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Your golden years are the time to kick back and start doing all the things you’ve wanted to do, and stop doing the things you don’t. Unfortunately, thanks to bad luck or poor planning, not everyone is able to ease into retirement by the age of 65.
The main key to retiring in style is leveraging your superannuation fund. This guide explains how to devise a superannuation strategy that works for you and how to plan for further income in old age, and gives you tips for pulling it all together.
In all cases your first step should generally be to consolidate your super into a single fund, unless you’re deliberately keeping them separate. This means choosing the right type of super fund and knowing about the available options. If you already have your super fund sorted out and are crystal clear on all the details, then you might want to jump ahead to planning your income in retirement.
Otherwise, start at the beginning.
Choose from an extensive range of investment options and enjoy discounted rates on select banking products when you join AustralianSuper.
*Past performance data is for the period ending June 2020.
Once you’ve established your long-term superannuation fund you can start growing your investments. Before doing so, it can be worth making sure you’ve chosen the right option.
The table below gives an overview of the different options. Note that these options are not all mutually exclusive. For example, you might get a MySuper through an industry fund, or your employer might not offer any kind of corporate super fund.
Defining features | Pros | Cons | Who is it good for? | |
---|---|---|---|---|
MySuper | The default fund. Simple and effective | Simple and cost-effective features, fewer and lower fees, effective investments | Other funds may be preferable for you | Everyone |
Self-managed super fund (SMSF) | Assume full control of your own super fund and investments | Potentially greater returns, a high level of flexibility and tailoring, can be held by up to four people | Greater risk, can be a lot of work, requires some financial and legal know-how, you are personally liable for all losses, does not include insurances | Experienced investors, people with very specific retirement plans, groups of 4 or fewer who want to share retirement plans |
Retail fund | Commercial superannuation product sold to consumers | Many options, can offer substantial returns, some offer a MySuper option | Typically has higher costs and fees, the company retains a profit, can vary widely in many ways | People who have compared a specific retail fund to other options and found it to be preferable for them |
Industry fund | Non-profit industry super fund, membership based | Can offer industry-specific benefits, mid to low cost, some offer a MySuper option | Fewer options than retail funds, higher costs than MySuper, some but not all are restricted to employees of certain industries | People who can benefit from the specific advantages of that fund or are in a relevant industry |
Corporate fund | Employer superannuation for employees | Varies depending on the company and fund | Varies depending on the company and fund | Employees of that company |
Here are some tips on how to choose a super fund type:How to pick a super fund
How to compare super funds:
Despite huge share market falls early in the year, the top super funds ended 2020 up almost 10%.
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Read more…An investment strategy is all about mixing up growth and defensive investments until you have a balance that works. Growth investments are the high risk ones such as real estate or shares that may considerably increase or decrease in value, while defensive investments are the low risk ones like cash and fixed interest accounts that generally won’t lose much value.
Superannuation investment strategies can be divided into four groups, representative of most of the options out there. Going with your personal taste for risk versus reward can work, but there are some other factors to consider, in particular:
Note that these options do not apply to MySuper, which has its own special strategies explained further below.
Type | Approximate investment mix | Typical expected return | Expect a loss | |
---|---|---|---|---|
Growth | High risk, high return | 85% shares and property, 15% cash or fixed interest | 6.2% | 4 or 5 years in 20 |
Balanced | Medium risk, medium return | 70% shares and property, 30% cash and fixed interest | 5.7% | 4 years in 20 |
Conservative | Low risk, low return | 30% shares and property, 70% cash or fixed interest | 4.2% | 0 years in 20 |
Cash | No risk, guaranteed returns | 100% fixed interest with Australian institutions | 2.9% | 0 years in 20 |
When picking an investment strategy, some of the most important factors to consider are your age, your situation and your personal taste for risk.
MySuper has two straightforward investment options. The default, and the more popular of the two, is generally equivalent to a balanced investment strategy. You can find out more about the exact investment strategy and breakdown by checking with your super fund.
The second is the lifecycle investment strategy option, which automatically adjusts the risk levels based on your age. A typical lifecycle investment strategy mix might look like:
Superannuation is just one of your post-retirement income sources. Knowing about and planning for all the other ones that may apply can help you balance the budget. After retirement you may still earn income from sources like:
Once you know how much you will need for retirement, you can look at these expenses next to your sources of income. In addition to this, there are several ways to manage your superannuation income to make it work for you.
Upon retirement, you are able to get paid the total amount you have saved in your superannuation fund, and can divide that amount into specific types of payments. Depending on your situation, you can use these options to make your retirement funds go further.
Lump sum: Get super paid out as a lump sum.
Regular income stream: Get paid from your super in regular instalments.
Purchase an annuity: Annuities can give you guaranteed income and other advantages for defined periods, but typically do not pay as much as other options.
You can combine the above options as desired to create an after-retirement financial plan that works for your needs. One of the main ways to save more money here is with the considerations around superannuation payouts, for example ensuring any lump sums fall short of the taxable threshold. Consulting a financial adviser ahead of time can be a valuable way of planning for retirement and making sure you’ve optimised your finances.
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