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Are there holes in your super strategy?

Despite being the second-most valuable asset for most Australians (after the family home), there are two persistent misconceptions about super that prevent people from making the most of their retirement savings.


Myth 1: Super is an asset class

Superannuation performance is the subject of lots of media stories at the start of each financial year. No doubt, this helps to explain why some people have come to believe that super is an asset class (ie like shares or property etc) rather than the tax-advantaged savings vehicle that it actually is. Generally, you can invest in the same asset classes within super as you can outside of it. The difference is that earnings on your investment are taxed at a maximum rate of 15% within super and at your marginal tax rate outside of it. This is a big plus for the majority of people – especially those in the top tax bracket of 47%. The catch is that you can’t get your hands on your super savings until you meet a condition of release. (For most people, this means retiring on or after your preservation age.)

It’s important to remember that a superannuation fund doesn’t influence how the underlying investment performs. For example, the National Australia Bank share price was $39.52 on 10 April 2015 and $25.27 on 1 July 2016 (excluding dividends). This drop in the value was the same regardless of whether you held the shares in your own name or within your super fund.


Myth 2: Your employer will invest super wisely

While most people can nominate which super fund they’d like their Superannuation Guarantee (compulsory employer contributions) invested in, most don’t. Instead, they leave it up to their employer to choose not only their super fund but also often their underlying investment option. In this situation, your contributions will be invested in employer’s MySuper fund and have their super invested in a single balanced investment option.

Needless to say, this one-size-fits-all approach to retirement saving can be hit and miss. The investment option that’s likely to be most appropriate for your needs requires sizing up a number of factors, including your timeframe (how long before you’ll need the money?) and risk appetite (can you stomach periods of negative returns knowing markets will eventually recover or will this make you to lose sleep?). A ‘conservative’ default option is likely to better suit someone who is nearing retirement and needs to access their money soon rather than a 35-year-old with a longer investment timeframe.

If until now you’ve relied on your employer to make your super decisions for you by default, now’s the perfect time to review your strategy and select investment options that are better suited to your risk tolerance, timeframe, goals and objectives. If you find that a daunting prospect, be sure to seek professional advice. A financial adviser can help you identify super opportunities and benefits that you may otherwise miss. They can help you to choose the right investment strategy, stay focused on long-term results and access various tax concessions.


Source: Google Finance - historical prices

Find an adviser

Choosing the right superannuation or retirement income plan to suit your individual needs is an important decision. If you need help in finding a financial adviser, you may want to try one of the following websites:

Association of Financial Advisers (AFA)

Financial Planning Association of Australia (FPA)

ASIC’s MoneySmart website also has valuable information on what to look for when choosing a financial adviser.