Superannuation was the unsexiest topic in personal finance as far as I was concerned. It was hidden away, something my employer did on my behalf that truly did not interest, let alone excite me. It represented retirement down the ages, something remote and far, far away in the future. It was shocking to me that the time had arrived for me to sort out my superannuation.
At the moment, we cannot withdraw from our superannuation account until we are 60 years of age – who knows if the government would change this rule in the future? This was another layer of uncertainty with superannuation over the years – rules change on when you could withdraw, how much you could invest in it etc etc. That said, I am assuming that the government would have to give sufficient notice if they were to change the age rule … surely they would face a voter backlash …
All of a sudden, 60 years of age was not very far away anymore. I only had thirteen years left for my nest egg to grow. I felt that time was no longer on my side. I needed every cent to compound & grow so that my nest egg would be ready by age 60.
The Barefoot Investor had suggested that we ought to salary sacrifice 5.5% of our gross salary into superannuation once we had purchased our house. This was in addition to the 9.5% compulsory employer contribution. I had not been salary sacrificing at all whilst I had a mortgage as I had wanted every cent in my loan account.
Using the superannuation calculator on ASIC’s moneysmart website, I found out I would need to salary sacrifice substantially more than 5.5% if I wanted a decent nest egg at 60. In the end, I decided on 15% ie I would ‘sacrifice’ 15% of my gross salary & have my employer pay that amount into my superannuation account instead of my bank account. This was in addition to the usual 9.5% employer contribution. However, even at this increased rate of contribution, my nest egg would fall short of the one million dollars target. This is where I want to tell all young people – time is on YOUR side – salary sacrifice now and you will be pleasantly surprised by the substantial nest egg waiting for you at 60.
I had two superannuation accounts, one with an industry fund that my employer makes contributions to and a second retail fund set up when I first started work many years ago. I had stopped contributing anything to the retail fund when I bought my house. My next action was to consolidate these two accounts into one – I chose the industry fund as it had lower management fees. It made sense not to pay a higher management fee to the retail fund. I was shocked however that by simply rolling from one fund to another, I lost $3000 in exit fees. That nest egg just got smaller …
Then I had to decide on which investment option to invest in within the fund. Do I stay in the default Balanced option or look at another option? I did the fund’s online survey to assess my risk appetite / tolerance and promptly ignored its recommendation to stay in the Balanced fund. I found out I could split my portfolio and invest in different options. Once again, bearing in mind that time was not on my side, I decided that I was still in the accumulation phase ie I was still accumulating my wealth which meant I needed higher returns (read higher risk) but at the same time, I was also terrified of losing it all. After much internal debate, I settled on 40% invested in the Balanced option & 60% in the Shares option.
Phew! That was a marathon! Big pat on the back – can’t believe superannuation is sorted … for now