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What’s up everyone!
Hope we are all having a good week.
Much better for yours truly, thanks for asking.
BOO-YAH, I knew it’d be a better week when on Monday, a whole bunch of us got together for an impromptu but QUALITY dinner.
Like $65 all-you-can-eat top of the range Japanese BBQ quality.
Let’s see, my friend Light Beam was there (the future Australian Treasurer), Bubu (the most handsome of our group) and Bugzy (another EN-TRE-PRE-NEUR, guy’s got 3 online businesses on the go, jayzuz).
So of course, as expected the conversation was free-flowing and top notch (just like the meat yum, yum).
Actually, I wanted to share with you a VERY important point Light Beam brought up.
You see, being financially astute, Light Beam has figured out his FIRE goals and vehicle – that being superannuation. He’s in for the long haul…
What is super?
But first, a very brief intro for those of us unaware of what superannuation is.
Basically, it is a retirement system whereby we (of working age) contribute a part of our salary into a super fund as we work towards retirement.
During this time, the funds are invested in a range of investment options, either automatically or by our choosing, with the default option normally a balanced portfolio of Australian stocks.
When we hit retirement age (might be looking at 70 or more for us millennials), we are able to withdraw our superannuation to assist with our financial requirements.
Usually a rule of thumb is about $1m in superannuation for a comfortable retirement.
What’s so good about it?
Like any asset class, it’s just a means to an end.
BUT, the crucial point is that any earnings and contributions are taxed at a comparatively low rate of 15% – which is incredibly good when our highest income tax rate is a whooping 47%.
For example, in simple terms if you buy 100 units in super at $1 each and it rises to $2, instead of paying out a potential $47 on this gain, you only pay $15, a $32 saving… which is PHENOMENAL.
You can also contribute into your super fund to boost the balance by up to $25,000 each year (sometimes more) – money for jam under the right circumstances.
So what’s the catch?
There’s no catch!
Wait, wait, there are catches, of course there are.
The main catch is that you can’t withdraw any amount from your super until you reach retirement age OR if you hit certain milestones, none of which are beneficial to you – think death, permanent disability, severe financial hardship etc, you know, real sobering stuff.
Also, like everything else in life – it’s not free.
That means we have to pay our super funds for the privilege of holding and investing OUR money.
Fees, fees, fees!
Light Beam makes a great point in the sense that the fees are different for every superannuation fund.
Traditionally super funds are split into retail super funds (historically associated with the big banks), industry super funds (set up for certain professions, e.g. healthcare workers, or teachers, or hospitality etc.) and self-managed super funds (SMSF’s which you get to manage and control yourself).
Retail funds have traditionally charged the most, because they have been perceived to be the highest in returns.
But not true sir, not true:
As you can see, in the long run – industry funds far out-performed retail funds, in fact I don’t think there is a retail fund on that list is there?
So ummm, if we pay more fees, AND earn less bang for buck in a retail fund, why stay in one?
I mean aren’t we worse off based on the principles of compound interest? I.e. our money is being compounded at a lower rate with a smaller principal?
Wouldn’t it make more sense to pay LESS fees to earn MORE returns?
What to do, what to do?
Luckily, it’s so easy these days to switch.
I remember when I first started working all those years ago (sigh, sound like an old man, stop it The Frugal Samurai), it was pretty hard to find information on how to go about things.
But today, you’re in luck!
Just go to one of the comparison websites, say Canstar, and choose the super fund you are most comfortable with.
Personally I am with Australian Super, but I can’t recommend them (chiefly because I won’t get paid… Australian Super PM me at email@example.com PUH-LEASE).
After that, navigate to a section which says “consolidate my super” or something similar.
Download the forms, fill them out and return to your new superfund – they’ll take care of the rest!
But what if I don’t know my CURRENT super fund?
GREAT question, if you don’t know, and there’s no shame if you don’t (YOU SUCK, no, no jokes jokes).
Go to my.gov.au and login. Head over to the ATO portal and click on “super”, then “fund details” and hey presto! All your super funds are listed.
If you have more than one super fund – YOU’RE CRAZY.
Consolidate into one RIGHT NOW.
I mean, you’re just paying for additional fees and compounding off a lower asset base – GO GO GO.
WHEW, what an exciting dinner topic conversation aye guys?
Yeah yeah, but hey, it’s what makes us tick!
Mind you, there are plenty more to be covered on the topic of superannuation.
Things like the insurance fees (yes, every super fund has a default level of insurance cover – check that out too), concessional and non-concessional contributions, preservation age, direct shares and property investments, blah blah.
I know, I know, it’s because we are still young – I mean who wants to be thinking of when we are 70?
But hey, end of the day, it’s your money – why would you want anyone else to grab more than their fair slice of the pie!
So what are you waiting for?
GO! GO! GO!
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P.S. As always, these pearls of wisdom should not be taken as financial advice, but opinions only, albeit DAMN. GOOD. ONES.
P.P.S. I think… I think I may need to get Light Beam himself to contribute a post soon enough.