Far too many Australians are apathetic towards the superannuation system. Even though most of us are required to place nearly 10% of our pre-tax wage locked away until our retirement, most of us don't act like its really 'our' money.
Maybe it's the heavy hand of government compulsion that turns our interest off.
Maybe it's the never-ending stream of negative media coverage (high fees, rip-offs etc.) that our super system seems to attract.
Regardless of the reason, I think this apathy is misplaced. For many Australians, super is the only retirement safety net outside the aged pension that we can hope to live off during our golden years. Ensuring your super returns are maximised during the 45 years plus of compounding they will undertake whilst locked away seems like common sense to me.
Where do super returns come from?
At the end of the day, your super balance will be determined by just 3 factors: how much money goes in, your rate of return, and how much money comes out in fees and taxes.
The first factor is largely predetermined by your income – you can always add more to your super for tax reasons though (up to the legislated cap). The second is important, but also pretty much out of our hands (unless you run a self-managed super fund) as super returns are largely determined by markets having good years or bad years.
That leaves fees and taxes. Whilst we don't have too much say over tax, choosing a low-cost fund is the most important decision you can make for your own retirement (in my view). Whether your fund charges you 2% or 1% per annum doesn't sound too significant, but a 2% fee could reduce your final return by up to 20% over a 30-year period compared with a 1% fee (ouch).
Don't let that happen!
If you wade through the mountains of paperwork that each super fund is required to provide, you can work out the fees of your own fund and see how they compare.
Better still, many super funds offer ultra-cheap index funds as an investment choice these days. Choosing an index fund is likely to get you a larger return over a long period of time, than your average 'balanced' super fund – for a cheaper price to boot! Talk about a win-win.
Foolish takeaway
So if you want to do yourself a favour, check your super fund's fees and while you're there, see if it has an indexed option. Of course, you should seek professional advice based on your own circumstances as well – your risk tolerance will likely reduce as you get older, limiting the appeal of indexed shares. But I still think it's well worth a look, especially if you've got a while to wait until retirement!
