Superannuation and planning your financial future

Key points:

• Superannuation is an important part of the retirement system
• Depending on when you are born, you can generally access your superannuation from age 55 or older
• You should discuss with a financial advisor about ways you can develop your wealth so you can live the retirement life you want to lead
• Keep an eye on how your super fund is tracking and check its performance at least once a year
• Self-managed super funds aren’t for everyone and you should carefully consider if it is the right option for you

What is super?

Superannuation is one way of saving for retirement. It is money that is set aside by you or your employer during your working life that becomes available when you’re older and is designed to help you fund your retirement lifestyle. Currently the Australian Super Guarantee which you receive is 11.5 percent of your regular income, and the amount paid into super is set to rise to 12 percent by 2025.

You can also choose to add more money into your super fund on top of the required amount if you want to, by having an agreement with your employer that they will pay some of your wages as super contributions instead of directly to you. This is called salary sacrificing and can reduce the tax rates paid for your income.

During your working life, the super fund looking after your money will invest your Super Guarantee and salary sacrificed funds and the return of those investments will grow your super over time.

When can you access your superannuation fund?

There is no fixed retirement age in Australia, however, you can only access your superannuation from 55 years old, depending on your date of birth. This is also referred to as the preservation age. If you were born before 1 July 1960, 55 is the preservation age to start accessing your super. If you were born after 1 July 1960, the preservation slowly increased depending on the year you were born and can be up to 60 years old if you were born after 1 July 1964.

When planning how much income you will need from super and other sources after you retire, it is important to think about the kind of lifestyle you want to live.

For a comfortable lifestyle where you have a decent amount of money to spend in the week on non-essential items, the general guide is 80 percent of the income you had before you left the workforce. For example, if you earned $100,000 in your last year of working full time, you can expect to need about $80,000 a year to live with the same expenses and spending in retirement.

How much super will I need to retire?

The Association of Superannuation Funds of Australia suggests that to live a modest lifestyle (as of October 2024):

• A single person will require $638 dollars per week or $33,134 dollars per year
• A couple will need $918 dollars per week or $47,731 dollars per year

This amounts to $954,620 for 20 years’ worth of savings for a couple or $662,680 for a single person.

To live a comfortable lifestyle (as of October 2024):

• A single person will require $1,001 dollars per week or $52,085 dollars per year
• A couple will need $1,410 dollars per week or $73,337 dollars per year.

This amounts to $1,466,740 for 20 years’ worth of savings for a couple or $1,041,700 dollars for a single person.

However, these rates don’t take into account any effect that the COVID-19 pandemic may have had on your financial situation or lifestyle. Additionally, if you are renting and don’t own your own home, you may require a greater amount of funds.

You should be realistic about when you are going to retire. Consider future medical conditions you may develop or if you should plan to work for longer or transition to retirement to better boost your savings and superannuation.

Many people look at superannuation as ‘guaranteed’, however, that isn’t always the case, as superannuation is subject to market fluctuation through the year, just like any other investment. It shouldn’t be a ‘set and forget’ approach either, but it’s wise to review all your finances and how you’re tracking against your goals regularly.

Factors to take into account with super funds

There are some factors to take into account to get the most out of your super:

• Watch your super – keep track of how spread out your super is across different accounts as this can add unnecessary fees to your super. Consider consolidating your super into one account
• Performance – look at the current and past performance of your super fund over the last five years to see how your superannuation should grow and whether the returns will be what you are looking for
• Insurance coverage – Most super funds provide insurance for their members, like life insurance, income protection – which protects your earnings while you are working, or total and permanent disability (TPD) insurance. Having insurance through your super can result in cheaper premiums, but it does impact your balance as you will be paying for this coverage through your super account.
• Fees and charges – Super fund fees can include investment fees, buy and sell fees, membership fee (yearly), administration fees, and advice fees. Some funds may seem attractive because they have low fees – however, this could mean the returns won’t be as high.
• Extras and benefits – Each super fund has its own benefits and extras in place as an incentive to join. For instance, a lot of providers offer financial advice (free or for a fee), gym membership discounts, shopping discounts, and more
• How a fund invests – When you’re looking into a potential new super fund, make sure you understand how they invest your super because this can tell you a lot about how they manage risk. Ethical super funds are becoming more popular with people preferring to invest in renewable energies or anti-oil options. But if a super fund is investing mostly in non-renewable resources or doesn’t have a diverse portfolio, it can mean they are investing in a sector which has limited longevity
• Risk profiles – If you are changing your super to a new provider and you are over 60, you need to carefully consider what investment option you choose. Everyone has a different risk profile and it can depend on your current financial situation and how far off you are from retiring. Many retirees tend to have a balanced or conservative super account

Self-managed super - is it right for you?

You can choose whether to have a managed fund, through an industry or retail group which will invest your money on your behalf, or a private self-managed super fund (SMSF) where you choose how your money is invested.

There are a number of reasons why people decide to run or join an SMSF. These are just a few pros and cons of self-managed super funds as there are a lot of restrictions and legalities around running an SMSF.

Some benefits of SMSF include:

• more freedom to invest in what you want;
• a larger pool of investments to choose from, for example, collectables or physical gold;
• expanded investment portfolio; and
• better tax benefits and strategies.

Some downfalls of SMSF include:

• high insurance premiums;
• big legal risks;
• all the responsibility is on you;
• managing a super fund can take up a lot of time;
• fees can be higher depending on your assets (in certain circumstances);
• you’ll be paying for audits, levies and financial advice;
• maintaining documents and records for up to 10 years; and
• restrictions on certain investments.

Regardless of your superannuation situation, just having retirement savings and super as your only form of funding in retirement is like having all your ‘eggs in one basket’. Other investment options that could diversify your savings include stocks and investment properties.

Get expert advice from a financial adviser about how superannuation fits in your retirement plan and how you can ensure you won’t run out of money when you retire.

Search for accredited financial advisors near you or call 1300 863 216 to speak to someone independent about your financial future today.

Disclaimer: The information on this site is general in nature and does not constitute legal or financial advice. Readers should seek their own personal legal and financial advice from a suitably qualified practitioner.

Related content:

Self-managing your super fund
What to consider when choosing a super fund
How do financial advisors help with retirement planning?
When is the best time to start planning for your retirement?