Superannuation is a great tool to help Australians build wealth and financial security for their retirement years.
But it's very easy to make the wrong decisions.
Even small mistakes can end up costing you a fortune, and a lot of regret, down the line.
And some of them could compound over time too.
Here are three superannuation decisions which you'll regret making when you reach retirement.
Image source: Getty Images
1. Leaving your super in the wrong investment option or an underperforming fund
Default superannuation investment options are generally designed to benefit a range of investors, from those starting their first job to those nearing retirement.
But the problem is that what is considered an appropriate risk for one person doesn't apply to the next. And, by putting (or leaving) your money into the wrong type of fund, it can quickly chip away at your balance.
By being too conservative too early you'll lose out on the potential for more growth. Younger Australians, with time to ride out any market fluctuations would benefit from growth assets, such as good momentum stocks like Droneshield Ltd (ASX: DRO) or Electro Optic Systems Holdings Ltd (ASX: EOS).
But for those closer to retirement, it makes sense to be more conservative. This pool of Australians might be more suited to stable assets that can weather a share market crash. Dividend-paying shares, such as ANZ Group (ASX: ANZ) and Wesfarmers Ltd (ASX: WES), are also a great option for retirees who want to benefit from additional passive income.
Even worse than the wrong investment option, is leaving your superannuation in an underperforming fund.
The difference between an average superannuation fund and a top-performing one can be the difference between scraping by in retirement and living comfortably.
2. Not taking advantage of concessional contributions before retirement
Relying only on employer contributions is unlikely to be enough for a comfortable retirement.
Even a small additional contribution can make a big difference when it comes to retirement.
After all, the power of compounding returns means that the more money you can invest when you're younger, the more impact it will have on your final balance.
Failing to take advantage of concessional contributions before retirement could cost you dearly when the time comes and you don't have enough money to live off comfortably.
Take advantage of additional concessional or non-concessional contributions, whether this is salary sacrificing or after-tax payments (within your annual limits) while you can.
If you don't have the funds to add more money yourself, you can also look into government initiatives. There's the downsizer contributions rule, the bring-forward rule, the government co-contribution rule, and many others.
These can help boost your balance just a little bit further while you still can.
3. Withdrawing too much superannuation, or too early
Many retirees treat their super balance like a large savings account once they reach preservation age. They withdraw too much cash or too early because they want immediate income.
Whether the funds are used for renovations, a holiday, to help family or to more entirely to cash after retirement, drawing far more than the minimum requirement can leave you short further down the road.
Accessing your superannuation too aggressively, or even relying too heavily on the Age Pension without preserving investment growth, means you could easily outlive your savings.
Inflation can quietly make the situation worse too as retirees sometimes find that their remaining superannuation is no longer enough to fund their retirement.
Ideally you want to draw up a plan of how many retirement years you expect to have, and how much you expect to spend during that timeframe. Then withdraw money from your superannuation only when you need it and let the rest continue to grow.
