Superannuation is one of the most effective wealth creation tools in Australia today.
Unfortunately, however, there are simple mistakes people regularly make, which means their super account is not working as effectively as it could for them.
Over the long term, these super blunders could have a lasting impact, so it’s worth checking that you’re not making any of these five mistakes.
Having multiple super accounts
A common mistake is not electing a super account.
Most employers have a super fund they default to, but you’re well within your rights to ask them to pay into an account you already have. If you don’t name a super account when you change jobs, it’s possible that each employer will have started a new account in your name.
More than a third of Australians have more than one superannuation fund – and many of these are inactive. If you’ve had more than one job, there’s a good chance you could fit into this statistic.
It’s worth making sure you know exactly what your situation is, as multiple accounts mean multiple fees.
It’s also far easier to take control of, and grow, your super if you’re only focusing on one account.
Do some research, or talk to an expert about which super fund is best for you before consolidating, so that you’re not stung by withdrawal fees.
Many funds offer an online consolidation tool. If you’re not sure how many accounts you have, head to the Super tab on the ATO’s website and click on ‘Keeping track of your super’.
Not making regular contributions
Aussies tend to rely solely on superannuation guarantee contributions, but it might not be enough to lead you to a comfortable retirement.
Your employer is required by law to deposit a percentage of your income directly into your account, but you can also make contributions on top of the minimum amount by sacrificing part of your salary.
If you salary sacrifice, the money will go from your pre-tax income straight into your super fund, where it will be effectively taxed at 15 per cent. This rate could be a lot lower than your individual income tax rate. Super is one of the longest-term investments you’ll likely have and can be a tax effective way to save money for the future.
Not reviewing your investment strategy
It’s simple to just set up your super account and then let it run itself, but you should review your situation and decide on the smartest investment option. Consider the suitable risk, goals, and investment time frames, and alter them when necessary.
Typically, when you start a super account, you decide on your investment options based on risk profile. If you don’t specifically choose an investment option, most super funds will invest your money in a balanced mix of assets with the goal of earning you solid investment returns over the longer term with some likelihood of shorter-term volatility.
But you might want to adjust this depending on your life stage. If you’re a long way from retiring or drawing down on your super, you might be more comfortable with taking risk in the short term for the possibility of a better long-term payoff. In this case, you might want to choose an investment option that skews more to growth assets such as shares.
Alternately, if you’re closer to retirement and can’t risk a short-term market downturn having an unfavourable effect on your super balance, a more conservative option with a skew to lower-risk assets might be the way to go.
Periodically reviewing your superannuation investment strategy is imperative to determine if any investment options need to be changed and should always be done in conjunction with a qualified adviser.
Not checking what insurance is in place
Another common mistake is not being aware of the type of insurance your fund offers and the rules around when it does and doesn’t apply.
For example, Will Barsby, a superannuation law expert at Shine Lawyers, says the income protection attached to most super funds is great, but it may not apply if your balance drops below a certain level.
“Probably the number one thing we see is a lack of regular contributions,” he says.
“If you take a break from work or you go travelling or on parenting leave and let the balance drop, the insurance drops. The easiest thing to do is get on the phone to your super fund and make sure you have active insurance in place. Make sure you have the right level to protect your time. People get letters from their super funds all the time; it’s important to read them and understand them.”
Not planning ahead
This one may not benefit you as such, but someone close to you. It’s a common misconception that your super will automatically form a part of your estate when you die. But it’s important that you nominate who you want to receive your super and any insurance benefits in case you pass away unexpectedly.
A binding beneficiary nomination is one way to do this, and it’s usually a simple form that gives your super fund explicit instructions. Doing this will prevent any delays or challenges when it comes time to distribute the assets to your loved ones.
With so much at stake, it makes good financial sense to ensure your superannuation is working at its optimum for you today and well into your future.
Do you regularly review your super account? Do you know how many super accounts you hold?
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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.