Super worried: My retirement balance sucks – what can I do?
My super balance is far below what it should be at my age.
I have a problem with my super.
I'm 36, which means I'm about halfway to retirement. But I've got less than $25k stashed away for my golden years.
My number isn't half what a male in my age group has – on average.
Worryingly, the ASFA says I should have a balance of $118,000 to be on track for a comfortable retirement.
How can I get things moving? I speak to Alison Banney, Finder's in-house superannuation expert, to find out.
Alison says there are 3 areas I can focus on.
Choosing the right investment option
I'm invested in AustralianSuper's Socially Aware option.
This has returned an average of 5.86% p.a. over the past 5 years, and 8.62% p.a. over the past decade.
"Your fund's 10-year return is great, and certainly one of the better performers in the market for that risk level," says Alison.
"But, in comparison, some of the best-performing High Growth options have returned closer to 10 or 11% p.a. over the past decade."
Sounds like I'm a couple of percent short of where I could be. Why is that?
"A standard socially conscious or ethical option is usually more in line with a Balanced or Growth option, in terms of risk level," Alison explains.
"These options will usually invest around 60-80% of your balance into growth assets like shares, and the rest in more defensive assets like cash."
How can I boost my returns, then?
"By choosing a High Growth investment option, you'll invest around 80-95% of your balance in growth assets, investing a lot more heavily in local and international shares.
"Yes, this means it's higher risk in the short term and you can expect more volatility, but this often achieves better returns over the long term."
Alison adds: "Of course, if you're set on investing your super into an ethical option because it aligns with your personal values then that's important to weigh up too."
Time is on my side
Clearly, the magic of compounding interest is yet to do much for my super balance.
This isn't helped by a sucky 2022, when the industry posted a 4.3% loss overall.
But, in terms of super, I'm not that old, Alison assures me.
"If you're under 45 or even 50, you can generally afford to take on more risk with your super investments, if you're comfortable doing so", Alison says.
"You're in your mid 30s, so you've still got at least 30 years of working and contributing to your super."
"This is more than enough time to ride out any short-term market falls."
Reducing annual fees
My current fund has annual admin and investment fees of $250, based on my $25k balance.
Last year, I switched from a specialist ethical investor as the fees were so high.
"Put simply, higher fees will eat into your investment returns and cause you to retire with less money. So, the lower the better," Alison explains, adding:
"You're currently paying about 1% of your balance in fees each year. This isn't bad at all – the general rule of thumb is to aim for annual fees that are 1% of your balance or less.
"You're definitely in one of the lower-fee options. But there are still ways to reduce your fees."
"Some of the lowest fees in the market are with indexed investment options. These are typically very low cost as they invest passively in a range of index funds as opposed to individually-selected shares."
Alison continues: "For example, Hostplus' Indexed Balanced option has annual fees of closer to 0.50% p.a. and has achieved similar returns (albeit slightly lower at the moment) to your current fund."
"Investment giant Vanguard has also recently launched a super product based on its index funds with low fees of just 0.58% p.a."
"If your current fund offers an indexed option, you can choose to switch to it at any time via your fund's mobile app or internet portal.
"If you want to switch to an index option with a different super fund, you need to join that fund and select the indexed option."
And what if I do want to continue with investing in an ethical option?
I'm keen to offset … the risk of my kids despising me in the future.
"You could look for another ethical fund with lower fees. UniSuper is one option. It has some of the lowest fees in the market", says Alison.
"Its Sustainable Balanced and Sustainable High Growth options have annual fees of closer to 0.50% p.a. and 0.60% p.a. respectively, plus they've achieved great 10-year returns of 7.7% p.a. and 9.7% p.a."
Alison adds: "That's just one example, of course. Make sure you compare all your options and understand how the fund invests before deciding to switch to anything new."
Making extra contributions – while saving on tax
I've never made a salary sacrifice. Honestly I wouldn't know where to start.
Barefoot Investor says it's a good idea to look at this after you buy a home.
I've now done this, but wonder if it's time to check in with the 2023 views of Scott Pape.
My lender's just confirmed I'll be paying $1,000 more than I did the same time last year – up from $800 in the last mortgage hike a couple of months ago.
The point being, money's very tight at the moment.
However, finding a way to commit any extra money into your super could well pay off in the long run, according to Alison.
"One of the fastest and most effective ways to increase your super balance is by making additional contributions, and the easiest way to do this is via salary sacrifice."
"All you need to do is decide how much of your pre-tax pay you'd like to send to your super instead of your bank account on pay day, and your employer will handle the logistics."
"It doesn't need to be huge sums of money either. Small amounts will still make a big difference over time."
"You're 36, and if you start contributing an extra $30 a week now you could retire with an extra $64,600. If you start contributing $50 a week, this increases to an additional $107,700*."
"By contributing extra money to your super this way you're not only helping your balance grow, but you're also paying less tax.
"Concessional super contributions are taxed in your fund at 15%, which is likely to be much lower than your standard income tax rate."
Alison adds: "However, once the money is in your super you can't withdraw it, so make sure you're only contributing what you can afford to live without.
"At the moment due to the cost of living, that might not be much at all and that's okay."
Compare some of the best performing super funds in the market.
