But should you choose... Self Managed... Retail... of Industry Funds?
By Jason Fittler, B.Commerce, CPA, Diploma of Financial Planning
The quick answer is because for most people it will be many years before you benefit from your super. As a financial adviser I take a keen interest in both my super and my clients super and by doing so I am able to make sure that my clients superannuation is working as hard as possible and therefore provide the maximum return.
Now that I have your attention and you agree that you should pay more attention to your super, where should it be invested?
Should you have your super in a Self Managed Super Fund (SMSF), retail fund or an industry fund? A lot of this comes down to a few basic issues being:
Superannuation strategies for all ages.
Younger than 30… you should have your superannuation invested more aggressively. Why? More risk means more return and as you have over 30 years before you can use your super, make it work hard for you now. Example: $100,000 invested at 8% return for 30 years would net you $1 Million in 30 years. The same funds placed in a higher risk investment of 12% would net you $3 Million. It’s simple math.
Between 30 and 40… you should be looking to make extra contributions through salary sacrifice. Why? This will build your superannuation quickly and save you tax. Example: You are making $50,000 per annum and have $100,000 in superannuation invested at 12%... with just your employer contribution at age 60 years you would have $1.3 Million in superannuation. If you salary sacrificed $400 per month this would grow to $1.6 Million.
Between 40 and 50… you should look to continue your salary sacrifice but increase it to a larger portion on your salary, this is the time to really start to build your superannuation investment.
Between 50 and 60… now is the time to look at making non-deductible contributions into superannuation. These are contributions neither you nor your employer can claim a tax deduction for. Why put these funds into superannuation? Superannuation is a far more efficient tax environment with a flat rate of 15%. Normally at this stage in your life, you are making more money then you ever have and have surplus income. You can put up to $150,000 per year this way.
How much do you have in Superannuation?
When choosing the structure you wish to hold your super in, the amount you actually have in the super fund is important, as the fees you will be charged on different structures will affect the overall growth of the fund. Therefore, we need to consider fees carefully before making any choices.
Less the $200,000 in Superannuation
Now keep in mind that if you are married this is the combined figure of both super funds.
If you have less then $200,000 in super I do not recommend a self managed super fund, as the compliance costs of managing the funds will be higher then a retail or industry fund. In this situation I would recommend the use of a retail managed funds.
The difference between a retail fund and an industry funds are as follows:
Anyone can invest in a retail fund. They are open to the public. Generally with an industry fund, you need to be working for a specific employer. For example: if you are working for the Queensland government then your super would be with Qsuper. If you work for a private company then under the new super choice rules your employer would give you a choice as to where you can invest your super.
Fees are generally cheaper under an industry fund, but remember cheaper is rarely better. You will have less investment choices in an industry fund then you will in a retail fund.
I would look at putting your super in retails fund as I believe that there is a real benefit in having larger choices of investments and the ability to provide better insurance cover will over the longer term far outweighs the extra fees you pay.
If you fall in this category but would like to trade shares you need to be aware that there are now retail super fund which allow you to do just this. Again, this comes back to the basic idea of the more effort you put into something the better result you will have.
Retails funds allow you to be actively involved in how your super is invested, and as such, you will achieve a better result over the longer term. If your employment is such that you do not have the choice to use retail funds then as discussed above in regards to the different age groups please make sure that the investments in the industry fund match the required risk level for your age.
Above $200,000 in Superannuation
At this level it is time to start thinking about a self managed super fund (SMSF), the fees for running a SMSF will be around $2,000 per annum or 1% of the balance, making it very cost effective. The real benefit comes from the ability to choose exactly where you want your super invested. There are of course some guidelines which you need to follow but on the whole you are in control of your future.
Finally... how much time should you invest in your Superannuation?
As discussed previously, you will only get back what you put in. If you are not willing to put the time and effort into your super fund then do not expect to get great results. Lets look at what sort of time you will need for the different type of super vehicles.
SMSF: This is the most time consuming structure, however it will normally produce the best overall result. If you decide that you would like to run your own SMSF then I would expect that you would at least spend 2 hours per week reviewing the funds investments and considering any future investments. This however is based on you employing a financial adviser to assist you with the research and investment ideas. If you would like to do it all on your own then you would real need to spend closer to 8 hours per week.
Retails Funds: Much less time is required here, I would still recommend that you spend at least one hour per week reading general superannuation information. However, in regards to direct time in choosing investments it would only be around 2 hours per month on average.
Industry Funds: This is the super vehicle which will require the least amount of time, again I would still recommend that you spend time reading generic information in regards to super but in regards to real time spent on looking at your investments it would be a mere 2 hours every six months. The main difference here is that you do not have a lot of choices so really there is not much you can control.
The above information has given you a starting point in deciding the super structure right for you. Now it is up to you to take the next step and call us. Then we can review your super needs and help you make the final decision.
For more information about what you should be doing with your superannuation investment contact AAM Townsville on 07 4771 4577.