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Why you should care about your superannuation

Tristan Harrison
superannuation piggy bank

Why care about superannuation?

It seems like an obvious answer: Money.

But there’s a lot more to it than that. Australia has one of the best retirement systems in the world. Getting almost everyone to add 9.5% of their wages to their superannuation is good thing, up to a point.

There is a general lack of financial education for Australians. Perhaps parents, schools, universities and so on should have done more. Whoever is to blame, there isn’t enough engagement with learning about money and applying that knowledge.

It was the apathy about money and superannuation that saw businesses like AMP Limited (ASX: AMP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) take advantage of their clients for so long. The financial services royal commission undid some of that financial damage.

Why care about superannuation?

There are lots of important reasons:

  • Tax benefits – One of the best reasons to care about superannuation is the fact that it (probably) has lower taxes than your current tax rate while you work. If you received investment income in your own name you would probably be paying two to three more times tax than if the investment income was received in your superannuation account. The difference that lower taxes can make over 20, 30 or even 40 years of accumulating wealth can be enormous.
  • Low fees – Superannuation funds are some of the biggest investment vehicles in the country. They can use their size to benefit members with lower costs, which is what ‘Industry Super Funds’ are known for. The lower your investment fees and admin fees, the more that is left in your superannuation fund to compound.
  • Your ticket to well-funded golden years – No-one will care as much about your own retirement as you. If you want to go on nice holidays when you’re retired you need to build your super. If you want to retire with a nice nest egg then you need to make it happen. Take the initiative to choose a super fund with low fees. Benefit from compound interest as early as possible and as much as possible. $1 million doesn’t just magically appear at 65, it takes a lifetime’s amount of contributions and growth to reach that amount. But it is possible. Play around with a good compound interest calculator. 
  • Can’t be touched – You’re not allowed to access your superannuation until retirement age (apart from extreme circumstances). This is more strict than many other countries. But I think that’s a good thing. I’m sure plenty of people would be tempted to tap into their super balance along the way, which would dramatically reduce the final balance because of the lost compound interest.

Foolish takeaway

Superannuation is very important. For most people it will be their key vehicle for building wealth with the average Australian hardly building savings.

The post Why you should care about your superannuation appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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. 2020