Super fees. We all know that they can seem expensive. We also know that what you pay in superannuation fees can make a huge difference to your retirement nest egg.
Bottom line: Less fees means more super for you to enjoy at retirement. But how do you know how much is too much? Or, for that matter, what strategy is right for you at your stage in your life?
If you need convincing of the importance of making sure you’re not paying too much in fees, run your numbers through ASIC’s MoneySmart calculator. This shows you how fees affect your ultimate payout. Because when it comes to retirement savings, it’s this final figure that counts.
A 1% difference now could be a 20% difference in 30 years, according to ASIC MoneySmart.
What type of super fees are you paying?
There are many different types of fees that can be associated with super, consisting of admin and advice fees to switching fees, buy/sell spread or exit fees. We can go through your fees for you and explain them to you, as well as advise where you may be paying too much. Or, if appropriate, when you might want to consider a lower fee fund or a different type of super investment strategy. What’s right for you will really depend on your life stage, superannuation saving goals, and your tolerance for risk.
Superannuation fees – Understanding your risk tolerance
Actively Managed Funds
Before choosing investments such as super, we always review our clients attitude to risk and how they would feel should the market fall dramatically overnight. We do this by having you complete a Risk Profile; this asks you questions to help determine your risk-level comfort.
For example, with a Growth Portfolio, comes potentially higher risks with higher volatility but also the possibility for greater growth, as the name implies. A growth portfolio usually charges higher fees as they are actively managed. It is generally best to select a Growth portfolio when you have a long time left in the work force and are building your wealth. If you are too defensive now, you will lose the long-term growth opportunities available to you.
On the other hand, with a Defensive Portfolio, there is lower risk with lower volatility, however the gains are usually lower as well. Your fees are likely to also be less. The time to choose this option is when you don’t have long in the workforce and you are looking to conserve your funds for retirement.
Beat the odds with Index Funds
At IAS, we also recommend our clients consider investing in Index Funds. These funds have low fees because they don’t employ highly paid fund managers to pick shares and strategies. They invest in whatever makes up the All Ordinaries Index (Shares).
How to choose your super strategy
At IAS we discuss with our clients the difference between the various options and which philosophy they subscribe to in regard to investing their funds.
Super smart – contribute more now
With the Government reducing the amount you can contribute via the Concessional Contribution Cap to $25,000 per annum, it is vitally important that you start thinking about your retirement early. This way, you can take full advantage of all of the possible tax concessions available.
Get the right super advice
The reason that you have a financial advisor is for strategic advice and to ensure you are contributing effectively. Making the right decisions now could be worth tens of thousands of dollars later and save you in tax.
We’re always happy to help our clients review their super position, including a review of what fees they are paying. Please call us anytime for an obligation free chat on (02) 8268 2900.