How to retire richer: choosing the right superfund

Superannuation is a vital component of your financial future, and choosing the right fund can benefit you greatly over the long term. One question we’re commonly asked is “what’s the best superfund”. On the surface it seems like a straightforward question, and anyone can find who had the best returns last year. In reality, choosing the right fund can be complex – there’s literally hundreds of super funds, each offering different investments and features.

Why is superannuation so important?

Superannuation is not just a savings account for your retirement—it’s a tax-effective investment vehicle that can significantly impact your financial future. It is designed to build an asset that will provide you with a steady income stream in retirement, ensuring that you can maintain your lifestyle when you’re no longer earning a regular salary. 

Some of the main benefits include:

Concessional Contributions

Super contributions made by your employer fall under ‘concessional contributions’, meaning they’re taxed at a lower rate (15%) compared to your regular income. On top of your employer contributions, you can choose to contribute extra as well to reduce your taxable income. This not only helps you save more but also reduces your taxable income, making superannuation one of the most highly tax-effective ways to save for retirement. Before you do put anything extra in there are rules and caps that you need to be aware of first, so be sure to check first!

Tax Advantages

Beyond concessional contributions, earnings within your super fund, in what’s called the accumulation phase, are taxed at just 15%, and if you hold the investments until retirement, it’s possible that any income streams you set up, or withdrawals you make could be entirely tax-free. This is a huge benefit, particularly when compared to the tax rates you could face on similar investments outside of superannuation.

Compounding Effect

The power of the compounding effect of an investment cannot be overstated. With superannuation, your returns are reinvested, meaning you earn returns on your returns. Over the decades until retirement, this compounding effect can exponentially grow your savings, potentially turning small, consistent contributions into a substantial nest egg.

Choice in your Investments

You have so much choice in how you invest your super, from choosing ready made pre-mixed investment options, direct shares or tailor-made specific managed investments, superannuation provides you the freedom to invest in a way that fits in with your goals and the risks you are willing to take. 

What are my options?

Industry Funds

Initially these funds were established to provide a fund for employees in specific industries, there would often have been tilted towards investments within those industries. However, over time most industry funds are now open to everyone and investment objectives are more aligned to long-term investment goals. Historically industry funds would provide a smaller range of investment options designed to keep costs low for members, however as time has passed, many industry funds are beginning to add more choice based on their members demand. 

Retail Funds

Retail funds are designed usually with wider ranges in investment options and sometimes more flexibility and capability in the services available. Retail funds typically allow their members greater choice in investment managers, investment styles and the types of assets that can be invested in. They do this by giving their members access to specialist investment options that can be tailored to the individual’s goals and risk preferences. 

Self Managed Super

Some like the idea of having complete control of their investments, such as a desire to purchase a specific property, such as an office building or warehouse. Where very particular investments are sought after, sometimes a Self Managed Super Fund could be considered. With this also comes the need for the administration, including annual tax returns, audits and so on. They have become increasingly popular as many Aussies have found their balances growing and opening up previously inaccessible investment opportunities

Investing with your risk tolerance in mind

Knowing your comfort level to take risk and your goals for your retirement helps to consider what could be your best approach to investing. Some simple categories that are common for many investors are

• Growth

Aimed at maximising returns by investing in higher-risk assets like shares. Suitable for those with a longer time horizon and a higher risk tolerance and the ability to ‘ride out’ market downturns 

• Balanced

Spreads investments across a mix of assets to balance risk and return. Ideal for those who want moderate growth without taking on too much risk and wanting to see a little less day to day change in their investment values

• Conservative 

Focused on preserving capital with lower-risk investments like bonds and cash. Often popular with those nearing retirement, or in retirement, or with a low risk tolerance.

What do I look for?

Choosing the right superfund is all about understanding your own financial position – your income, retirement goals, risk tolerance, and investment preferences. It’s important to balance potential returns with fees, consider the insurance cover provided, and ensure the fund aligns with your personal circumstances.

• Performance

Look at the historical performance of the fund. Whilst past performance is not a guarantee of future results, you can get some understanding of their investment approach to grow your savings.

• Fees

Having multiple funds can mean multiple fees and this could erode your super balance over time. Compare the administration, investment, and performance fees between funds. 

• Features 

Know what else is on offer with the fund you’re with. Depending on what’s important to you, it’s important to look at what insurance options are available, what can be done online vs needing to speak with them directly, how long does it take to make a change to something and so on. This can often be one of the hardest things to compare. 

• Risk

Understand the level of risk associated with the investment options within the fund. Make sure the fund’s risk level aligns with your financial goals and timeline. A growth fund might offer higher returns, but it also comes with greater volatility.

• Investment Approach 

For some, understanding the values of the underlying companies and investments is a priority. Many super funds now offer socially responsible investment options, with consideration of their ethical standards, environmental sustainability or social justice approaches.

Do you need help planning for retirement?

Our team of Advisers have helped so many clients in the Illawarra and Shoalhaven communities wade through the complexity of planning for retirement and understanding their super. We are here to help you.

To get started book your consultation today.

Disclaimer: The information in this article is general in nature and has not considered your personal circumstances. To find out if any of this information is right for you and before acting, you should consult the relevant product disclosure statement and speak with your financial adviser.