Superannuation – Don’t believe everything you hear.
I wish I had a dollar for every time I heard someone say 'I don't believe in Super!' or 'I don't trust Super because Dad (or Mum) lost everything'.
There are two realities all employed Australian's over the age of 18 should understand:
Whether you want it or not, if you are earning more than $450 per calendar month, your employer SHOULD be paying into a superannuation plan on your behalf. (Check your eligibility here - ato.gov.au).
It's not 'superannuation' that has lost your Dad/Mum their retirement savings; it's the Adviser they worked with, or lack of Adviser that they didn't work with.
'Superannuation' is simply an environment in which you can accumulate savings in order to fund your retirement. While it does have restrictions and rules around how much you can contribute and when you can access your invested funds, it is NOT a big scary beast to be afraid of.
Currently (as at January 2017) legislation requires that all employees who meet the minimum income requirements must have contributions made on their behalf to the superannuation environment. These are known as Superannuation Guarantee Contributions or SGC. The current rate at which SGC is paid is a minimum of 9.5% of your annual wage.
Let's assume you earn $50,000 pa, based on this, your employer is contributing $4,500 of FREE money to your retirement savings. Earning $100,000? Well that's $9,500 of free money being invested into your retirement. And remember, that's per year. So assuming you start work at age 23 and continue working until your 65th birthday, that's 42 years your employer is helping you to contribute to your retirement.
Based on our earlier numbers, that's a total of $189,000 or $378,000 over your working life, if not more depending on your annual wage.
So why are you not making the most of it?
The truth is a majority of individuals will simply 'go with the flow' when it comes to their superannuation savings and usually this means having a superannuation account established for them by their employer. Employees will be asked to sign some forms, but at the younger end of the employment spectrum, retirement seems that far away that they simply do what they are told and forget about it. Yes, each year they’ll receive an annual statement. If they open it, it's a bonus, if they don’t; it either gets inadvertently thrown out or filed away.
It is also highly possible that until individuals find their 'calling' in the employment world, they could hold down multiple jobs, which also means that by the time they are in their mid 30's they also now hold multiple superannuation accounts.
Chances are because they have never seen an Adviser or simply haven't even had a phone call or any other form of contact from their superannuation provider, other than their annual statements, what superannuation savings they do have is sitting either in cash or in a default balanced option.
No matter what your age is, you should always understand where and how your funds are invested and also what your attitude to risk and investing is.
As a general rule, due to age and ultimately longer time frame to retirement, younger generations can be more aggressive in their risk profiles to take advantage of market gains; however should they panic when markets drop, it's usually a good indicator that they are not as comfortable with growth assets as they thought they would be. Whereas mature employees that are looking to retire in the next 5-10 years might have a more selective approach to investing as they want to ensure that they continue build their retirement savings, whilst maintaining their existing capital. In these circumstances, a higher allocation to income assets could be recommended.
A quality Adviser will work with you to determine exactly what your attitude to risk and investing is. This shouldn't simply be a question and answer form like many generic super plans offer, but should also include relevant discussions with your Adviser (whether from a generic superannuation provider or an independent Adviser) around what your knowledge of investment markets is and should also take into consideration any concerns you may have. It is also important to note that as you pass through varying stages of your life your risk profile can change. If at any time you feel this is the case, you should seek out your Adviser and discuss this with them. If you still feel the same way and you are not comfortable with the advice you have been given or it simply doesn't sit well with you, it could be time to change your Adviser.
A quality Adviser will also undertake a full analysis and review of your existing superannuation plans. They will look to see if the plan or one of the plans you currently hold is relevant to your circumstances and allows you the flexibility to invest in a manner in which you are comfortable and which you require in order to meet your retirement objectives. They can also look at your current fee structures and determine if a more cost effective alternative is available. If a better alternative exists, they may recommend that you rollover your funds, but this should only be done once a full analysis has been completed as there may be implications associated with such strategies.
Knowing what your risk profile is and investing your retirement savings via a quality superannuation provider will ensure that you are able to invest your superannuation savings in a manner which suits you, which you are comfortable with and ultimately which allows you to grow your retirement savings.
The important thing to remember about your superannuation savings is that it is never too early to invest in, learn about or discuss your retirement needs, goals or objectives. Understanding how superannuation works and how you can make it work for you will ensure that when you do wish to retire, whether it’s prior to age 60 or in your early 70’s, it is important that it is ‘you’ who is making that decision and not your inability to live off your retirement savings.
** Important Note**
Never believe that you do not have sufficient superannuation savings (or investment savings for that matter) to seek out the guidance of a financial adviser. In the same sense though, understand that an Adviser is providing you with specialist advice that is relevant to ONLY YOU. Therefore you should expect to pay for this advice. Most Advisers are also pretty flexible in that you will be able to pay for their advice directly from your superannuation savings. This is true for both upfront and ongoing advice. Be aware though, that this could have an impact on your superannuation savings over the longer term.
This post was written by Janine McLean, Owner and Paraplanner at Financial Planning Support Solutions.
Janine holds a Diploma in Financial Services (Financial Planning) and has in excess of 14 years’ experience in the Financial Planning Industry. Financial Planning Support Solutions provides contracting and outsourced paraplanning services to Advisers Australia wide and can help, not only with your Statement of Advice preparation, but also Strategy Planning, Compliance, Administration and Project work as required. For further information in relation to Janine or Financial Planning Support Solutions, please refer to our website fpsupportsolutions.com.au.
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Disclaimer: The information provided in these articles is general in nature only and based on the interpretation and understanding of the writer. All information should be clarified with the appropriate parties, legislative offices or government departments prior to providing advice to your clients. If, as an individual, you are reading this post for the purposes of your own personal financial knowledge, you should seek guidance from your Financial Adviser, Accountant or Solicitor prior to implementing any changes to your own personal position.
Copyright 2017 Financial Planning Support Solutions, All rights reserved.
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