"I'm 28 years old with no partner or children and I'm looking to change super funds. What things do I need to consider in order to see the best return for me at retirement?"
- Question from Jimmy in Midura
Top answer provided by:
Mina Nguyen
Hi Jimmy,
It’s great to hear you’re being proactive in setting up your super now, so you’ll be in the best possible position when you eventually retire.
There are so many options out there when it comes to super. Aside from the fund itself, there are different investment products, insurances, fee structures and additional services to consider.
I’d recommend you get some personal advice from a financial planner to help you pinpoint a super fund that best suits your needs and goals, and to ensure it gets properly set up for you. But in the meantime, here are some key points to consider when choosing a super fund.
How many super funds do you already have?
Chances are, you acquired your first super fund with your first job. And you might have acquired others when you changed jobs. According to the ATO, around four million Australians currently hold two or more super accounts.
Multiple super accounts mean you’re paying multiple sets of fees, so you may want to consider consolidating your super into a single account. You can find and manage your super accounts via the myGov website.
What insurances do you need inside super?
Super funds typically offer personal insurance cover – we’re talking life, total and permanent disability (TPD) and income protection. Having your super pay the premiums can be a good option for many people.
How much insurance cover do you need? The Moneysmart website has some useful information and calculators to help you work this out. You’ll often receive a default level of cover when you sign up to a new super fund however, this may not be the right amount for you.
Before you switch super funds, take a moment to check what personal insurances you currently hold inside your super accounts. This is important because once your super is moved you may lose this insurance cover, and depending on your current situation and medical history, it may not be reinstated.
Many people don’t give much thought to personal insurances while they are still young, single and (hopefully) relatively healthy. However, this is the absolute best time to get some cover in place.
Which investment option should you choose?
Investments can be broadly classified into two categories: defensive and growth. Defensive assets, which include cash and fixed interest, offer relatively low risk and comparably low returns. Growth assets, such as property and shares, are more volatile but more likely to increase in value over the longer term.
Super funds typically offer a range of managed fund-style investment options, which each contain different combinations of defensive and growth assets.
These investment options might have names like ‘conservative’, ‘balanced’ and ‘high growth’. The conservative end of the scale will include more defensive assets, while the high growth investments will include more growth assets.
The right investment for you depends on how long you plan to leave your money in the market and your personal level of risk tolerance. If you’re not comfortable seeing the value of your investments rise and fall over time, a high-growth strategy may not be for you.
However, since you still have around 40 years until you reach retirement age, time is on your side, and you could feasibly consider a growth-focused investment option.
Fees and other considerations
All super funds charge fees but, with all other factors being equal, a lower fee option is preferable. That said, you should always weigh the fees in conjunction with investment returns to ensure you’re getting the full picture.
Past performance may not guarantee future performance, but it is a good indicator of a fund’s competence as an investment manager. The previous five or more years’ worth of investment returns should be reviewed before settling on a new fund.
Once you have settled on a super fund that’s right for you, make sure you give the details to your current employer, and to any future employers if you change jobs. When completing your employment paperwork, you’ll have the option to select a fund of your choice.
Finally, if you’re serious about growing your retirement savings, you could consider making extra contributions to boost your super balance.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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