Three things you could do today to boost your superannuation

Superannuation is confusing so people often just neglect it for very long periods of their working life. So, I've put together a list of 3 simple things you could do easily today or over the next couple of days that will help make a big difference over the long term.

1. Check your investment option

Almost everyone, particularly those earlier in working life, has the default investment option. Usually called the Balanced fund. The Balanced fund or default investment option in most super funds has about 60-80% invested in growth assets and 20-40% invested in defensive assets. Anyone under 50 years of age has at least 10 years before they can access their superannuation so they can afford to take on the extra risk and volatility of a growth orientated portfolio. Check your super funds performance figures for the default fund and the high growth fund. The Precision Wealth Management 10 year return for the 70% growth portfolio compared with the 100% growth portfolio is 6.94% and 8.00% respectively (keep in mind the GFC was right in the middle there). If we take a typical situation, someone with $100,000 in superannuation and net contributions of $7,000 pa (increasing at 3%), the difference after 25 years would be $1,114,000 compared to $1,350,000.  Not a bad difference for choosing one option over the other.

Note: A higher growth investment option is more volatile and can at times provide lower returns than the other options. You need to accept this and ensure you are invested over the long term.  

2. Check your insurances

Superannuation funds, particularly employer sponsored funds have default insurance inside them. This is good as most people don't go to the trouble of making sure they have adequate cover.  Even though most young families don't have adequate cover, there are some people where the default insurance cover is more than they need.  Some single people without any dependents can have death cover which isn't needed, or maybe they have income protection inside superannuation which doubles up on a policy they already have outside superannuation.  If you can save $300 per year (increasing at 3%) in unnecessary insurance premiums, then you could add an additional $30,000 over 25 years.

Note: Most people, particularly those with young families don't have enough personal insurance cover. Carefully consider your needs before making changes to your insurances and seek advice if you are unsure.

3. Make additional contributions

To have the sort of lifestyle most of us desire in retirement, the standard employer contributions aren't enough and freeing up some cash flow to direct towards superannuation can make a big difference. The good thing about making contributions to superannuation is that they can come from pre tax income if salary sacrificed.  So if you can free up $50 per week from your budget, that is actually $75 of pre tax earnings (for someone on the 34% MTR, and even more for those on higher tax rates). If we take an example of $50 savings per week, grossed up to pre tax earnings and salary sacrifice that over 25 years (increasing at 3% pa earning 8% pa) that is worth an additional $318,000. For most full time workers, the best way to contribute to superannuation is via salary sacrifice however make sure you stay within your contribution caps. If you are a low income earner, making non concessional contributions (after tax contribution) to receive the government co contribution is a great little boost as well.

There are obviously other things that can been done to boost retirement savings, however if it gets too complicated, people won't do any of it. So this list of 3 is a great place to start and you don't need to do all of them. Even just 1 or 2 will help make a big difference over the long term.