The Times Australia
The Times World News

.
Men's Weekly

.

After a lifetime studying superannuation, here are 5 things I wish I knew earlier

  • Written by Susan Thorp, Professor of Finance, University of Sydney
After a lifetime studying superannuation, here are 5 things I wish I knew earlier

Amassing the wealth needed to support retirement by regular saving is a monumental test of personal planning and discipline. Fortunately for most Australian workers, the superannuation system can help.

Superannuation uses the carrot of tax incentives, and the sticks of compulsion and limited access, to make us save for retirement.

There are benefits to paying timely attention to your super early in your working life to get the most from this publicly mandated form of financial self-discipline.

I’ve been researching and thinking about superannuation for most of my career. Here’s what I wish I knew at the beginning of my working life.

Read more: Women and low-income earners miss out in a superannuation system most Australians think is unfair[1]

1. Check you’re actually getting paid super

First, make sure you are getting your dues.

If you are working, your employer must contribute 11% of your earnings[2] into your superannuation account. By July 2025 the rate will increase to 12%.

This mandatory payment (the “superannuation guarantee[3]”) may look like yet another tax but it is an important part of your earnings (would you take an 11% pay cut?).

It is worth checking on, and worth reporting[4] if it is not being paid.

The Australian Tax Office estimates[5] there is a gap between the superannuation employers should pay and what they do pay of around 5% (or $A3.3 billion) every year.

Failing to pay is more common[6] among the accommodation, food service and construction industries, as well as small businesses.

Don’t take your payslip at face value; cross-check your super account balance and the annual statement from your fund.

A woman checks a computer and a piece of paper closely.
Cross-check your super account balance and the annual statement from your fund. Shutterstock[7]

2. Have just one super account

Don’t make personal donations to the finance sector by having more than one superannuation account.

Two super accounts mean you are donating unnecessary administration fees, possibly redundant insurance premiums and suffering two times the confusion to manage your accounts.

The superannuation sector does not need your charity. If you have more than one super account, please consolidate them into just one today. You can do that relatively easily[8].

3. Be patient, and appreciate the power of compound interest

If you’re young now, retirement may feel a very distant problem not worth worrying about until later. But in a few decades you’re probably going to appreciate the way superannuation works.

As a person closing in on retirement, I admit I had no idea in my 20s how much my future, and the futures of those close to me, would depend on my superannuation savings.

Now I get it! Research[9] shows[10] the strict rules preventing us from withdrawing superannuation earlier are definitely costly to some people in preventing them from spending on things they really need. For many, however, it stops them spending on things that, in retrospect, they would rate as less important.

But each dollar we contribute in our 30s is worth around three times the dollars we contribute in our 50s. This is because of the advantages of time and compound interest[11] (which is where you earn interest not just on the money initially invested, but on the interest as well; it’s where you earn “interest on your interest”).

For some, adding extra “voluntary” savings can build up retirement savings as a buffer against the periods of unemployment, disability or carer’s leave that most of us experience at some stage.

4. Count your blessings

If you are building superannuation savings, try to remember you’re among the lucky ones.

The benefits of super aren’t available to those who can’t work much (or at all). They face a more precarious reliance on public safety nets, like the Age Pension.

So aim to maintain your earning capacity, and pay particular attention to staying employable if you take breaks from work.

What’s more, superannuation savings are invested by (usually) skilled professionals at rates of return hard for individual investors to achieve outside the system.

Many larger superannuation funds offer members types of investments – such as infrastructure projects and commodities – that retail investors can’t access.

The Australian Prudential Regulation Authority (APRA) also checks[12] on large funds’ investment strategies and performance.

A woman holds her baby while walking in the park. Pay attention to staying employable if you take breaks from work. Shutterstock[13]

5. Tough decisions lie ahead

The really hard work is ahead of you. The saving or “accumulation” phase of superannuation is mainly automatic for most workers. Even a series of non-decisions (defaults) will usually achieve a satisfactory outcome. A little intelligent activity will do even better.

However, at retirement we face the challenge of making that accumulated wealth cover our needs and wants over an uncertain number of remaining years. We also face variable returns on investments, a likely need for aged care and, in many cases, declining cognitive capacity.

It’s helpful to frame your early thinking about superannuation as a means to support these critical decades of consumption in later life.

At any age, when we review our financial management and think about what we wish we had known in the past, we should be realistic. Careful and conscientious people still make mistakes, procrastinate and suffer from bad luck. So if your super isn’t where you had hoped it would be by now, don’t beat yourself up about it.

Read more: Age pension cost to ease by 2060s but super tax breaks to swell: Intergenerational report[14]

References

  1. ^ Women and low-income earners miss out in a superannuation system most Australians think is unfair (theconversation.com)
  2. ^ 11% of your earnings (www.ato.gov.au)
  3. ^ superannuation guarantee (www.ato.gov.au)
  4. ^ reporting (www.ato.gov.au)
  5. ^ estimates (oia.pmc.gov.au)
  6. ^ more common (oia.pmc.gov.au)
  7. ^ Shutterstock (www.shutterstock.com)
  8. ^ relatively easily (moneysmart.gov.au)
  9. ^ Research (www.nber.org)
  10. ^ shows (economics.mit.edu)
  11. ^ compound interest (moneysmart.gov.au)
  12. ^ checks (www.apra.gov.au)
  13. ^ Shutterstock (www.shutterstock.com)
  14. ^ Age pension cost to ease by 2060s but super tax breaks to swell: Intergenerational report (theconversation.com)

Read more https://theconversation.com/after-a-lifetime-studying-superannuation-here-are-5-things-i-wish-i-knew-earlier-217922

The Times Features

Where to buy bridesmaid dresses in Sydney

When it comes to planning a wedding, finding the perfect bridesmaid dresses is a crucial task. These dresses not only complement the bride's gown but also reflect the overall sty...

How to Secure Your Home Without Making It Look Like a Fortress

Queensland homes face a break-in every 18 minutes. Your home's security matters more than ever, but many people worry about making their beautiful homes look like fortresses. Ho...

Daylight can boost the immune system’s ability to fight infections – new study

Ever found yourself out of sync with normal sleep patterns after late nights or working a night shift? It could be you’re experiencing what scientists call social jet lag[1]...

Easy Weekend Plumbing Jobs: Tackle Simple Repairs at Home

Taking the plunge into DIY plumbing can be both satisfying and economical. For homeowners, acquiring basic plumbing skills saves on costly repairs and equips them with the confid...

Australian first 5-In-1 rapid antigen test

Since the pandemic, we have become familiar with rapid antigen tests which were popularised as an at home test to diagnose COVID-19. Since then, they have expanded their usage ...

Hundreds line up in Sydney to try viral crispy chicken

Pappa Flock’s crispy crunch causes a frenzy in Bondi JunctionBondi Junction officially has chicken fever. Sydneysiders turned out in flocks over the weekend, with queues forming fr...

Times Magazine

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Science Behind Reverse Osmosis and Why It Matters

What is reverse osmosis? Reverse osmosis (RO) is a water purification process that removes contaminants by forcing water through a semi-permeable membrane. This membrane allows only water molecules to pass through while blocking impurities such as...

Foodbank Queensland celebrates local hero for National Volunteer Week

Stephen Carey is a bit bananas.   He splits his time between his insurance broker business, caring for his young family, and volunteering for Foodbank Queensland one day a week. He’s even run the Bridge to Brisbane in a banana suit to raise mon...

Senior of the Year Nominations Open

The Allan Labor Government is encouraging all Victorians to recognise the valuable contributions of older members of our community by nominating them for the 2025 Victorian Senior of the Year Awards.  Minister for Ageing Ingrid Stitt today annou...

CNC Machining Meets Stage Design - Black Swan State Theatre Company & Tommotek

When artistry meets precision engineering, incredible things happen. That’s exactly what unfolded when Tommotek worked alongside the Black Swan State Theatre Company on several of their innovative stage productions. With tight deadlines and intrica...

Uniden Baby Video Monitor Review

Uniden has released another award-winning product as part of their ‘Baby Watch’ series. The BW4501 Baby Monitor is an easy to use camera for keeping eyes and ears on your little one. The camera is easy to set up and can be mounted to the wall or a...

LayBy Shopping