Superannuation. Every working Australian has it, but many aren't sure exactly how it works or why they need to know about it. In this blog we look at why superannuation is important for you, how it works, and how it can create a better and more sustainable life.
So first and foremost, what exactly is superannuation?
Well, Superannuation is money set aside by your employer over your working life that acts as a savings system for retirement. The money that is held in your super account is then invested in assets to yield returns for your eventual retirement. What your money is actually invested in during that time depends on your super fund's portfolio of investments.
Why is super important for every Australian?
When you first enter the workforce, there's a certain rush that comes with your pay cheque. After all, money buys you the freedom to do the things you want, have the things you want, and afford the type of life you want to live.
But when you retire, you don't have access to the same income. You cease working, and that means your regular income stream stops also. But just because you're retired doesn't mean you should settle for second best. That's why it's essential you make smart choices with your super today, so you can have a brighter future tomorrow.
You want a long, happy retirement
Best case scenario, your retirement lasts for a long time. During retirement, you're reliant on superannuation (and personal investments) to 'pay your way'. The amount of super you will need to last your retirement depends on several factors, including:
- How long you live
- The type of lifestyle you want (travel, holiday houses etc.)
- Any future medical costs
Many Australians underestimate just how expensive retirement can be. You will have to consider increased medical costs, rising costs of living, and account for unexpected expenses - all without a reliable source of income.
The Association of Superannuation Funds of Australia (ASFA) estimates the total amount required to support a comfortable lifestyle for a single person is $545,000, and $640,000 for a couple (assuming they receive a partial Age Pension.)
The Age Pension probably won't be enough
The Age Pension is an allowance paid to eligible Australians over the age of 65. To become eligible for the pension you will have to declare your income and assets, which will be used to determine how much you are entitled to receive.
For most people, the Age Pension alone is not sufficient to fund a comfortable retirement. This is why a substantial superannuation balance is so important.
It's one of the best ways to save over the long term
Smart investing can reap benefits, and superannuation is one of best strategic investments you can make. Tax concessions provided to super funds give them a competitive advantage, and, because super funds manage the wealth of thousands of individuals, they have advantages in scale and diversification you might find hard to achieve as a single investor.
That's why you need to track down lost super One of the biggest concerns for Australia is is tracking down lost super. Through the course of our lives most of us will work across a number of different companies, even industries. As most employers have a default super fund, that means super can often end up spread around multiple funds. That means more fees and less super in the long term.
Nonetheless, According to the ATO there's currently almost $18 billion of unclaimed super in holdings by super funds and the ATO. To find your lost super you can use this super tracking tool provided by the Australian Tax Office.