Will Superannuation Be Your Largest Asset?

Superannuation – a word that brings to mind boredom and confusion for many people. But what if I told you that your super could be the key to a comfortable retirement?

That’s right, for most Australians, superannuation will be their largest asset at retirement. And with the recent shaming of under-performing super funds, it’s time to start taking your super seriously.

Why is super so important? Considering that most people will not have enough saved for retirement, super tries to make up for that shortfall.

Super guarantee is a compulsory contribution from your employers above your annual salary. The current rate of super is 10.5%. This means that your employer must pay 10.5% of ordinary earnings into your nominated superannuation account.

Furthermore the super rate is expected to increase incrementally by 0.5% until a 12% rate is achieved in 1 July 2025. A 12% super guarantee will see an employee earning $85,000 p.a have around $150,000 more when they retire.

Here in lies the question, would you want superannuation be your largest asset at retirement? If so, do you know how much you need to have a comfortable retirement? And what steps are you taking to ensure that will happen.

Having a large super balance would be nice, but most people leave their superannuation up to chance. Below you can find the disadvantages and advantages of superannuation, and also the risks associated with super.

Benefits Of Boosting Your Superannuation

If super is to be your largest asset when you retire, you would want to maximise the benefits. Firstly, the greatest benefit super can offer you is the lower tax rate, currently at 15%. Why is this important?

Because if you earn a median wage in Australia, your tax rate is likely to be 32.5%. Which is considerably higher than the tax rate within super accounts. This means that you are able to put more money to work as it is being taxed less.

Secondly, to boost your retirement nest egg you can contribute your after-tax pay into your super (non-concessional). These contributions will not be taxed again as they have already been taxed.

The ATO allows you to make up to $110,000 of non-concessional contributions in a financial year. Any amount above this limit will be taxed at 47%.

So if you have any extra cash lying around and no plan to use it, you can consider giving your super balance a boost.

Thirdly, you can opt in to salary sacrifice your pay every pay cycle. Salary sacrifice allows you to contribute before tax money while also allowing you to reduce your tax payable during tax time.

Generally, if you make more that $45,000 per year extra concessional contributions will become more tax effective.However, be careful not to exceed the $27,500 per financial year limit.

Of course, choosing the the right superannuation fund is equally important. The super fund needs to be able to produce net positive results.

So you want to make sure that their fees are low compared to their peers, and also have a proven track record.

Disadvantages of Superannuation

While there are really good benefits to superannuation, there are also disadvantages. Super is big business, and it attracts alot of money. Just like life, there are good super funds, terrible super funds and everything in between.

Typically I look for industry funds as opposed to retail funds, as they are not-for-profit. Meaning all profits go to members and not to the pockets of shareholders.

You may also have heard that most fund managers under-perform the stock market. And less the fees investors get the shorter end of the stick.

This theory can be applied to super funds aswell. The more fees you pay the less your returns will be. So in order to maximise your super returns, you must find a super that is low cost. On top of that, they need to have a proven track record.

The worst thing about locking your savings up for 40+ years expecting a decent retirement, is to be stuck with an under-performing fund.

There a few reason why I do not plan for my superannuation to be my largest asset in retirement. Firstly, superannuation can only be accessed after retirement.

Secondly, when it comes time to retirement the economy could be in bad shape. And if I rely on my super during that time, I could expect a significant devaluation in the price.

Thirdly, there is a sovereign risk that the law may change regarding retirement. There is a likely chance that the age of retirement could go up in the future. If this happens, the time in which I will be able to access my retirement funds has increased.

So while I think superannuation is great for a majority of people. I will continue to invest heavily outside super.

Complementing Your Super Investments

If you are just starting to enter the workforce, you have a minimum of 45 years until retirement. And if you think about the average person living until 85+, there is still decades after retirement.

That is decades of compounding within your super account, that will dramatically increase your balance. The longer you can delay disrupting that compounding, the larger your balance will be.

However, this all makes sense if you plan on retiring at the age of 65. If you like to do so earlier, you should also look at ways outside of super to build your retirement nest egg.

Extra contributions to your super is a sensible practice, but it should not be your only focus. Like I mentioned, you never know how the laws surrounding super may change. And life is unexpected, you may need the money today or in the next few years.

So complement your super investments with investments outside superannuation. You may look into investing in stocks, property, businesses, term deposits, money markets, commodities etc.

If you are not confident in your ability to choose an asset class to invest in, you should seek advice from a financial professional. There are also tons of books and free information available if you are curious enough to look for it.

I personally am a big fan of stocks, as the not only provide dividend cash flow but also capital appreciation over the long term. Eventually I would like my dividend income to supplement my earned income. Hopefully before the age of 40.

I think of my superannuation as a Plan B to my retirement income. I focus mainly on stocks and have smaller allocations dedicated to precious metals, private equity and REITs.

Will your super be your largest asset or your Plan B?

Key Takeaways

• Superannuation is a great tax effective way to build your retirement savings. Especially if you are in a higher tax bracket 32.5%+
• Superannuation laws may change in the future and therefore has some risk. Since you cannot access super until retirement, you may not want to rely on it especially if you end up needing the money earlier.
• Complement your super by investing outside of superannuation. There are many asset classes that can assist you in creating a portfolio of wealth even before you retire

Incognito Wealth – Investing Tools

Need help with investing in the stock market or personal finance? Visit my Etsy store for digital excel templates. Simplifying finance so that everybody can reach financial independence.

Incognito Wealth - Financial Independence One Investment at a Time