Things I like talking about: hair and make-up; weightlifting; The Bachelor; superannuation. Weird huh?
I know it sends most people to sleep – but please, stay with me! Let’s do a deal. I will jazz it up and break it down for you. You will spend five minutes reading it. And then you then can go straight back to your important tasks like scrolling through Insta.
The thing is, you need to love super early in life to get the most from it. The earlier you start, the easier it is. (Magic of compound interest, yo!).
So here are the things I absolutely want you to know.
Choose a super fund. And give them all your money.
You could just stay with the fund you’re in, or the one your employer chose for you. But there are two reasons you might choose your own:
- If you have several funds, you need to pick one to roll all your money into.
- You prefer to make your own choice, not what some employer chose (I don’t even trust mine to pick the Friday arvo wine without my input).
So, let’s pretend you’re at a make-up counter. That’s way more fun huh? You’re looking for a foundation and your comparison points are texture, colour match and moisturising potential. Well it’s the same for a fund. You want to look at:
Performance (over at least 5 years, not 1 year, because this shit is invested for at least 30 years). All funds have to publish their performance figures, and you can find comparison tables here.
Fees – There used to a lot more variation in fees, but since the Government brought in ‘MySuper’ (a low-cost default scheme), the differences have shrunk. I am in a slightly higher-fee fund myself, because I have made a conscious choice to pay for ethical screening (see below) which is more work and therefore has a price premium.
Insurance – As we saw in Part I, your super fund usually comes with insurance. Make sure you aren’t losing the stuff you want or paying a lot more for it.
Your values and beliefs – Here’s something that will blow your mind. You may be invested in tobacco companies RIGHT NOW. No way huh? Yep, a whole bunch of super funds use asset managers who invest in tobacco. And coal mining. And armaments (bombs and guns!). And gambling.
How could this be? Well, you might think there are a bunch of besuited, bespectacled boffins at your super fund who invest your money. Wrong.
Most funds have a small group of boffins, who choose which fund managers will do the investing for them. It’s the same as when you go to a pub with no in-house kitchen (I’m looking at you, Darlo Bar). So you order a burger and it goes out to Grill’d. Or you order a pizza and it goes out to Crust. But then the bar-staff bring it to your table and give you napkins. This is how most super funds work. Fund managers get paid way more than Crust staff though.
So, super funds have a bunch of fund managers who are specialists in all types of investments, such as Australian shares, or international bonds. They award them a ‘mandate’, meaning ‘Here is $200 million – can you invest it for us please?’. This is not a bad thing. It means you have really focused specialists who are (hopefully) awesome at what they do. (Who wants a burger made by Crust?). It also spreads risk – if one fund manager gets it wrong, another one probably got it right (or less wrong).
So I have nothing at all against this model. I know a bunch of these fund managers and they are nice people and passionate about what they do.
However, it means you don’t always know where your money has gone. It could be in a nasty mining company or in a wonderful renewable energy company – you just can’t tell.
So, if you care about this, you have a couple of options:
- Choose your current super fund’s ‘green’, ‘ethical’ or ‘ESG’ option – if it has one. What that means varies, as there is no official definition, but you can ask them.
- Choose a ‘core’ ethical fund – That’s what I have done, rolling all my money into Australian Ethical. I should disclose that they are my client, but I would spruik them anyway, because they do all their own investments (no sending out to Grill’d), use a rigorous ethical screen, and have fantastic performance. (Coal is a bad investment huh? Who knew?). I can also tell you that the people who run the fund really believe in what they do. There aren’t really any other funds that work this way, so I can’t give you an alternative to compare it to.
Roll your money into one fund (aka ‘consolidation’)
Ok, so you have decided which is your favourite fund. Now it’s time to rescue your money from your other, unloved funds. Australians have a ridiculous amount of this unclaimed super – $16 billion! – and it’s legit like leaving $3000 in your winter coat pocket and forgetting about it. Except you’re paying fees to your wardrobe to look after it.
Or it’s paying multiple gym memberships. Imagine if you joined a gym every January in a fit of new year fervour, got bored of it by February, but you still paid the fees. Then you start a new gym the next year, and so on. If you’ve had several jobs and acquired several super accounts, this is exactly what you’re doing. PLEASE STOP DONATING TO SUPER FUNDS. They don’t need your money.
Donate it to your future retired self instead. She wants to spend summer in Europe in 2045, looking like Baddie Winkle. (If you haven’t seen @baddiewinkle on Instagram, you have no idea what your #retirementgoals could look like).
So, have you tried to do this in the past and there was a bunch of awful paperwork and then it was all too hard? Good news! It’s now much easier. The last few years have seen the super industry change their back-end systems (hello, 21st century!).
Also, your chosen fund wants you to scrape up all that spare money and give it to them. So, many will have free and easy ‘rollover’ or ‘consolidation’ services that do it all for you.
Bottom line: this is a low-effort, high-value task that will have a big impact on your final retirement savings.
Throw in some extra money.
I know, you want to spend that money on a mortgage, or a night out, or a new pair of shoes that you absolutely need and your feet may fall off if you don’t get them.
HOWEVER. Your Baddie Winkle self wants that money too, and she makes a convincing case for it.
First, she says, you’ll give less to the tax office if you make contributions from your pre-tax pay (called salary sacrifice or concessional contributions. I know, they need a branding intervention).
That means that instead of paying, say, 39 cents in the dollar in tax when you get paid, you pay just 15 cents. Of course, you can’t access it til retirement, and you may get taxed on some it when you take it out (long story there). But overall, you come out ahead.
Secondly, Baddie says, you will get compound returns. Which basically means putting $100 away today and leaving it for 30 years gives you a far higher return than waiting for another 20 years, investing it in 2036, and then only getting 10 years’ worth of returns.
The key to super is that the longer you have it, and the earlier you start, the easier it is.
Consider taking some or all of your next payrise as a salary sacrifice (just ask your payroll person). It’s money you’ve never had, so you won’t miss it.
Or just think about how much a month you waste on shit like wine and coffee, and match that amount. It’s like a sin tax.
Choose an investment option. Right now, if you have the default option, you have the same investments as 58-year-old Barry in accounting. Which is crazy, because he is retiring in a couple of years and you have aaaages to go. (Soz). That means you can probably tolerate more risk and get higher returns.
Picking the right investment option for your age is as simple as calling your fund and asking about it. Most of them can give advice on this issue. In general, if you are under 40, look at a growth option. (Although some funds call their default option ‘growth’ – it’s a long story – just frickin call them and ask).
And lastly, check your payslips and super fund statements. This is easy and important. When I joined my last employer, I gave them all the details for my super fund but some bright spark in payroll stuffed it up, and started paying it into their default fund. Because I am a nerd and checked, I spotted it. You need to make sure that you are getting what’s yours.
Also, checking your statement makes you feel like it’s your money and gives you an idea of whether you have enough (you probably don’t).
Ok, so, I probably lied about the five minutes thing. Sorry. I really love super.
But anyway, think about doing just one of these things and tell me what it is. Or ask a question – to me, or your fund! But maybe don’t ask Baddie – she is very busy hanging out with her celeb friends.