Tracking our superannuation growth more closely is something we know is necessary, but for most people, it can feel like a visit to the dentist or a tedious family get together. Something you’d rather put off or just rather not do.
A big part of the reason is our human nature dictates we are less motivated by anything with a timeframe too far into the future. Without urgency or immediate need, it doesn’t reach the the today or tomorrow ‘to do’ list.
This approach is typical of average Australians. Canstar reports two in five Australians have no idea how much is in their super. And HSBC’s Future of Superannuation research tells us the majority of working Australians simply won’t have enough to retire on.
If you’re well below your fifties or sixties, you might be thinking this doesn’t apply to you, but it is never too soon to start giving your superannuation the attention it deserves and needs.
As dire all this sounds, the remedy is not rocket science. A regular check up on your super, say every six months (even twelve months at a stretch), just as you would for your teeth, can make all the difference.
The good news is, a super health check up takes relatively very little time and you can start immediately by focusing on the following six easy to action steps.
#1 Check the composition of your super’s portfolio
Unless specified or you’ve clearly made the choice, it is very likely your superannuation portfolio will be a balanced one.
A balanced portfolio sounds like it’s balanced, but actually it is a portfolio that is heavily skewed towards growth assets – in particular shares. Around 75 percent placed in that investment bucket. If you’re not comfortable with shares, it’s important to look at your portfolio’s composition and determine what you would like to see AND what you feel comfortable with.
Another factor to consider is the return your portfolio is getting for you.
Think of it this way. A balanced fund may only be returning 10 percent, while a more aggressive portfolio, say a growth fund could be returning 12 percent. Over time, say a twenty year period, this can make a substantial difference.
It could make sense, depending on where you sit relative to retirement, to have your super working hard for you in a growth fund, affording you the opportunity to realise greater returns long term.
But you need to understand the risks. The more you have in growth assets, the more volatile it will be – this is where it is important to make investment selection on what risks (versus reward) you are prepared to take. You need to take the time to understand what volatility means for your portfolio.
Finding out what your portfolio is doing is as simple as logging on to your super account online. This simple action can make a tangible difference to the kind of life you enjoy beyond your working years.
#2 Check your employer is making your contributions
We know Australian law provides for employers to make mandatory 9.5 percent contributions to super, which is important.
What you may not know is that some contributions don’t get made (or get made in a timely manner), an issue that can apply to both mandatory and voluntary contributions.
So where do the funds go? Great question and one you should ask your employer if you find your contributions aren’t making it to your fund.
As a bare minimum, employers are required to make payments within 28 days of the end of a quarter. Diligent employers will pay every month.
If they don’t make contributions, you run the risk of losing out completely if your employer goes under so it pays to keep tabs on whether these payments are going into your account.
Depending on your fund, it may be possible to set up electronic notifications advising you funds have been deposited. If this automated feature is available to you, get it happening and you can stay on top of payments very easily. If you find your employer hasn’t been making payments, start with the website of the Australian Tax Office (ATO), where clear steps to taking action are provided.
#3 Check your insurance
By default, all funds provide a level of insurance coverage.
This is usually for life and total and permanent settlement or salary continuance.
In a similar way to your portfolio, your insurance coverage may or may not be what you need. The main thing to consider here is your needs versus the cost, remembering that anything that costs you money out of your super will impact the balance long term. There is a balance between ensuring you have enough cover, but not paying too much for it.
There are also some substantial differences between policy definitions of insurance in your super fund, versus cover you get (and pay for) outside of super.
It is worth the half hour investment of your time to scrutinise whether you have what you need.
#4 Check your nominated beneficiary
When you set up your fund, nobody is automatically nominated as a beneficiary.
Regardless of your family, issues can emerge if a beneficiary hasn’t been nominated and the fund owner has died unexpectedly – this is particularly complex with blended families.
Nominating your beneficiary is a quick easy win.
It is a simple form that on completion, is returned it to your fund; literally a five minute exercise. Most importantly, it is a highly effective and inexpensive way of gives your funds the best chance of going where you want them to in the event of your untimely demise – but it is important to understand how this interacts with your will (what’s that you say? You have been meaning to get around to doing one….. 🙂 )
#5 Check your fees and charges
Fees and charges are another aspect of your superannuation that warrant a periodic review, simply because funds charges them in different ways.
The two main types of fees to look out for are administration fees and the management expense ratio (or indirect cost).
Administration fees are charged by the superannuation provider for administration of the fund. The management expense ratio or indirect cost is the cost of your investment. Typically, the more aggressive the investment, the higher the fee.
A factor to note is the cost of fees has a compounding effect on your final super balance, so it’s important to weigh up the features and benefits of your fund, assessing whether it is meeting your needs, i.e. neither too much nor too little.
Each one of these actions is completely doable and requires just a small (but timely) commitment from you. It’s a small investment now with the power to yield long term benefits that make for a happy, well funded retirement.
How regularly do you check your super? Do you have a checklist that you review periodically? If you do, share it here in the comments.
“This document or website contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making an investment decision. Charter Financial Planning Limited and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.”