It's a tricky question that couples might find themselves asking each other after years of living together and working alongside one another: should we combine our superannuation accounts?
By law, almost everyone who holds a job in Australia – certainly almost every Australian citizen – is required to receive superannuation. And if they are to do so, they'll need a superannuation account.
So when we shack up with our life partners, chances are that both parties will already have a super fund each.
Combining super funds may seem like a logical step for any couple approaching retirement age. But today, let's discuss some pros and cons of joining super forces.
Should you combine your superannuation fund with your partner?
Well, the single largest pro of combining your superannuation with your partner would be the reduction in fees and costs one of you will pay. Instead of two sets of fees and costs coming out of your super fund every year, you'll only have to pay one set.
Some components of the fees you'll pay for super are proportional (that is, you'll pay a percentage of whatever funds you have invested). But others are fixed fees. So in most cases, combining super will reduce the overall costs both partners will pay.
This is obviously an advantage, particularly if you are combining into a single self-managed super fund (SMSF).
Speaking of SMSFs, pooling your funds together in a self-managed fund could open up the potential to invest in assets that neither partner could afford on their own. This could be investment properties or other large investments.
Another benefit might come from unifying your investment strategy. If one partner has their super invested in a growth option, but the other instead has opted for a conservative approach, this could lead to divergent financial outcomes.
Having both partners' funds invested in the same products could well lead to a better outcome for all.
What about the drawbacks?
But of course, combining super funds might not be the best idea for all couples. There are a few reasons why.
Firstly, combining super is probably going to work better if both partners are of a similar age. but if there is a large disparity between the two parties, it could lead to some complications.
Let's say a couple has 12 years between them. If one was approaching the age of 65 and wished to move into more conservative assets, it might cripple the investment potential of the other partner, who still might be more than a decade away from retirement.
Spending the last ten years of your career investing your super into ultra-conservative assets could have a big impact on the quality of life you'll enjoy when you're both finally ready to hang up the work boots.
Then there's the uncomfortable topic of separation or divorce.
Hopefully, both parties that decide to combine their super funds have committed to a life together. But if things go pear-shaped (which is always a possibility), then unwinding a merged super fun that you have with your partner could be a nightmare.
It could even result in court dates and lots of legal fees if things get really nasty. So anyone considering this path would do well to keep in mind the devilish hassle of unscrambling your nest eggs if things between you and your partner go south.
Foolish takeaway
Like many things in investing — and, indeed, life — merging your super funds with that of your partner has both upsides and potential downsides. At the end of the day, the right choice will depend on your own personal circumstances, as well as the advice of your tax professional or financial adviser.
