Don’t ‘set and forget’ your super
There are a few pivotal points in your working life when you should review your superannuation.
Most people start their working lives sometime in their 20s, and in Australia, under employment legislation, your employer is expected to contribute to your super fund. What tends to happen then, is that most people just put superannuation out of their minds. Once it’s set up, they don’t think about it much … But a lot can happen in the years between starting your first job and then considering retirement.
… You’ll probably change jobs a few times, maybe you’ll travel, get married, buy a home, start a family, change careers, or start your own business, and all of these things have an impact on your finances.
You can use these key life/career milestones as an opportunity to review your superannuation.
If you’re changing employer, take a look at how well your super is performing, and the fees associated with it. If you’re getting a pay rise with your new role, is making more regular contributions something to consider now you have a bit more cash? Ask your employer about salary sacrifice arrangements that might be right for you. Another consideration, if you’ve had more than one employer, is whether or not you’re amassing a number of super funds. Would it be more beneficial to consolidate these and save yourself fees and charges? Consolidated super is easier to keep track of too.
If it’s just a little jaunt, then are no significant repercussions. But if you’re taking some serious time out of Australia – a year or two – consider how this will impact your super contributions. What’s your financial plan for making up this shortfall down the track? It’s a good idea to also check on your nominated beneficiary regularly. Super is not treated the same as other ‘assets’ in your will, if you pass away – if you’re going overseas, you should ideally have a will in place, and also set clear instructions for your super.
Are you able to take advantage of spousal contributions? While you can’t combine your super, understanding how you can make contributions to your spouse (and in some cases benefit tax wise), is a good idea. And while you don’t want to think about separation … In many cases divorce is a sad reality. In the event of divorce you also need to check your super. Super can be included as a divisible asset when going through the divorce process.
Buying / selling property.
Purchasing a house is as exciting as it is daunting. New debt is a big commitment, it should always be carefully considered. This is also a critical time to look over your super and just as importantly, to review your insurances to ensure that in the event of disability or death, your family does not lose the home you’ve worked so hard for. On the other hand, if you sell a property and you gain financially, then you should also consider making a contribution to your super.
Starting a family
When you’re starting a family, one partner might drop to part-time work or take significant time out of the workforce to raise the children. This will impact their super. What strategies can you put in place to minimise the impact of this in the long term? This is also the ideal time to check your insurance policies and make sure that you have provided financial security for your partner and your children if something happens to you.
Starting a business.
Ask yourself: How does this affect my super? Will you still be making regular contributions or taking a break for a while? How will this break affect you in the long term? Is this a good time to consider setting up a self-managed fund (SMSF)? Starting a business is exhilarating and hard work, and it’s also a considerable big risk – are you adequately insured for income protection or trauma if you can’t work for an extended period of time? Most superfunds offer generic cover, but it pays to check what those policies will actually pay – not just the circumstances you’re covered for, but how much you’re covered for. You could be much better off with tailored insurance cover to meet your individual needs.
Just because superannuation is designed to fund your retirement, it doesn’t mean that you should leave it to sit unattended to until you get closer to needing it. By regularly reviewing super and making extra contributions when you can, you set yourself up for more financial security in retirement.
Current figures estimate that you need about $1 million in your superfund by retirement to live comfortably. This depends on course of what income you want in retirement – some people will need more. But the average age of retirement falls between 60 and 65 years, and most of us are now expected to live until we’re 90 years or more. Twenty-five years is a long time. Your personal superannuation review should also coincide with an insurance review. This is simply a healthy financial habit to get into.
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