fund in the future.
8. Strategy and structure
A great deal of value can be unlocked in your retirement strategy by applying effective and often simple solutions.
By understanding the benefits that this can create, you may be motivated to utilise your super to greater effect. There is a place in the marketplace for industry funds, personal retail accounts and self-managed funds.
If you understand these funds, how they are different and how they all carry their own advantages and disadvantages you will be more likely to optimise your savings.
The strategy behind your super will also play a vital role in developing your retirement savings to a balance that is able to meet your short- and long-term needs. One of the more beneficial strategies is salary sacrifice, whereby you contribute part of your pre-tax salary to your fund, reducing income tax and increasing your balance.
Another popular strategy is a transition to retirement (TTR) pension.
This allows you to draw an income stream from your super fund from age 55 without retiring, assisting in meeting your lifestyle expenses while allowing you to make additional salary sacrifice contributions if appropriate.
This income stream is tax free upon reaching age 60. However, part of the benefit of this strategy has been eroded due to recent legislation changes and the appropriateness of a TTR pension has become an increasingly complex assessment, taking into consideration multiple factors.
9. Someone to trust and assist
There are numerous options available for individuals to undertake on their own, many of which are quite simple. However, there are strategies that are quite intricate. If you find yourself at the point where you do not know what to do or where to start, seek help.
Due to the nature of retirement planning and superannuation, whether it be the legislation, strategy and structure or investment choice, it is helpful to develop a relationship with a trusted and professional independent adviser.
This relationship will provide you with a short cut to the answers and someone to assist in ongoing education. Most importantly, the adviser can give you the confidence of knowing that you are making the correct decisions.
10. Take action
Superannuation is complicated and to many people a foreign concept. It is important to remember that the sooner you start, the more time you will have to use your super for the purpose it is intended for and to meet your long-term goals.
So set aside the time to understand your situation, contemplate this checklist, evaluate your options and then, most importantly, take action.
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