Seven ‘super' steps to strive for
Sunsuper's Dream Team welcome back Joshua van Gestel, Sunsuper's National Education Manager, for a round-table discussion on how to maximise the potential of your super. It's essential listening for anyone wanting to get on the right track to achieve their retirement dreams.
Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs.
Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering money markets, investing, your superannuation, and helping you fulfil your retirement dreams. Today is a very special day because with me is Brian Parker, Sunsuper's fabulous and most knowledgeable Chief Economist.
Brian Parker: Thanks, Anne.
Anne Fuchs: He knows everything there is to know about investing and money markets and the economy, but we also have another fabulous special guest today. I call him JVG, but he is technically known and was born as Joshua van Gestel. He's our National Manager of Education here at Sunsuper.
Joshua van Gestel: Thank you, Anne. Good day, Brian.
Brian Parker: Hello, Josh.
Anne Fuchs: We are so happy to have you here. For our listeners who don't know me, I'm Anne Fuchs. I head up Advice and Retirement here at Sunsuper, and the team and I come to work every day to understand our members' retirement dreams and bring them to life. So, Brian, in the spirit of you being the star child with legal risk and compliance, do you have something to say to our listeners?
Brian Parker: I do, Anne, actually. Thank you for mentioning that. Thanks, Anne. It's great to be here again. But before we start, I do need to let everybody know that what we're going to talk about today is really just general information only. Any advice doesn't take into account your personal circumstances, your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our Product Disclosure Statement from our website or give us a call on 13 11 84.
Anne Fuchs: Beautifully done as always, Brian. Look, I have to say, our last podcast that we recorded a while back, it was about the investing principles. It was seven investment principles you shared with our listeners, and I have had a lot of feedback from listeners saying they loved the current affairs story, keeping your face off a current affair. Not to be outdone, Joshua van Gestel certainly doesn't like being outdone by you.
Joshuaua van Gestel: Not at all.
Brian Parker: Certainly outdone by the Economist, no.
Anne Fuchs: No. Josh is here today to join us. We're extending that theme of investing by seven, but today we're talking about the seven super steps to strive for, that's a bit of a tongue twister, when you want to maximize your retirement savings. Josh, where should we kick off?
Joshua van Gestel: Thanks, Anne. Well, as much as I like to outdo Brian, I think we'll kick off with Brian. One of the first steps is to consider your investment choice. Brian?
Brian Parker: Yeah. Look, I think it's important. The best investment portfolio that any member is really one that they've built to suit their particular needs, and preferably one that they built using the help of professional financial advice. Now, at Sunsuper, we've got 20 investment options, including our default or our Life Cycle Investment option for those who don't make a formal choice, but another 19 options to choose from. You can use those 19 options to build an investment portfolio that suits your particular needs in your particular phase of life.
Anne Fuchs: Making that active investment choice is the first one.
Joshua van Gestel: That's right. I think we'll come back to Brian in a minute just to build on that.
Anne Fuchs: Building is a good terminology, Josh, because the next one is all about building. It's about adding extra money into your super.
Joshua van Gestel: That's right. It's putting in additional contributions above what your employee may be putting in. I think I describe this very much as contributions in nudges. Especially when you're young, you can make these small additional nudges over time. As you wage and get closer to retirement, those nudges maybe need to get a bit bigger. There really are two main ways that you can make additional contributions. One is pre-tax, where you can make salary sacrifice contributions through your employer if they allow it, or you can actually make contributions that you claim as a tax deduction. The second way is actually to make after tax contributions. Contributions from your own savings, which I'll come to a bit later on.
But the important thing to note about both of these is that there's actually a limit to how much you can put it.
Anne Fuchs: That's correct. Yes.
Joshua van Gestel: For pre-tax, it's a $25,000 a year limit generally, and for post-tax, it's $100,000 a year. But the important thing where I'd like to bring Brain back in if that's okay is that by making these regular contributions, by rather than putting in big chunks very rarely, by making small contributions overtime, that actually benefits with compound interest.
Anne Fuchs: Compounding interest.
Brian Parker: Yes, absolutely. Yeah.
Anne Fuchs: Someone called it the greatest eighth. Was is greatest natural wonder of the world or am I making that up?
Brian Parker: Yes, I think it was the eighth. I think a famous Australian economist called it the eighth natural wonder of the world and that economist wasn't me.
Anne Fuchs: I thought you're talking about yourself, Brian.
Brian Parker: But the bottom line is the longer you leave money in the system, the more powerful the effects of compound interest become. I know it's hard especially when you're starting out, when you're early twenties or mid-twenties and you're worrying about, "Well, am I going to settle down into a longer term relationship? Do I need to put money aside for mortgage," etcetera, etcetera. There's all these competing demands on your savings and all these competing demands on your income.
But the extent to which you can put money aside for your retirement, the more you put aside for longer, the better your long-term outcome will be because of the power of compound interest. You provide more time for investment returns to do their job.
Joshua van Gestel: If I could go back to the 20 year old JVG, that's what I'd be telling him I think.
Anne Fuchs: To recap for our listeners, so rule number one was making an active investment choice. Rule number two is adding extra to your super, and rule number three is do it often.
Joshua van Gestel: That's right.
Anne Fuchs: Okay.
Joshua van Gestel: That's right.
Anne Fuchs: Where are we at now? What's number four?
Joshua van Gestel: Well, rule four is sort of linked to the second rule of adding extra is do it in a way that where possible the government's putting in some money in for you as well. There's three ways that the government can really chip in, and for some of these you don't actually have to do anything. Firstly, thinking about if you're a lower income earner or maybe you're working part-time or looking to wind down and seeing your salary reduce. If you earn less than $37,000 year, then the contributions that go in from your employer, they effectively have tax refunded to them. That can be up to $500 a year that goes back in.
If you make a post-tax contribution that I discussed earlier, then if you're actually earning less than about $52,000-$52,500 a year, then for every dollar you're putting in, the government may in fact put up to about 50 cents. That can be up to another $500 a year that is automatically going in from the government. Thirdly, if you actually make contributions towards your spouse, they benefit from seeing their super grow, but you can also benefit by having a tax offset provided by the government to reduce your final tax bill.
Brian Parker: You end up with a happier spouse, which is never to be ...
Joshua van Gestel: That's correct. That's correct.
Anne Fuchs: Rule number five is incredibly important because I think the statistic is one in two Australians will have cancer at some point in their lifetime, and they'll be off work or they'll experience another significant illness and the impact that can have on a family's financial security. Insurance through superannuation. Josh, what do we need to cover off there?
Joshua van Gestel: I think there's two things to think about when it comes to insurance. The first is understanding what you get and the second is then thinking seriously about how much you need and knowing that you're paying for that through an insurance premium, but you're getting value for that insurance premium. In superannuation, there's generally three types of insurance that are offered. There's cover for the event of death if you die prior to retirement. There's cover for if you become totally and permanently disabled. Then there's also income protection cover that you can elect to receive, which will help continue some of your income in the event that you're off work for a short period.
In all three cases, there is as I said a cost. There is a premium that you pay to get access to those benefits at a later date if unfortunately you require them. It's important that you think very clearly about how much cover you want and a bit like thinking about investments and thinking about other financial decisions. Are you happy with the payment that you're making for that cover?
Anne Fuchs: I'll jump in and say this is where financial advice is incredibly important because sometimes it's best to have it in super and sometimes it's better to have it outside of super depending on the definitions and the cover you require. Again, this is a very technical area, but important area and financial advice is the best way to go if you are looking at do you have the right insurance for your family.
Joshua van Gestel: But you're jumping to step seven, Anne.
Anne Fuchs: Oh, goodness gracious. Sorry. I can't help it. I so love my job in financial advice. I'm sorry, JVG. Where are we up to then? We're up to seven, aren't we?
Joshua van Gestel: No, we're up to six.
Anne Fuchs: Six. Of course, sorry. I'm sorry.
Joshua van Gestel: We're up to six, which also leads to advice. Many of us have much more than one super account. I think it's really important that you make sure wherever you've got more than one super account that you track them down, bring them together unless there's a really valid reason to have more than one. The important thing is to note is that if you've got multiple super accounts, each will have administration fees coming off it. Each may have insurance premiums coming off it, going back to our earlier discussion. But the other thing is with more than one account, you run the risk of actually losing track. It's important that much like your back accounts that you're on top of where your super is managing it.
Anne Fuchs: I think actually the government's passing some legislation this week that will see more Australians consolidating their super, which is a good thing.
Joshua van Gestel: That's correct.
Anne Fuchs: Which is a good thing.
Joshua van Gestel: That's correct.
Anne Fuchs: The last one?
Joshua van Gestel: The last one is yours, Anne.
Anne Fuchs: Great financial advice. Look, I was plugging financial advice in the insurance top tip. Tip number five I think it was. Look, money makes people emotional. Money can cause divorce. Money can be the source of domestic violence, illness. Money worries can create awful damage in communities. Great financial advice, trusted financial advice has the power to turn a family situation around through stepping back, looking at what can be done and keeping a family on track.
None of these things that we've spoken about today, making more contributions, salary sacrifice, spouse contributions, investment choice, none of it in itself is particular rocket science per se, but it's being able to navigate it, knowing how to fill in the paperwork, what's the right amount you should putting in. That's where personal financial advice really comes to the fore. Like I would decide maybe I want to get fit and maybe one day I'll hire a personal trainer. There's that accountability piece as well that financial advisors bring around keeping members on track with their savings goals. I am passionate about financial advice.
I encourage our listeners to contact us if they're thinking that they need some ... To action some or all of these steps today.
Joshua van Gestel: I think that properly just to recap, the first step, to make an investment choice. Thank you, Brian. There's lots more information that Brian has been involved in. The podcast and videos and things on their website that can help you there. Second step, adding additional moneys to your superannuation and remembering to do that on a regular basis and making sure that compound interest is working for you. That was really another step in there. Fourth, make the government chip in for you. Make sure that you're taking those opportunities. Fifth, look after your insurance and make sure that's appropriate. Sixth, make sure that you bring all your super together.
Importantly, overseeing all of these and something that's beneficial for each of those steps is making sure that you seek some financial advice.
Anne Fuchs: Well, it's been a heavy episode. We've covered a lot, haven't we? Are you okay over there, Brian? Do you need to go and have a nap and lie down?
Joshua van Gestel: He looks a bit tired.
Anne Fuchs: He does look a bit.
Brian Parker: I know. I didn't really know what to do, but it's been a terrific session.
Anne Fuchs: It has been a terrific sessions. Thanks so much listeners and we look forward to you joining us in our next podcast series. Thank you.
Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super and enjoy your retirement, visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our New School of Super Podcast.
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