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Superannuation 101

Reading Time: 4 Minutes

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.

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Hm, a bit of protein, a bit of greens, a bit of tomato – PERFECT dinner.

DAY-AM.

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.

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Look at all those delicious dollars…

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 info@thefrugalsamurai.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?

AHA!

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.

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“CUCKOO!”

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.

SO BORING.

I know, I know, it’s because we are still young – I mean who wants to be thinking of when we are 70?

“SHUDDERS”.

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!

What do you think? Did you enjoy this post? Please help me out if you enjoyed this and put your email in and click on the little “subscribe” button at the top right. This way, you’ll never miss my words of awesomeness! So do the right thing, be a subscriber and get it straight to your inbox fresh out of the oven!

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.

36 Comments

  • Darren Boderick

    Sorry but this was just too difficult to read. If this was handed in as a Year 8 report it would receive a fail and a request from the teacher to resubmit it. You need to realise who your audience is, mostly people with at least a Year 12 education, and change your language appropriately. Not even Scott Pape, whose success I assume you’re trying to emulate with your informal style, writes like this. This is a personal finance blog, not Buzzfeed reviewing the latest Married At First Sight Episode.

    • The Frugal Samurai

      SCATHING sir, ab-so-lute-ly SCATHING. Will definitely take this feedback on board and write for people with at least a Year 12 education, believe me. “Googles Scott Pape”… Ahhh I see, I see, thank you for pointing me in his direction, much to learn from him methinks. Loved the Buzzfeed and MAFS reference btw, so APT. Brilliant.

    • Hugzy

      Haha i cant believe you wasted a few seconds on that troll.

      Dear Mr Darren Huckerby, please start your own blog and see how well your academic language is received zzzzz

      LURVE your writing style Michae… i mean Mr Samurai

      • The Frugal Samurai

        Hahaha, please sir, everyone is entitled to their opinion here. This is a happy place for happy people (I wrote that to get rid of the adult content thingy). Hmm Darren Huckerby… I remember he scored the League coop winner for Leeds in CM2001 against mighty Port Vale, had to go for a run around the block after that. My heart beats a little faster just thinking about it.

    • The Frugal Samurai

      No problem, no problem – glad that SOMEONE sees value in my words. WHEW. “Wipes sweat off brow with a shaking palm”. No but seriously, get rid of dem fees, they’re a killer. Thanks for reading as always!

  • Lyosha Varezhkina

    I think saving some money is wise decision anyway. Thinking about your retirement in young age is a key to have something to live on when you are old. I live in different country so I don’t really pay a lot of attention to program you shared

    • The Frugal Samurai

      That’s fine! When you are young you think that it will never end right! Sigh, to be 20 again hahaha! Oh and I don’t expect you to be paying attention to the Australian superannuation system, how does it work in your country… Eastern Europe I take it? Thanks for reading!

  • Cindy Ingalls

    I don’t completely understand annuation but it sounds similar to 401k funds. You usually can pick from a group, and decide how much to invest depending on your age and how aggressive/risky you want to be.

  • Karen Monica

    We have a retirement system here where the employer and employee contributes a sum of fixed amount monthly that goes into the employee’s retirement fund. I am not very sure if its exactly the same as to what you mention above.

    • The Frugal Samurai

      Are you referring to a 401k? Damn, because that’s very similar to what I was referring to… hmm, maybe I should have put that down! Thanks for reading and for bringing it to my attention.

  • Brittany Vantrease

    I, for one, enjoy your writing style. I’m way pass K12 and at 31 (oh, she admits her age!) think that finance and savings and retirement funds are so much more interesting when written in this type of language. I went to college for Business Administration and I fell asleep in many of those finance and accounting classes where the professor just monotonously taught with no energy at all. I can assure you, I did not snooze through this.

    • The Frugal Samurai

      Thank you kindly for saying so! I too, did not snooze through this as well, but chiefly because I was the one writing it… er, anyway. OH I can totally relate to falling asleep in finance and accounting classes, especially Statistics 201 at 8am! A real eye-opener if I’ve ever seen one.

  • kidneyfornikki

    I haven’t heard this term in a long time but I am not completely familiar with how these work. There’s no perfect way to save for retirement! Can you straight up lose your money in one of these funds? Or is it a matter of balancing growth and fees?

    • The Frugal Samurai

      Oh yeah, during the GFC, near retirees saw their retirement funds reduce by 20, 30, 40% sometimes! OUCH. That’s the difference between holidaying in the Whitsundays to holidaying in Walmart…

  • CANDACE

    I live in Texas and I don’t think that system exists here. It’s the first time I hear about superannuation system. It’s definitely important to think about retirement. Like you say we are not going to be young forever (cries inside). I will look into this, maybe we have something similar here.

    Xo
    Candace
    http://www.thebeautybeau.com

  • blair villanueva

    I am saving for my early retirement. I don’t want to work when I reach my target age and just want to enjoy and relax 😀

Let me know what you think!

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