At age 55, you're on the home stretch before you quit working. It's also the age that represents a key milestone when it comes to your superannuation and planning your retirement.
Once you turn 55 years old, you're just five years away from preservation age (when you can access your superannuation if you've stopped working). You're also 10 years from the average retirement age and 12 years from being able to access the Age Pension.
But many Aussies around this age make a crucial superannuation mistake that can cost a fortune.
They assume they have plenty of time to 'fix' their superannuation.
That is, they wait too long to review if their fund is performing well. They leave their money in the default investment option. They leave it too long before adding extra contributions, and they fail to make a plan.
The reality is that failing to act at all is worse than doing the wrong thing. At age 55, many Aussies are entering their highest-earning years, and they're also missing out on valuable compound growth.
By putting off 'fixing' your super, what might be a $5 loss today could easily snowball into a significant sum by retirement.
But the good news is, it's not too late. There are still plenty of opportunities to grow your retirement nest egg before you stop work.
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I'm 55, what do I need to do right now?
It's easy to turn your superannuation around if you know how. Here are a few tips to get you started:
1. Make sure your fund is performing well
You want your superfund to perform well, or at the very least, in line with a market index like the S&P/ASX 200 Index (ASX: XJO). The difference between an average superannuation fund and a top-performing one can be the difference between scraping by in retirement and living comfortably. The problem is, many don't even check in on their fund to see how it's going. You could be underperforming the market and not even realise it. That means you're actually losing money.
2. Review your risk profile
Do you have the default superfund investment option? Putting your money into the wrong type of fund can quickly chip away at your balance. It makes sense to focus on growth in your 30s and 40s, but when you're approaching retirement, and you're planning to access your funds in the next few years, you need a more conservative approach.
3. Add extra contributions where you can
Even a small additional contribution can make a big difference when it comes to retirement. There's no sense adding money to your superannuation fund if it means you'll struggle to make it to payday. But if you do have spare cash at the end of the month, it pays in the long run to contribute it to your superfund. The power of compounding returns means that the more money you can invest, the more impact it will have on your final balance.
4. Take note of insurance fees and costs
High fees or unnecessary insurance inside a super fund can quietly reduce retirement savings over time. What's even riskier is switching or consolidating superannuation funds without checking insurance benefits. You could end up leaving your entire balance unprotected, and that can cost you dearly if things go awry.
5. Create a retirement plan
One of my favourite quotes is: "Failing to plan is planning to fail." Many Australians underestimate how much money they will need in retirement and rely too heavily on government support. You need a retirement plan to work out what age you plan to retire, your expected expenses, and the balance you expect at that age. This can help identify any shortfall while there is still time to fix it.
