A Letter to My Younger Self

Setting us up for a better retirement

Dear Younger Me,

We’ve made some pretty rash decisions over the years, haven’t we? Remember the time we entered a chilli eating competition and then spent two days in the hospital with stomach ulcers? Or what about the time we rode a camel in the Sahara, hungover as hell. Funny now, not so much at the time!

Well, it seems we’ve made some pretty impulsive decisions when it came to our super too. The thing is, we’re retiring tomorrow and as it stands, we’re among the 55% of Aussies who are worried they don’t have enough savings to live comfortably. Unfortunately, that trip to Venice with Julia won’t be happening. Nor will the fishing boat we’ve dreamed of for years.

But it doesn’t have to be this way. I’ve got some important things to tell you so you can set us up for a better retirement. Listen up and take note young one, this might just be the best advice you ever get.

Set Goals

Start by setting some financial and retirement goals. Take the time to visualise your life as a retiree. Be realistic mate, we’re not talking super yachts here (or maybe we are).

Think about how you’ll spend your days. Will you be happy pottering about the home, or do you want to be out and about doing things that will burn holes in your pockets? Will you be making any major purchases, doing some home renovations, or taking overseas trips? Understanding your needs and knowing what we want will dictate how much super you’re going to need.

To help give you a bit more of an idea, the Association of Superannuation Funds of Australia suggests that the average couple who wants to maintain a comfortable lifestyle in retirement needs about $62,000, whereas a modest retirement is around $40,000 a year.

Make extra super contributions

As painful as it seems at the time to give up some of your pay but seriously consider making extra contributions towards your super each week from your pay. This is known as salary sacrifice. There’s a tax benefit with salary sacrifice too as extra contributions will be taxed at 15% rather than a marginal rate.

We’re not necessarily talking big payments here. It can be as little as an extra $20 a week which could turn out to become more than $50 a week when you retire. That’s a decent golf club membership right there.

You can also make extra super contributions from your after-tax pay. You could consider adding a little extra when you get your yearly tax return? What about some of that inheritance you’ll receive one day? It all adds up and it will be worth more to you tomorrow than it is to you today.

Small sacrifices in the short term make have big impacts in the long term.

Take control of your super

Remember when we found that $50 note in our jacket that we hadn’t used for 12 months? We were ecstatic! Well, there might be a bit more than that in an old super account that you’ve forgotten about just waiting for you to find.

Last year there was $13.8 billion in lost and unclaimed super which is often a result of people changing jobs or forgetting to update details with their super fund. Over your career, you’re going to work for several different companies so take the time to find any lost superannuation and consider consolidating it into one fund. Not only does this make it easier to track, but you’ll save on fees too.

It’s super easy to consolidate your superannuation and there’s even companies out there that do it all for you.

Learn about super fees

Fees are a big pain, but you have to come to terms with them. When it comes to superannuation fees, there is a lot to consider. Sometimes, the lower the fees the better. But you should also keep in mind a super fund with lower fees might not give you access to the types of investments you want. And that’s why it will pay to take the time to explore this further. Here are some examples of fees.

Contribution fees

Most super funds don’t charge Contribution fees anymore so make sure you aren’t paying any. The only fees cost on contributions should be the 15% tax paid on them as the go into the super fund.

  • Investment fees

Investment fees consider the broad range of fees and costs associated with the management of investments. These can vary widely so it is important to make sure your getting value for what you pay.

  • Administration fees/member fees

These fees are paid for the general administration of your account and are usually charged as a percentage of your account’s balance or as a fixed fee. Normal rates can be up to 2%.

  • Insurance fees or charges

If you have insurance through your super, your insurance fees will cover your insurance premium and any costs that are associated with administrating the insurance. The amount paid depends on the level of cover you have; considers your age and the type of work you do.

Bigger isn’t always better

Last year research found that 13 of the big super funds failed the Australian Prudential Regulation Authority performance test. Basically, that means, they failed big time. When choosing a super fund, it is important to compare first. Consider the fund’s performance over the last five years and consider how their fees and costs will impact your super.

You should also consider what investment options you can choose from in regard to where your superannuation is being invested in. Generally, investment options range from low risk (defensive option) to high risk (high growth). Younger people, like your good self, have more time to tolerate risk, however, choose an option that you’re comfortable with.

Check, check and check again

As tedious and overwhelming as it seems, it will seriously pay off if you keep onto your super and check it frequently. As we have already learnt, everybody is different so take the time to have a chat with a professional adviser, outline where we are at and what our goals are and see if there is anything we can do that we are unaware of that can improve our chances of a better outcome when we retire. Getting some valuable information could make the world of difference.

Don’t worry mate, you’re not alone on this journey but now you can be ahead of the game. We weren’t all lucky enough to get all these tips when we were younger, but it will all be worth it when you’re floating along the canals of Venice on a gondola with your better half.

Thank you for doing your best and setting yourself up for the future.

Best of luck,

Your Future Self.

P.s. Enjoy your life whilst still being smart about money and think about me, your future self.