7 steps to supercharge your Superannuation | Summer Series

Bryce: [00:00:35] Welcome to the Get Started Investing summer series where over six episodes we're going through six steps to help you set up your finances for 2023. From budgeting and savings habits, emergency funds and superannuation through to common mistakes and how to set up the ultimate core portfolio. This series will have something for everyone. While we are licenced, we are not aware of your personal circumstances. All information on this show is for education and entertainment purposes only. Any advice is general advice. But with that said, my name is Bryce. And as always, I'm joined by my equity equity buddy Ren. How are you? 

Alec: [00:01:13] I'm very good, Bryce. Glad to be back for our third episode. They say things in odd numbers. Yes. So today we've got seven steps to supercharge you superannuation. 

Bryce: [00:01:24] Love it. We've spoken about getting your money sorted. We've spoken about your emergency accounts. So now it's that other part, a piece of the puzzle and that is superannuation. If you're working, you've got it. It's important to think about it. 

Alec: [00:01:37] Yeah, it's not working. It's split thinking about. I can guarantee you at some point in your life, you're going to be working. 

Bryce: [00:01:45] That's it. That's it. So we've got a seven steps phase comparing performance, investment options, insurance consolidation, extra contributions, and back to basics. So without further ado and let's crack in. 

Alec: [00:01:57] They often say back to basics should be the final step. 

Bryce: [00:02:00] Yeah, it should be the first. But it's all the admin stuff will get. It's the, it's the if you've ticked off everything here a couple of things to think about it so round let's start with phase. 

Alec: [00:02:11] Yes now phase are something that we speak often about here at Equity Mates and get started investing because they can be detrimental to your long term returns. Yes, fees add up over time. It's okay to pay fees. Sometimes it's worth paying for a great fund or great manager, but it's just really important to be mindful of how much you're paying. So you'll generally say fees expressed as a percentage, 1%, you might say it is called a management expense management expense ratio management. What else would you say called account fee? 

Bryce: [00:02:47] Whatever it is, they're all there. So there is a percentage, but there are also fixed, fixed dollar amounts. So when I used to be with Hostplus, you could go in and have a look at your face statement and they'd have like a monthly fixed fee plus a percentage fee. So you might see one or both. And obviously then when we're thinking about fees, you want the lower the fees the better. Broadly speaking, now we did do an episode. If you've just joined us for the first time, welcome. We did an episode towards the end of last year that looked at superannuation. Vanguard just came into the market with a super product and we spoke about the net return is what really matters. So if you're interested in going in a bit more depth, jump over to that episode. So before we move to the next, it's important to understand how you can actually find out what fees you're paying. And the ATO has a great website. The Australian Tax Office has a great website. Your super comparison tool allows you to compare your superannuation against others across many different aspects of superannuation. But there is nothing better than actually going directly to the website and finding the product disclosure statement or whatever piece of information that has your face on it. 

Alec: [00:03:55] Yeah, there should be an info sheet and a product disclosure statement. You can go to the MySuper website, your super comparison tool as well. Yeah, you can also link your super comparison tool with your my gov accounts and then it will actually show you the results for your super balance and your age and stuff like that. Yes. So it's a pretty useful tool. But yeah, first things first, be mindful of your face. Once you get below 1%, you're kind of you know, you're not talking about a lot, but anything over 1%, you can probably do better. 

Bryce: [00:04:33] And it's across the board. There's admin fees. There's fees every time that an investment is made, there's insurance fees in there as well. Yeah, there's a number of things that you need to look at and I think the website is is a great place to start. 

Alec: [00:04:46] Yeah. So that's number one. Number two, how to supercharge your super once you've checked your face. That's only half the story. And arguably it's a less important half of the story. What we're here to do is make returns. So step number two is to compare the returns of your super fund against other super funds. 

Bryce: [00:05:04] Compare the pair.You would have seen it on TV. You would have seen the industry super fund ads compare the pair and it is true track. Have a look at your performance compared to the performance of many other superannuation funds out there. 

Alec: [00:05:18] Now there's a number of ways you can do this again that your super comparison tool is a good one. You can look at the fund's website, they publish their returns, but there are also third party sites like Canstar, like Morningstar, that will track different super funds. 

Bryce: [00:05:35] Yeah, yeah. The key thing here is to make sure that you are. Sharing apples with apples. There is no point that if I'm if I'm with hostplus, I'm not just comparing broad strokes to Australian retail super or whatever it might be. You need to find out what fund you are invested in in your superannuation fund. Is it a conservative, is it a growth? And make sure that you are comparing it to the same type of product with competitors because it can be misleading. Otherwise, if you're just trying to compare broadly performances of some of the, I guess high level figures. But it is very possible plenty of comparison websites out there. Just make sure you're comparing like for like. 

Alec: [00:06:17] Now when we're talking about comparing performance, rolling that up with fees, the thing that matters is your net performance. So every super fund will make a return and then they'll deduct fees. And what matters is your return after they deduct those fees, not before. If Price Solecki Super Fund returns 10%, but charges 4% in face net, you're making 6% return. My super fund, very altruistic, very kind, only makes 8% return less than price, but charges 1% in face net you've made 7%, so you're better off going with the kind hearted fair Alex Super Fund then prices better performing but more expensive super fund. So that's why net return matters because that's what actually ends up in your pocket. Well, in your super fund at the end of the day, yes. 

Bryce: [00:07:16] Yes. There are a number of ways that super funds allow you to invest. And they set up investment options to suit different types of lifestyles. They have generally have a balanced option, a growth option, a conservative option, a super super seven option, which would be cash. And then there's some ethical elements in there as well. So this gives you the chance to say, I want to invest my super in these sort of portfolios. 

Alec: [00:07:42] And people might not have seen those three key terms, conservative balanced growth, and they might be a little bit unfamiliar with what they mean. It's about what assets they're invested in. A conservative fund will have more bonds and less shares because shares are seen as more risky. A balanced fund will have a bit more of a balance between the two, as the name suggests.

Bryce: [00:08:03] And cash. 

Alec: [00:08:03] Yeah, yeah. Well, there's other assets, but I think let's just keep it really simple. These are the two key assets that shift in the asset allocation and then growth will have more shares, less bonds. Yeah. And Jen, general rule of thumb is when you're younger, you should be more you should be more growth focussed. And then as you get older, you should be more conservative and have more bonds in your portfolio. There is a rule of thumb that's used in asset allocation, which is the percentage of bonds in your portfolio should correlate to your age. So when you're young, if you're 20, 80% shares, 20% bonds, that's high growth. When you're 50, you're 5050, you balanced. And when you're 80, you're 20% shares, 80% bonds, because you just want consistent income. You don't want to lose money. 

Bryce: [00:08:50] I can certainly say that that is not the case for me. There's no way I have 31% bonds in my portfolio. 

Alec: [00:08:57] Yeah, there's no way I have 30%. 

Bryce: [00:08:59] Yeah, I don't that that is a rule of thumb. That's like a traditional theory. Yeah. Yeah. Well, no, not theory, but a method. I think one. 

Alec: [00:09:09] Method is I think if you're young and you're listening to this and if you've got decades of work ahead of you, the real question to ask is, why are you not in growth? Yeah, and there are reasons, but that's the question to ask. 

Bryce: [00:09:22] So again, this is information that is found out logging into superannuation account and you can compare options as well through the you're super comparison tool. The key thing to understand here is how the fund's set up each of these portfolios compared to each other. And looking at if they are saying it's a growth portfolio, it is incredibly important. You understand what is in that growth portfolio, how much of it is actually invested in stocks, how much of it is invested in other assets and vice versa? 

Alec: [00:09:52] So Bryce, I've checked my face. Yeah, I've compared the pair and looked at performance. Performance. Yes. And then I've looked at my investment options and I mean the right one for my risk appetite and my I. What am I doing next to the chart? 

Bryce: [00:10:06] The fourth one is just to understand the insurance options that you have within your superannuation. Most ensure it. Most superannuation funds offer insurance coverage primarily across three types of insurance and it's just important you understand how much you're paying for those insurance and what is how you're covered. So they offer life insurance or death cover. They offer total and permanent disability coverage and offer income protection. Now, kind of makes sense why insurers, why superannuation funds offer these types of insurance and not, you know, travel, insurance and car. A chance in bits and pieces. Not all super funds to do it. You need to understand whether or not it's something that you want to do because you can say, I actually don't want to pay for insurance and pay for these premiums and I don't need coverage right now. So if you genuinely believe you don't want life insurance at this time in life, then you can tell your insurer the superannuation guys not to do it. But it's important you understand. Are you being charged for it? And if so, do you want to be charged? 

Alec: [00:11:04] So Bryce at this stage we've checked our face, we've checked the performance and we rolled those two together to look at performance net of fees. We've made sure the investment option suits our stage of life and we've made sure we're not paying for unnecessary insurance or only paying for the insurance that we need. I'm feeling pretty charged. Can't say I'm super charged yet. So let's take an ad break and then hit the final three. All right, Bryce, before the break, we spoke about the for first steps to Supercharge Your Super. Next one, I think, is the most important. If I could have had my way out of this, number one, because I think a lot of people get stuck with this. Consolidating your super. 

Bryce: [00:11:46] Consolidate super. Yes. Well, I mean, when your first job was in a where was it? 

Alec: [00:11:53] My very first job. Yeah, in a children's bookshop. 

Bryce: [00:11:55] Children's bookshop? You've had plenty of jobs since furniture. 

Alec: [00:11:59] Furniture, warehouse, glossy. 

Bryce: [00:12:01] Glossy. You name it.

Alec: [00:12:04] You've done it while I with my worst job. The waiter at hotel hotel. 

Bryce: [00:12:09] In a hotel hotel. And with all of these jobs part time, you name it, you're signing off. And your employer is likely to have a preferred superannuation, yet. Default which a default fund, which means if you don't tell them that you want your super fund money going into a specific fund, you're going to get the default fund. Great. But what it means is that, after getting new jobs, you're likely to accrue more and more different superannuation funds. And this is where we get to consolidation, because if you have multiple funds keeping multiple sets of fees, difficult to keep track and you're paying multiple sets of insurance. So you need to consolidate. And you believe this is the most important. 

Alec: [00:12:49] Yeah, because so many people don't do it and the government have tried to make it as easy as possible to do it. They've actually passed new laws this year alas the around stapling. But let's let's not worry about that now because for people listening to this who are trying to take control of their finances in 2023, here's what you need to do. Go to the myGov website, link it with your ATO account and ask it to search for your super funds. That's it. Then it will tell you how many super funds are in your name. Out there. You can direct it to consolidate into your preferred super account. And then when you get to if you ever move jobs from here on in, just make sure you don't take the default option. You give your new employer the details of your preferred super account. Now, the good news is, if you don't if you forget to do it, if you can't remember your details, you can always consolidate again in the future. But the government is try and make it as easy as possible to consolidate. And if you don't consolidate, you could be paying multiple sets of fees. And you've got to remember that a lot of these fees are like, you know, maybe $100 a year admin fee. If you've got $102 in your super account from that time, you're glossy at the pub alone. It's gone. You want to have as much money in one super account as possible to keep the fees as low as possible on a percentage basis and to make sure you're not paying for multiple sets of insurance. Now, I can speak from experience here when I think just after I left uni I checked this and I, I want to remember, you know, Sydney Festival, they, I was in their default super account and I rode that account to zero like between account fees, insurances and all of that stuff. There was money in that super account from when I was doing my part time work at Sydney Festival there. So like I said, people of I don't know if myGov existed then, but if it did, I could have spent a few minutes and saved myself some cash. 

Bryce: [00:14:50] Yeah, you can also do it when you sign up for a super fund. I remember that's how I did it before this government consolidation was AC online, and they do it on your behalf. You just tick the box I want to roll up and now go out and find find where where Aussie superannuation lies. All right, so we've consolidated now when I'm feeling good, my insurance is good, investment options are good. You know, I'm in the right one, but I want to put more in. So number six is contributing more? Yes. Often that question of can I put more in? Should I invest more, should I save? What? How should I do it? We're not going to talk about what is the right approach here. We're just going to say that there is the ability to put more in super. And there's pretty much two clear ways to do it. And the first is before tax and the second is after tax. And so what does that mean? The first is before tax, otherwise known as salary sacrificing. 

Alec: [00:15:39] Or concessional contribution. 

Bryce: [00:15:41] Or concessional contributions. And that is where Ren might come to Equity Mates and say, I want to put more into superannuation. Can you take more out and put more into my superannuation fund before you pay me? Yep. And this is before tax. So instead of the ten and a half per cent that is required by the employer by law, Ren might say can you actually put 12%? And so that additional 1.5% will go in and that is treated the same before tax.

Alec: [00:16:10] Yeah. 

Bryce: [00:16:11] Pretty straightforward. 

Alec: [00:16:12] Pretty straightforward. 

Bryce: [00:16:13] The second is after tax, meaning Ren takes his payslip. It's been taxed, he gets his fortnightly, and then he decides to contribute and send money to his super fund. So there's very clear two ways you can do it. It's very straightforward. They do have two different sort of. Tax approaches. But the net is the same at the end of the day, given how tax is traded in superannuation. 

Alec: [00:16:35] Yes. So your concessional contributions before tax are taxed at a 15% rate, which is lower than the income tax rate, and you can contribute up to 27 and a half thousand dollars each year. The non-concessional amounts you can do up to 110,000 I believe. And then you're obviously taxed at your full rate, your income tax rate, and then you just putting your money in afterwards. Now, Bryce, my question for you. Do you add any extra money to your super? 

Bryce: [00:17:08] It's the one thing that I always have on my sort of I need to think about this more deeply. Money list. Short answer is no, I don't. 

Alec: [00:17:15] Yeah, that's fair. Yeah. No draw. 

Bryce: [00:17:17] For me. I know that there's tax benefits, but I think I want to build more wealth outside of my superannuation, at least for the next few years than I do inside it. 

Alec: [00:17:28] Yeah. On the same, I want to build choice into my life and super. You have a tax advantage, but you have less choice because you can only access it at the retirement age. Yeah. And if I can have that choice earlier in my life, I'm willing to pay a little bit more tax for it now. And I know that tax rate compounded over a long period of time can make a massive difference. I get it. But it's my money. 

Bryce: [00:17:57] No, I agree. Ah, and so those are the six sort of supercharged tips. There is some basic administration stuff at the end and that is make sure you're just checking your superannuation account. Don't let two years go by and you haven't looked at it. 

Alec: [00:18:11] How often do you check yourself? 

Bryce: [00:18:12] Well, I actually get quarterly statements, so that's what I when I take the chance to to check it, now that it's in my superhero, I'm checking it way more often than I used to when it was with your boss, because I'm actively managing part of it. So that's the first you can find you lost super. We've already been through that, which is through the consolidation process. Go to myGov Gov.scot my doc after that year and there are some superannuation calculators on the Government website as well. If you're later on in life and want to know how much super I'm going to have and how much I need to maintain a particular lifestyle. 

Alec: [00:18:45] Yeah. Now we did a three part series with Super Hero on Get Started Investing. So if you haven't listened to that and you want to go deeper on super, I think that's a great place to start. We'll include the links to those episodes in the show notes here at Bryce. We said we will always finish with three key actions. I feel like we've just given seven key actions, but let's roll it up. What are the three? 

Bryce: [00:19:08] First one is connect your myGov account with the ATO and try and consolidate your super accounts. 

Alec: [00:19:15] So don't try to. 

Bryce: [00:19:16] If you think you need to. Yeah, if.

Alec: [00:19:18] There are multiple super Accounts. 

Bryce: [00:19:19] Do it. 

Alec: [00:19:20] Number two. 

Bryce: [00:19:23] Number two is visit the your super comparison tool and find your super fund and compare your super fund with the like super fund of others. 

Alec: [00:19:34] I don't think I need to tell them that. I think if they found their own, I know already on the website people probably would have done that. But anyway. Number three, what have we got? 

Bryce: [00:19:42] Number three is check your fees, but more importantly, check what investment option you are invested in. Yes.

Alec: [00:19:48] Conservative balanced growth. Does that fit your life stage? 

Bryce: [00:19:52] That's it. Make sure you signed up to the get started investing email to find the accompanying write up with tools and resources. Head to equitymates.com To sign up to that. But again, we'll leave it there. Next episode, we're back with some common mistakes that we made when we were starting our money journey.