How much do you know about superannuation? The more you understand it, the better you can manage your retirement savings. Sadly, many people don’t know enough about this important fund, which can lead to missed chances for a better future.
Superannuation is more than just a savings account. It’s a tool to help you build wealth for retirement and an investment in your future.
What is superannuation?
Superannuation, or ‘super,’ is a vital part of the Australian retirement system, designed to help you save for your future. Super is money set aside by your employer throughout your working life, providing you with funds to live on when you retire from work.
For most people, superannuation starts when you begin working. Your employer contributes a percentage of your salary or wages into your super fund, on top of your regular pay. This employer contribution is essential, but you can also choose to make additional voluntary contributions, up to a certain cap, to boost your savings.
Superannuation is important because the more you save, the more financial security you’ll have in retirement. By understanding how super works and making informed decisions, you can maximise your retirement savings and create the lifestyle you want. This involves not only relying on employer contributions but also actively managing and optimising your superannuation.
Let’s delve into key aspects of superannuation: the differences between industry and retail funds, what constitutes a balanced fund, how to choose the right investment option, the role of insurance in super, and strategies to ensure you’re getting the most out of your superannuation. By exploring these elements, you can make the most of your super and secure a comfortable retirement.
What is a balanced fund?
A balanced fund is a type of superannuation investment option that aims to provide a mix of growth and defensive assets.
Typically, a balanced fund will invest in:
- Growth assets like shares and property, offer higher potential returns but come with higher risk.
- Defensive assets like bonds and cash, provide lower returns but are more stable and less risky.
Balanced funds are often used to compare returns between different fund managers. The term “balanced” suggests a mix of growth and defensive assets. However, many balanced funds have 60 – 70% of their investments in growth assets. This higher percentage can lead to more volatility than you might expect or want.
What investment option should I get?
Selecting the right investment option can be confusing, but consulting a financial planner can help you make the best decision based on your unique circumstances, goals, and risk tolerance. Common options include:
Conservative:
This option offers lower volatility and lower potential returns. It is suitable for individuals who are close to retirement or have a low risk tolerance. Those who prefer stability and want to avoid significant fluctuations in their super balance might find this option appealing.
Balanced:
This option comes with moderate risk and moderate potential returns. It is ideal for individuals with a medium risk tolerance and a longer time horizon until retirement. This option strikes a balance between growth and stability, making it a good choice for those who are looking for a mix of both.
Growth:
This option involves higher risk and higher potential returns. It is fitting for younger members or those with a high-risk tolerance and a long-time horizon until retirement. Individuals who are willing to accept more volatility in exchange for the possibility of greater returns might choose this option.
High Growth:
This option carries a very high risk and the highest potential returns. It is suitable for those willing to accept significant fluctuations in their super balance for the potential of higher long-term returns. Individuals with a strong appetite for risk and a focus on maximising their super balance over a long period might find this option suitable.
Do I have insurance through super?
The good news is that most superannuation funds offer a level of insurance cover for their members to offer peace of mind and financial security. Common types of insurance available through super include:
Life Insurance (Death Cover):
Life insurance pays a lump sum to your beneficiaries if you pass away, ensuring that your loved ones are financially supported in your absence.
Total and Permanent Disability (TPD) Insurance:
This type of insurance provides a lump sum if you become permanently disabled and are unable to work, helping to cover medical costs and everyday living expenses.
Income Protection Insurance:
If you are unable to work due to illness or injury, income protection insurance will provide you with a portion of your income, ensuring that you can maintain your standard of living while you recover.
Always review your insurance cover to ensure it meets your needs. You can often adjust the level of cover or opt out entirely if you have other insurance arrangements.
Take control of your superannuation today
Take control of your superannuation today and make informed decisions to create the life you want. For personalised advice and strategies tailored to your unique situation, call Marcus, a provisional financial planner at Live Financial Planning, to guide you on your journey to financial freedom.
Call Marcus today to start maximising your superannuation and creating the life you want!
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