When it comes to planning for retirement, your superannuation is one of the most valuable assets you’ll ever own. Despite this, many Australians miss out on tens of thousands of dollars by making avoidable super mistakes. These oversights can have a significant impact on your retirement savings, and understanding how to sidestep them can make all the difference to your financial future.
At New Era Financial Planning, we’re dedicated to helping you make informed decisions that set you up for the retirement you’ve always dreamed of. In this article, we’ll explore five crucial super mistakes that many Australians make – and, importantly, how you can avoid them.
1. Ignoring or Not Knowing: The Most Common of the Super Mistakes!
One of the most common super mistakes is simply not knowing the details of your super fund. Many Australians have little idea of which fund they’re with, how their super is invested, or what their current balance is. This lack of knowledge often leads to missed opportunities to grow your savings, reduce fees, or increase your returns.
Why This Mistake Costs You
Without awareness of your super, you miss out on potential returns and may even face unintended fees or poor investment outcomes. Not knowing your balance or investment strategy could also mean that your fund isn’t aligned with your goals, leaving your retirement planning to chance.
How to Avoid This Mistake
- Check Your Balance Regularly: Set up online access with your super provider to easily check your balance, investment options, and performance.
- Review Investment Options Annually: Super funds often offer a range of investment options, from conservative to aggressive. Make sure your chosen option reflects your risk tolerance and long-term goals.
- Engage with Your Super Fund: Most funds provide annual statements that outline your balance, fees, and performance. Taking the time to read these statements can make a huge difference in keeping your super on track.
2. Having Multiple Super Funds
Many Australians have multiple super accounts from different jobs over the years, resulting in duplication of fees and sometimes even underperforming funds. Every extra super account means additional fees, often with no added benefit.
Why This Mistake Costs You
When you hold multiple super funds, each one charges fees. These fees might seem small on their own, but over time they can erode your retirement savings. Plus, multiple accounts make it harder to keep track of your superannuation, leaving you open to mismanagement.
How to Avoid This Mistake
- Consolidate Your Super Accounts: Using the Australian Taxation Office’s (ATO) online services, you can easily consolidate your super into a single account. This saves you from unnecessary fees and simplifies the management of your super.
- Choose Your Best Fund: When consolidating, pick the fund that best aligns with your goals, has a strong performance history, and reasonable fees.
- Seek Advice if Needed: If you’re not sure which fund to choose, a financial planner can help you assess your options and make a choice that’s best for your future.
3. Having an Underperforming Super Fund – The Cardinal Sin of Super Mistakes!
Not all super funds are created equal, and some consistently underperform compared to others. An underperforming fund can cost you tens of thousands of dollars over the life of your investment, leaving you with less money in retirement.
Why This Mistake Costs You
If your super fund underperforms, you miss out on the compounding returns that can significantly boost your retirement savings. Over time, even a small difference in annual returns can add up to thousands of dollars.
How to Avoid This Mistake
- Compare Fund Performance: Use resources like the ATO’s MySuper comparison tool or independent financial research platforms to see how your fund’s performance stacks up.
- Switch to a Better Fund if Necessary: If your current fund consistently underperforms, consider switching to one with a proven track record. Remember to weigh performance against fees – the two go hand-in-hand.
- Review Performance Annually: Superannuation is a long-term investment, so an occasional dip in performance is normal. However, if your fund underperforms year after year, it might be time to switch.
4. Being in a Fund with Overly High Costs
All super funds charge fees, but some charge much more than others. High fees can eat into your investment returns and reduce the money you have available for retirement.
Why This Mistake Costs You
While fees are necessary for the administration and management of your super fund, excessive fees can erode your investment growth. These fees might be for management, insurance, or other hidden costs that add up over time.
How to Avoid This Mistake
- Understand All Fees Involved: Check your annual super statement for details on fees. Look for administration fees, investment management fees, and any hidden charges.
- Compare Funds Based on Fees and Performance: When choosing or reviewing your super fund, look for one with a reasonable balance of performance and fees. The right combination can maximize your returns over the long term.
- Consider Moving to a Low-Fee Fund: Some funds, like industry super funds, tend to have lower fees. If you’re paying high fees for poor performance, it may be time to switch.
5. Not Making Extra Contributions
Relying solely on employer contributions might not be enough to provide the retirement lifestyle you desire. Failing to make additional contributions, even modest ones, can leave you short of your retirement goals.
Why This Mistake Costs You
Employer contributions alone may not be enough to grow your super balance significantly, especially when you consider inflation and rising life expectancies. Without extra contributions, you might need to work longer or adjust your retirement plans.
How to Avoid This Mistake
- Make Voluntary Contributions: Adding to your super via salary sacrifice or after-tax contributions can help boost your balance. Even small amounts can grow substantially over time.
- Consider Spouse Contributions: If you have a spouse with a low super balance, making contributions on their behalf can increase your household’s overall retirement savings.
- Set a Target and Plan Regular Contributions: Setting aside a portion of your income each month can make a big difference in the long run.
Conclusion
Your superannuation is one of the most important assets you’ll have in retirement. Avoiding these common super mistakes can help you maximize your super, reduce unnecessary costs, and ultimately achieve a more comfortable retirement. At New Era Financial Planning, we’re here to provide the guidance and expertise you need to navigate your super with confidence.
For personalized advice on how to optimize your super, reach out to us today. It’s never too early – or too late – to take control of your financial future.
FAQs – Super Mistakes & How to Avoid Them
Q: How often should I review my superannuation fund?
A: Ideally, review your super annually or whenever there are major life changes, like a new job. Regular reviews help ensure your fund is performing well and remains aligned with your goals.
Q: Can I have more than one superannuation fund?
A: Yes, you can, but having multiple funds often leads to extra fees and complexity. Consolidating into one well-chosen fund can simplify your super and reduce costs.
Q: How can I compare super funds effectively?
A: There are online comparison tools provided by the ATO and other financial platforms. Look for funds that have a good balance of performance, fees, and alignment with your risk tolerance.
Q: What is the benefit of making extra contributions to my super?
A: Extra contributions, whether through salary sacrifice or personal contributions, can significantly boost your retirement savings over time due to the power of compound interest.
Q: What happens if I choose an underperforming fund?
A: If your super fund consistently underperforms, it can reduce your retirement savings. Comparing funds and switching to a better-performing option can help you avoid this loss.
