The topic of superannuation is broad and can leave even financially astute Australians confused about what to do and how to do it.
Before we can even think about our asset allocation, we need to consider what’s the best type of fund for us and who might be the best provider.
With this in mind, I’ve taken a look at a few factors to consider before deciding where to park your retirement savings in 2019.
1. Keep those fees to a minimum
Especially for those younger Fools, the key to building long-term wealth in your super fund is keeping management fees and other in-fund expenses to a minimum.
While super contributions are taxed at 15% across the board, different funds will charge you to manage your money in a variety of ways.
Some funds will charge higher fees depending on how much big that retirement nest egg is, while others will charge a flat percentage of funds under management.
A few fees to keep an eye on when choosing your super provider or looking at options include the ‘administration fee’, ‘contribution fee’, insurance premiums that you’re paying and any ‘indirect’ fees to other institutions.
2. Industry super or Retail super?
This has been a hot topic in Australia recently, not least of all because of the 2018 Financial Services Royal Commission.
While there’s no right or wrong answer when it comes to superannuation, the big difference between industry super and retail super funds is what happens to any profits they make.
Industry super funds will return profits to their members (i.e. super fund holders) while retail super funds such as the Aussie banks or AMP Ltd (ASX: AMP) will generally return these excess profits to shareholders in the form of dividends.
As a general rule, the management and advice fees for retail funds will be higher given a financial advisor is generally involved, and have historically underperformed industry super funds.
However, we all know that past performance doesn’t reflect future performance and there can be benefits and drawbacks of both of these investment vehicles.
3. How much investing flexibility do you want?
And finally to the elephant in the room when it comes to superannuation: self-managed super funds.
Self-managed super funds or “SMSFs” have grown in popularity in recent years as investors want more hands-on control of their investments inside super, just like they would with their share portfolios.
An SMSF provides more investment flexibility outside of the general allocations of an industry or retail super fund, meaning you can gain exposure to the likes of Appen Ltd (ASX: APX) or Afterpay Touch Group Ltd (ASX: APT) across all of your portfolios.
SMSFs typically require the help of a licensed financial advisor and/or lawyer to establish the vehicle in the first place, and you have to know exactly what you’re doing so you don’t accidentally touch that super early and get slugged a massive withdrawal tax by the government.
The reality is that much of this comes down to personal preference and many people have happily achieved their retirement goals with industry funds, retail funds and SMSFs.
It’s up to you to seek out the appropriate advice and decide what’s right for you!
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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of Appen Ltd. 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 Scott Phillips.