YOUR SUPER
Ten years ago, the government introduced MySuper as a regulatory requirement, and interestingly neither the government nor the regulator has criticised or noted any inadequacies in the design of any platform’s MySuper investment default option since then.
However, as a wealth creation strategy, it is observed that there are design flaws present within all MySuper offerings, which can lead to sub-optimal super outcomes for individuals.
There are three basic MySuper designs:
- A fixed investment strategy, is typically balanced between growth and defensive assets until the point of retirement.
- A glide path strategy, where the asset resides in a growth investment portfolio until a certain age, at which point contributions get directed into a lower-risk portfolio.
- Then there is the life stages/cycles strategy, where the asset is methodically and progressively de-risked into defensive assets after reaching certain ages.
Individuals must realise that MySuper is a generic (one-size-fits-many) super strategy (not an optimisation strategy), with age being the only personalised variable (sometimes) considered in the equation.
IS SUPER A NATIONAL ASSET?
Like the government making it a regulatory requirement for all platforms to name their default investment portfolio ‘MySuper’, the government is now stating that super is not only a personal asset but a national asset too, and suggests using it to invest in Australia.
At some time in the past few years, both major political parties discussed defining the purpose of super in law. The discussion did not progress to legislation, perhaps because super is a personal asset intended to provide income to an individual in retirement.
Throughout the Royal Commission in 2018, there was much commentary about platforms charging ‘fees for no service’, with little attention given to reviewing the appropriateness of MySuper designs as an optimal wealth creation strategy for individuals.
MySuper was designed more like a ‘safety net’ super strategy, catching those who fall through the cracks and fail to take ownership of their super asset. The high percentage of working Australians still in a MySuper default investment option is concerning.
The current government plans to use super to fund social housing and sort out the rental/homelessness crisis developed over the last decade, partly due to record-low interest rates and easy access to credit.
Globally, we now have a cost-of-living crisis, high government debt, high domestic debt, and an unstable geopolitical situation, signalling a less than healthy economy.
GOOD FINANCIAL MANAGEMENT
Many people who borrowed money for the first time in the last fifteen years have misunderstood what level of bank interest is ‘normal’.
Many Australians are struggling financially with interest rates returning to normal levels and the rapid increase in the cost of living resulting from high inflation caused by the flood of money that entered the economy due to unprecedented monetary policies enacted during the COVID-19 predicament.
Good financial management is hard to follow as it is not a lesson well taught in the Australian educational system, and most developed countries have the same standard of education when it comes to money management.
The first wise lesson is to expect the unexpected, live within your means (if you can) and practice discernment regarding political and media rhetoric about affordability.
Budget appropriately, identify any wasteful expenditure and ensuring you only spend what you can afford. A couple with a young family experience many financial pressures and it is probable that both adults will have to work.
Traditionally, the person most able to work and the highest paid will seek promotions to earn higher and higher dollars. This involves using initiative and seeking to add value above expectations, offering support and identifying how to assist those in management positions to meet their goals and objectives.
HOW TO OPTIMISE SUPER
Super is your asset, and you must optimise it (no one will do it for you). To do this, you must get to know your super and make sure it makes as much as possible in every market cycle, depending on your circumstances.
Time flies quickly, and you will find yourself in the latter half of your career before you know it, so it is recommended to take action to optimise your super sooner rather than later. Just ask someone older.
Top Tips for the Younger Generation (Under 45’s)
- When first employed, find a source of opinion that educates you away from bad habits that can damage your career and financial progress.
- Have your super contributions paid into a product you think seems right, but wait until you have accumulated enough of an asset to justify paying for personal advice.
- Initially, opt for cost-effective limited super advice (as opposed to expensive holistic financial advice).
- Examine the cost of the service against the value to be delivered and watch the performance of your account progress.
Good limited super advice will cover four areas:
- Choice of product.
- Cost disclosure.
- Contribution strategy.
- Investment strategy.
It will also provide milestones in performance so you can evaluate whether the promises were true to label (or not).
Top Tips for the Older Generation (Age 45+)
- Make additional contributions appropriate to your specific circumstances. A little over a longer time is better than a lot over a short time.
- Review the insurance coverage you have in force within super to ensure it still meets your personal needs. Consider that the older you get, the higher the premiums. You do not want to pay for insurance cover you may no longer need just as much as you do not want to be underinsured should you need to make a claim.
- Review and update your investment strategy every 12 to 24 months to ensure the right balance of growth and defensive assets reflects market conditions expected for the cycle.
For those aged 60 and over:
- Examine the opportunity to use a transition to retirement strategy to maintain your existing cash flow, salary sacrifice more into super, save on tax and increase your super balance.
SUPERWISER
The SuperWiser client portal provides access to affordable, expert advice and service specifically focused on assisting you to manage your super towards an optimal outcome.
SuperWiser can help you make informed decisions and avoid common (and often costly) mistakes.
Complete a free Super Review.
From there, you can obtain initial super optimisation advice (including implementation) for a one-off low cost of $220 (inc GST).
Alternatively, to discuss your options directly with an adviser, book a time online, call 1800 467 467 or email yoursuper@superwiser.com.au