Sarah Sharples
news.com.au

Here’s the best ways to make the most of your money at each stage of your working life, so you can live the good life in retirement.

With warnings that Aussies don’t have enough superannuation saved up for their retirement, people are scrambling to find out what they can do to boost their pot of money.

First up, Aussies need to get their heads out of the sand and find out how much superannuation is actually in their account.

A recent survey revealed that 35 per cent of Australians with superannuation aren’t checking their accounts frequently enough, according to Finder.

Gen Z are the most likely to say they never review their super, while almost a third of Baby Boomers look at their retirement fund more than once per month.

Alison Banney, money expert at Finder, recommends Aussies review their super account on a quarterly basis.

“Your employer is required to pay your super guarantee four times a year, so it’s a good idea to check you’re receiving the right contributions,” she says.

“While checking your account too frequently can risk you getting caught up in short-term market volatility, it’s worthwhile to see how your fund is performing over the long term, and make the decision to switch funds if necessary.”

Superannuation amount depends on the retirement you want

While the Association of Superannuation Funds of Australia recommends couples need $62,000 a year for a comfortable retirement and $42,000 for singles, Andrew Heaven,

AMP financial adviser tells news.com.au that a benchmark figure is fine but it really depends on people’s lifestyles.

“I have clients that are very comfortable on $40,000 and others that struggle to achieve their goals on $100,000 that year,” he says. “Given that conundrum, how do you attack that issue?

Reflect on what retirement means to you and what lifestyle expectations you have. You may have the heard the magic number of 75 per cent of pre-retirement income, but then my advice would be what 25 per cent of pre-retirement income would you be willing to cut?”

He advises people to get a handle on their living expenses and what luxuries they won’t give up – whether that’s eating out or travelling.

“People get really hung up on a number and say they need to have $400,000 in super by the time your 40 and I completely disagree with that as you are always benchmarking against your peers,” he says.

So how do you make sure you’re headed for a good retirement and that your superannuation is making the best bang for its bucks?

Get a better deal from super provider

A third of Aussies with superannuation aren’t convinced they’re getting a good deal on their fund, according to Finder’s Consumer Sentiment Tracker, a survey of over 22,500 participants.

“Some providers may charge an exit fee of $40 to $60, however this is negligible compared to the cost of sticking with a poor fund,” Ms Banney says.

According to research company Chant West, the median growth super fund achieved a 3.7 per cent return in 2020, while the top super fund returned 9.6 per cent.

For the average Australian with $89,927 in superannuation, that’s a difference of $5306 in a single year.

Ms Banney says when it comes to superannuation, it’s all about balancing performance and fees with your financial goals.

“Look for funds with a history of high long-term investment returns, coupled with annual fees around one per cent of your account balance or less,” she advises.

“It’s tempting to stick with a fund simply because your employer chose it. And on a low balance there isn’t much of a noticeable difference between funds.

“But once you’re a few years into the workforce and your super starts to grow, the savings potential could add up to thousands of dollars per year. Switching to a high-performing fund now is the first step to setting yourself up for a comfortable retirement.”

Choose your fund strategy based on your age

The type of fund you choose should also depend on your age, Ms Banney says.

“If you’ve got another 40 years of working left, you’re better off opting for a high-growth fund. These can be more volatile in the short-term as they have more exposure to shares, but over the long run you’ll likely reap greater returns.

“Meanwhile if you’re getting closer to your retirement, a balanced or conservative fund will grow your wealth with less risk of your balance declining. For the more socially conscious, there are a number of high-performing ethical super funds on the market that invest in environmentally and socially friendly companies.”

How to grow your nest egg in your twenties

The last thing on your mind is your retirement fund because you can’t access it for more than 30 years down the track, but this is the time to take risks, according to Mr Heaven.

“You can afford to take risks and chase growth in share portfolios and invest in high growth assets as you have time on your side to allow markets to recover if they fall,” he says.

If you earn between $38,564 and $53,564, take advantage of the government co-contribution. It works on a sliding scale depending on your salary in that range, but it can mean kicking in an extra $1000 and the government matching it with a $500 contribution.

“It’s an outstanding free kick and one people forget about,” he says.

If you’re earning more than this, make a salary sacrifice contribution as it’s only taxed at 15 per cent. If you’re making $40,000 for example, you are paying a tax rate of 34 per cent on your salary.

You can also use the first home super saver system – salary sacrificing up to $10,000 a year on the lower tax rate – and then pulling out $30,000 to buy your first home.

If you’re planning on having kids and may be out of the workforce for a period, beef up your superannuation while you’re still working, he adds.

Thirties are tough times for saving

The hardest time when it comes to your superannuation is the 35 to 45 age group, according to Mr Heaven.

“You are dealing with competing objectives, either to buy a home, pay for a home and feed kids, while achieving at work and savings for retirement,” he says.

How manage your finances in your forties

If you have a young family, focus on getting rid of debt, says Mr Heaven, but also chuck in some money to salary sacrifice if possible.

“Paying down debt is a form of savings and you are coming to the apex of income earning over the next 15 years, so you are setting good habits for the future.”

Home stretch to retiring

“You are on the run down into retirement so you need to make every post a winner in terms of using the superannuation system and target getting as much into that super bucket,” Mr Heaven says.

If you’ve got a few years left, get as much money in as possible at the lower tax rate, he recommends.

If you don’t have enough saved, consider transitioning into retirement by going down to part-time or contractual work.

“Grit your teeth and work longer on a full-time basis for targeting that magic number for retirement,” he says. “Or you can revisit your income objectives and instead of $50,000 for a moderate retirement you could be looking more at $40,000 a year.

“The last one is you can spend the kids’ inheritance and leave less to the next generation.”

The aged pension

Currently, the aged pension is $24,770 per year for a single – which equates to $952.70 a fortnight. For couples, its $37,341 a year, which amounts to $1436.20 a fortnight.

But no one wants to live off the pension, notes Griffith Business School professor Robert Bianchi.

“Everyone wants a better quality of life or better standard of living at retirement,” he says.

Currently assets between $263,250 and $394,500 if you are a homeowner who is single or in a couple and $473,750 and $605,000 for non homeowners impacts your eligibility for the pension.

Assuming you own a home and have no other assets, Dr Bianchi says people can estimate the gap between the aged pension and what they need for a comfortable retirement.

For single people, he estimates that they would need between $318,000 and $500,000 in their superannuation fund.

People can roll their superannuation pot into another product like the share market, hedge funds, commodities, real estate and bonds, he says, although some of these can be risky.

Alternatively, people can look at placing that lump sum into an annuity financial product, which could give you a return of between $3500 and $5500 on every $100,000 invested, and help to bridge the gap between the pension and a comfortable retirement, he says.