Superannuation is the foundation for most Aussies’ retirement plans in this day and age. But despite its importance, many people don’t fully understand their super account in full.
If you’re in that (very common) boat, here are a few key points to make sure you understand your superannuation in 2019.
Fees, fees and more fees
One of the most important things to understand about superannuation is the fee structure.
For-profit super funds came under fire in the 2018 Financial Services Royal Commission for their fee structure. Management fees are a key consideration and a low-cost super fund is often a great option for your average Australian.
More complex arrangements such as self-managed super funds (SMSFs) come with a higher fee structure but have potential tax and other asset management benefits.
Industry super funds are generally known for having low administration fees, but it’s also important to understand your insurance.
Despite recent changes to the way super funds offer insurance, it’s worth checking to make sure you have the appropriate level of insurance inside your superannuation account. This will be very individual, but more insurance will mean more fees eating away at your retirement savings.
Are you happy with your asset allocation?
Asset allocation is something that you may not have considered if you don’t work in or study finance.
The way that you allocate your money into various assets like shares, property, cash, bonds etc. can have a huge impact on your future returns.
It will also impact how much risk you are taking on to generate those returns. Most industry super funds offer a balanced portfolio as a default option, which is heavily diversified across many asset classes.
If you want more control over your superannuation, perhaps you could look at making your own allocations via your fund or setting up an SMSF.
Know your golden retirement number
It’s important to realise that while superannuation is a tax-advantaged investment vehicle, it shouldn’t be the be-all-and-end-all of your investments.
Buying those Afterpay Touch Group Ltd (ASX: APT) shares outside of super could be a better use of your money than simply ploughing in retirement funds.
It could be a good idea to sit down and do some financial planning to work out how much money you’ll need in retirement and work backwards from there.
Whatever you come up with, it’s important to remember that superannuation is individual and we all need to understand the investments underpinning our future retirement.
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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 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 Scott Phillips.
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