The top 3 mistakes people make with their super

Key takeaways

Superannuation is one of the most effective wealth creation tools in Australia today.

However, there are simple mistakes that people regularly make which means their super account is not working as effectively as it could for them. These include:

1. Having Multiple funds

2. Understanding the insurance benefits

3. Not reviewing your investment strategy

With so much at stake it just makes good financial sense to ensure your superannuation is working at its optimum for you today and well into your future.

Superannuation is one of the most effective wealth creation tools in Australia today.

The taxation benefits of voluntary contributions into your superannuation are well-known, as is the ability to access your super funds (via a self-managed super fund) to invest in property.

Unfortunately, however, there are simple mistakes that people regularly make which means their super account is not working as effectively as it could for them.

In fact, over the long-term, these super blunders could have lasting impacts when they reach retirement and should be avoided at all costs.

1. Multiple funds

It's common for Australians today to have multiple jobs in their lifetimes but often they agree to use a new super account with each new employer.

This can result in one person having multiple funds with most of them inactive apart from the drawing down of account fees, which can rapidly deplete the balances.

A better approach is to consolidate all funds into one superannuation account after speaking to an expert advisor to determine the best one for you.

That way, there are less administration fees, and the combined balance grows in value over time.

When deciding on the consolidation of balances into one fund, it's also advisable to review all super insurance options to ensure you are adequately covered.

2. Life insurance

Life insurance is an important consideration for many Australians but many don't understand the taxation benefits of paying for life insurance policies out of their super funds.

The issue is that life insurance premiums are not tax deductible when paid outside of superannuation, but if paid from within super the fund receives a tax deduction.

Therefore contributions to the super fund to effectively pay for life insurance is not taxed up to the premium costs, which are also deductible.

It's important to note that any contributions into super must be within the relative caps set by the government.

You must also be aware that payment of life insurance from super is taxed if paid to non-dependent children.

3. Not reviewing your investment strategy

Even though superannuation has the potential to vastly improve someone's financial position at retirement, far too many people don't have a superannuation investment strategy.

Many also don't have any financial goals at all, so it's very difficult to work towards something that you haven't really thought about.

When it comes to a superannuation investment strategy, typically a member must decide on their investment options based on their risk profile and then their super is invested accordingly.

Superannuation investment classes generally fall into one of four categories: growth, balanced, conservative, and cash, with each of these often producing different overall returns that should be considered when determining which is the right investment class for you.

Depending on your superannuation balance it may be appropriate to have more or maybe less growth-orientated investments and conversely more or less conservative ones.

Periodically reviewing your superannuation investment strategy is imperative to determine if any investment options need to be changed and should always be done in conjunction with a qualified advisor.

As part of that regular review, you should take the opportunity to assess your overall insurance needs for life, total and permanent disability, and income protection insurances.

This is because many people are under insured if they take into account their level of debt and ongoing income needs of their family in the event of the death of the main income earner or the parent responsible for the majority of child-rearing.

Note: For many younger Australians, their superannuation balances will benefit  from decades of regular compulsory employer contributions.

Over their many years in the workforce, their superannuation has the opportunity to grow into a key component of their retirement savings.

In fact, it could make the difference between a financially free life after work, or one where they are worse off than they were when they were employed full-time.

So, with so much at stake, it just makes good financial sense to ensure your superannuation is working at its optimum for you today and well into your future.

Disclaimer

The article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives. 

About Ken Raiss Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles