If ETFs are the lead singer of the band “Get Rich Slow” (which doesn’t exist, but should), superannuation is the amp technician. Sure, you’re glad they’re on the job, but you don’t really think about them, and you certainly wouldn’t buy a T-shirt with their face on it.
And I get it: super can feel boring. However, with the right approach, it can become the hidden star of your Get Rich Slow tour.
Because I want you to have every advantage in your quest for Financial Independence, my team at Pearler has created a superannuation resource guide. It doesn’t sell or promote anything – it only exists to give you some insight into your super.
In this article, I’ve summarised some of my favourite resources from the page, so keep reading for an overview. Or, if you’d rather peruse every resource at your leisure, simply click this link.
Superannuation basics: Why your super is super
To begin, I recommend this podcast episode of Get Rich Slow Club. In this episode, co-hosts Tash Invests and Ana Kresina peel back the boring jargon of superannuation.
They also provide a basic checklist for choosing a super fund, including fees and investment returns. Then, they shed light on different types of super contributions, other ways money goes to your super, and when you can access your super.
Factors to consider in choosing a super fund
When you’re sifting through super funds, there are several factors you need to consider:
- Fees – Ideally, you’ll want to aim for a super fund that charges less than 1% in fees per year.
- Risk and investment options – There’s High Growth, Balanced, Conservative, Cash, Ethical, and more. Not sure what to pick? Most super funds can give you free advice to help you make the right decision for your preferences.
- Investment returns – A good starting point is to look back over a five-year period. It’s a long enough period to factor in sharemarket trends, yet short enough to be relevant.
- Insurance – It typically boils down to three types: life insurance, total and permanent disability (TPD), and income protection. Focus on the premium rates, the extent of the cover, and any exclusions or definitions that could impact you.
Understanding contributions and withdrawals from your super
You’ve waded through the four essentials of selecting a super fund. Now comes the more exciting part: how to actually keep the fund growing to give you a wealthy and happy retirement.
- Employer contributions – Every month, your employer drops a coin (at least 11% of your ordinary time earnings) into your piggy bank. Not to worry if you’re casually employed; you’re still likely to receive this.
- Concessional contributions – Besides the employer’s coin, you can boost your super by throwing in some of your own.
- Non-concessional contributions – If your total super balance on 30 June this year was under $1.9 million, you can contribute up to $110,000 after-tax this financial year.
- Low income super tax offset – For earners below $37,000, the government may chip in with a low-income super tax offset of up to $500 per year.
- Government co-contributions – Earning less than $58,445 (before tax) this year? The government may match your after-tax super contributions with a co-contribution of up to $500.
- Spouse contributions and contribution splitting – Contribution splitting is another way of supporting your partner’s super. It lets you transfer up to 85% of your pre-tax super contributions to your spouse’s account.
- First Home Super Saver Scheme – This scheme lets you add up to $15k to your super account each year, earmarked for your first home purchase. You can continue adding until you hit $50k.
How much super should I have to retire comfortably?
Since the introduction of the Superannuation Guarantee in 1992, Australians have been asking: “How much super should I have to retire?”
There are two key factors to estimating how much super you’ll need to retire comfortably:
1. Your desired lifestyle
2. Expected costs to sustain that lifestyle
Let’s look at both a little closer.
Lifestyle and expectations
What do you imagine retirement will look like for you?
Maybe you plan to travel around the world, take up gardening, volunteer with charities, or write a novel. All these activities sound like great ways to spend retirement, but also vary considerably in their associated costs.
Some have tried to calculate the average income needed to answer the question those of us with a long-term outlook are asking. Even so, no two people are the same. We see these universal suggestions, and we’re still left asking, “But how much super should I have?”
Well, are you hoping for a comfortable or modest lifestyle in retirement? For some of us, it doesn’t take much to feel content. For others, we like to have nice things and don’t want that to stop when we retire.
These lifestyle expectations should be considered when figuring out how much super you need to retire.
Costs in retirement
Your expenses in retirement will be influenced by both your desired lifestyle and the other big costs you may incur. So, while you may take up a low-cost activity like writing a novel in retirement, you may plan to also pay off your mortgage. That’s too large a cost to overlook!
Other big costs include:
- Renovating your home
- Paying rent
- Travel
- Medical bills
To help you estimate how much you’ll spend when you retire, give the MoneySmart budget planner a go. This also covers day-to-day costs like groceries, transport, clothes and social activities. According to MoneySmart, if you own your own home, you’ll need about two-thirds of your pre-retirement income to maintain the same living standard.
So, how much super should I have?
If your goal is to retire comfortably, it’s helpful to go further than relying on industry standards. Consider your unique lifestyle preferences, current income, expected costs, assets and personal situation. Pearler’s Financial Independence Calculator can help you do that.
To read this article at your own pace, check it out on our blog.
How should I divide my money between superannuation and shares?
Not sure whether to put your money into your superannuation, shares or split across both? There are certain advantages and disadvantages to investing in either option, and it’s important to weigh these up before deciding.
Before you choose where to put your money, ask yourself these crucial questions.
What are your goals?
Are you hoping to build a bigger nest egg to enjoy a more comfortable retirement in your 60s? If so, you may benefit from making extra contributions to your super.
Or, are you planning to use your investment strategy to save up for, say, a house deposit? In that case, you might need more liquidity, which is why shares could be the more straightforward option.
Think about what you’re ultimately aiming towards and consider this goal when deciding where to invest.
When do you want to retire?
Your investment horizon – how long you want to hold on to your investments – is another major factor.
If you’re aiming to stop working at a younger age and achieve FIRE (Financial Independence Retire Early), shares may provide you with more immediate returns. You can access your money whenever you choose, meaning you’re not restricted by the age limits imposed by the current superannuation rules.
Alternatively, if you’re planning to retire around preservation age and have several decades ahead of you, you might be able to wait to access your investments.
How much do you want to retire on?
Start by working out roughly how much you expect to live on every year once you retire. There are various factors to consider here, including whether you own your home (and if you’re likely to continue paying off your mortgage during retirement) and what kind of lifestyle you want.
Then, look at your current super balance and contributions and figure out whether you’re likely to meet your retirement target. Depending on how long you have until retirement, investing in either super or shares may make more sense.
Want some help crunching these numbers? Try Pearler’s Financial Independence Calculator.
Will you need to access your investments before you retire?
As mentioned earlier, you might be investing for your immediate circumstances.
Perhaps you want to fund your day-to-day or discretionary spending, or maybe you’ve got a shorter-term savings goal such as a holiday or home deposit.
The money you put in shares can more or less be accessed whenever you want, whereas you’re not granted the same freedom with superannuation.
How much do you want to invest?
We know there are limits on how much you can put into your super before being taxed at a much higher rate. There’s also an additional tax if you’re earning over $250,000.
If you want to invest large amounts, share investing could potentially prove more lucrative. On the other hand, if you only want to invest a small amount, the fees associated with share investing might make your investment quite prohibitive.
What’s your risk profile?
Shares are inherently riskier than super, so it’s well worth assessing your risk profile. This is effectively a measure of how much risk you’re willing to take on, and it helps you determine what to invest in and how much to invest.
Generally speaking, the higher the risk, the higher the potential for strong returns. At the same time, there’s a higher chance of losing your money.
If you have a low tolerance for risk, you may prefer more conservative and historically stable investments – like blue chip shares , diversified ETFs, or your super. But if you’ve got a higher risk appetite, you might be willing to put your money into more volatile investments like growth stocks or funds.
How will your investment affect your taxes?
There are also different tax implications for investing in super versus investing in shares. Chat to your accountant to see how either option will affect your tax position.
The bottom line
At the end of the day, the decision on where to invest is entirely yours. You could put that extra money into your super as voluntary contributions, or you could invest in the share market.
Or, you could do a mix of both – potentially allowing you to reap the benefits of each investment option while minimising the drawbacks.
Seek advice from a licensed financial adviser who can guide you on the best investment strategy for your circumstances.
Read the article on our blog to fully explore the potential pros and cons of super and shares.
I hope these resources have given you food for thought around your super. For a deeper dive into all things superannuation, visit our super guide.
