Is your financial adviser delaying your retirement?

Australia has the fourth-largest superannuation pool in the world yet a large proportion of our population show no interest in their investments. This lack of interest is crazy considering your super account will likely be the most important factor affecting the age at which you retire and the quality of your retirement.

Up to 80% of people check their superannuation infrequently, and hardly ever — or never — consider making changes to their investment options, as reported in a recent study by the Centre for International Finance and Regulation.

Wait a second, I have a financial adviser, some might say.

Fantastic, but have you checked their performance against a common superannuation fund, and what difference do their additional fees really have on your retirement?

Following a recent discussion with a friend who signed up with a financial adviser this year, I was shocked by the ludicrous fees being charged and decided to see how many years this adviser’s fees were delaying his retirement.

The numbers

This example uses an initial superannuation balance of $50,000 which earns a return of 9.0% per annum for 30 years. No additional contributions have been made for simplicity.

Case 1: no fees

The value of $50,000 after 30 years at 9% per annum is $663,000.

Case 2: annual fees = 1.0% (typical industry super fund)

After deducting 1.0% annual account fees, the ending balance after 30 years reduces by almost 25% to $503,000.

Case 3: annual fees = 2.5% (financial advisor fees)

For the final analysis, annual fees are increased to 2.5% per annum to account for an additional 1.5% management fees.

After paying fees of 2.5% per annum, the ending balance after 30 years reduces by a whopping 50% to $330,000.

30 year investment returns 50000 dollar

The results

Case 2 provides $500,000 for retirement after 30 years. How many additional years will it take you to reach the same goal using case 3 with higher annual fees?

7 years!

That’s right, it will take you an additional 7 years to reach the same balance if you are paying additional fees equal to 1.5% per annum.

Foolish takeaway

This simple example highlights the massive difference a lower cost superannuation fund, or lower cost financial adviser will have on your retirement.

Many people have a legitimate need for financial planners, and this isn’t a dig at the industry in its entirety, but customers should be checking up on their advisers and asking what exactly am I paying for and how much is it really costing me?

Spending a small amount of time to learn the basics regarding superannuation and how to assess your financial adviser could be one of the best investments you ever make. Not only will it help you retire with more money, but it could also mean the difference between retiring at the age of 60, compared to 67 in this example.

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Motley Fool contributor Mitch Sonogan has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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