Live life by design, not by default

We don’t let other people control any other big life decisions, so why let them decide the fate of our super?

When you’re in your 20s and 30s, it’s hard to imagine being retired, so super is something that often takes a back seat. After all, there are so many other things that seem more important, and frankly, more interesting.

At this age, life can be hectic. You’re probably working long hours, paying the mortgage and maybe even running the kids around, not to mention trying to fit in some fun. So there’s not a lot of time left to sit around and contemplate your super.

That said, there are lots of reasons why taking ownership of your super now will make retirement a whole lot more enjoyable when it does come around. Here are just some of them.

Increased life expectancy is both good and bad

Life expectancy is increasing all the time – the current average is 84 for women and 81 for men, which means some of us will live a whole lot longer than that.

While this is good news for you, it mightn’t be such good news for your super, and it’s the reason why “longevity risk” – the risk of outliving your retirement savings – has become such a big issue.

So if you’d rather be watching the sunset in Santorini than watching every cent, you might want to make sure your money will last as long you will.

You need more super than you think

To keep the good times coming when you finally do have the time to enjoy them, you’ll want enough super to fund the kind of lifestyle you have in mind.

And, don’t rely on the government to save you. The current age pension is only $658.70 per fortnight for a couple, so it’s more about surviving than thriving (especially with new reductions and restrictions coming in from time to time). While it can be wise to use the pension to supplement your retirement income, you don’t want it to be your only source of money.

Current thought is that you may need at least $590,000 for singles and $615,000 for couples to live off an income of $43,665 and $59,971 a year respectively, along with a part age pension (assuming investment returns in retirement of 5% a year).1 So say you’re in your 20s now, have $25,000 in super and are only adding around $5,000 every year, it could be time to step it up a gear.

The sooner you start, the better off you’ll be

As if being young doesn’t come with enough perks, it also gives you the precious gift of time. In terms of your super, that means you could have around 20 to 30 years to get into some good habits and watch your super snowball. Smart strategies to consider include:

  • Choosing right investments – In general, the longer you have until retirement, the more risk you might be comfortable taking with your investments to give you potentially higher returns. This means you might want to invest in shares and other growth assets, which can outperform “safer” options such as cash and fixed interest over the longer term. Don’t wait till your 40s to have a good think about what you want to achieve and the sort of investments that might get you there.
  • Consolidating your super – If you’ve worked at different places, you might have several super accounts, and this means paying multiple fees. Bringing all your super into the one fund can help you simplify your finances and save on fees. What’s more, it means all your super’s in your preferred fund, where, if you’ve chosen well, it will presumably work harder for you.
  • Adding extra contributions – Boosting your super through salary sacrifice payments or lump sum contributions is a great way to bump up your balance while taking advantage of super’s low tax rate of 15% (which can be a lot less than the marginal rate of up to 47%).
  • Making the most of compound interest – Time is a beautiful thing, especially when it comes to investing. Every time you add to your super, you’re earning returns on a larger balance, and these returns then get reinvested. Even if you’re only adding small amounts regularly, doing this over the long term can make all the difference.
  • Paying for your insurance out of your super – Insurance through your super fund is often competitively priced, so it may be cheaper than other insurance.

Remember, no one cares more about your super than you

While we want to have control in so many other aspects of our lives, far too many people leave their super in their default super fund. While this might be a good option, the point is to be aware and engaged with your super so you can design your own future with the assets and choices you have. Over time, taking a bit of care and finessing your investments could make a big difference later.

After all, you wouldn’t let your employer be in control of your mortgage or any other major decisions, so why would you let them (or anyone else for that matter) decide what happens to your super?

At the end of the day, it’s your money – albeit money that you get to enjoy later. And by paying more attention to it now, there’s more chance that when you do enjoy it, you’ll be beside your chateau pool in the South of France!