You don’t have to be under 40 to enjoy the benefits of our superannuation system. Introduced in 1992, superannuation is the national savings strategy that aims to provide an adequate retirement for all Australians – either supplementing or replacing the Aged Pension.
But if you’re under 40, the benefits of properly managing your super are exponentially higher than someone on the ‘golden’ side of middle age. That’s because the benefits of compound interest have longer to work their magic on your compulsory contributions. You normally start adding to your super fund once you’ve got your first job, after all. That’s a lot of years to unleash compounding on that 9.5% chunk of earnings.
How to maximise your super potential
In theory, there are only 3 ways to increase your returns from super: earn more, get a higher return and pay less fees.
Since I’m sure we’re all trying to earn more anyway, the first point is somewhat moot (but by all means, keep trying!)
Getting a higher return is tricky, because investment returns are normally dictated by markets (over which we have very little control). Ensuring your super is invested in a ‘high-growth’ option rather than a ‘balanced’ or ‘conservative’ option if you’re under 40 is probably your best bet.
Fees are where most people can make the biggest difference. Because fees are how super funds make their dough, there will always be an incentive for your fund to charge you for their services. Shopping around for the lowest fee can save you literally hundreds of thousands of dollars over a lifetime.
Making sure you aren’t being charged insurance premiums for services you don’t need is also an important thing to consider.
But the simplest and most important thing you can do for your superannuation returns is to make sure you only have one super fund! Often, young people in particular end up with multiple super funds as a result of having multiple jobs in their early working years.
Two super funds mean 2 sets of fees to pay and that’s a double drain on your returns and eventual retirement. So, if you have more than one super fund, consider picking your favourite one and closing any others. Doing so will likely save you a considerable sum of money.
In my opinion, getting your super right is one of the best investments you can make – especially if you don’t fancy doing your own investing. Just by following these simple steps, you could potentially end up with hundreds of thousands of dollars of extra cash when you eventually retire. I know it feels like a long way away and not worth bothering with for some people, but your future self will thank you!
The post Under 40? Here’s why you should pay attention to your super in 2020 appeared first on Motley Fool Australia.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019