Last Updated on Dec 23, 2019 by James W
For many Australians, the phrase ‘out of sight, out of mind’ is an accurate descriptor of their superannuation funds. But since this money will shape the way you live out the later years of your life, it is time to take a closer look.
Do Your Research
Since a 0.5% increase in fees can alter the average full-time worker’s super balance by as much as 12%, do some thorough research into what the best option is for you. First, you need to decide whether to set up a self-managed super fund, where you are in charge of all decision making, or choose another super fund, where the company invests your money for you.
If you choose to have a self-managed superannuation fund, it is worth consulting an SMSF accountant who will be able to provide you with a wealth of knowledge and advice to ensure your fund is set up correctly to generate the maximum benefit. If you choose a fund, then check the fee structure and risk profiles carefully. You can choose a conservative investment profile, with low risk but a lower level of returns, a growth profile, with higher risk and higher profits, or a balanced or moderate profile, which sits somewhere in between.
Start Saving Early
People are often tempted to put off making extra superannuation payments until further down the track. However, because of the way that compound interest works, even if you save double the amount of money each month in five years, you will never catch up to someone who started putting money aside earlier. Compound interest is the perfect motivation to try to put small regular additional payments into your superannuation as soon as possible – starting today if you can!
Make a Plan
You might have heard that you need $60,000 a year for a couple and $43,000 a year for a single person to retire comfortably. But what is comfortable for one person may be excessive for another, or unbearably frugal for someone else. Try to map out precisely what your current expenses are per month.
Think about how your ideal retirement looks. You might want to spend your days reading books and tending to your garden, in which case you could be happier with a smaller annual expenditure. But if you see retirement as your opportunity to travel the world and stay in five-star hotels, your budget will look entirely different. By making a plan, you can ensure that your expectations meet your financial circumstances.
Bid Farewell to Your Mortgage
Living a mortgage-free life seems like a Utopian existence, but with a solid long-term plan, it may be more achievable than you think. Getting rid of this debt before you retire will significantly reduce your ongoing expenses, allowing your superannuation to stretch further. Of course, you will still have electricity bills, water bills, and council rates coming in, but owning your house outright gives you a wonderful sense of security. Not only that, but you will save thousands, possibly hundreds of thousands of dollars in interest by paying your mortgage off early.
Medical Insurance and Health Coverage
It is likely that your medical expenses will increase as you get older. Taking a look at your healthcare policy now could save you big bucks later on. As the years go on, services like pregnancy and fertility become much less helpful than hip replacements and optical cover, so make sure you have the best policy for you.
Plan carefully now, and you will be able to enjoy the dividends when you retire.
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