Please note that this information is general in nature and shouldn't be construed as financial advice.
Imagine, just for a moment, that you're in your 60s. Who do you see?
If you found it tough to picture yourself in the future, you're not alone. Research has consistently found that we find it difficult to connect with our future selves — and people are just about as connected to this future version of themselves as they would be to a stranger.
Psychologists at Stanford University set out to understand how people would respond when shown a photo of themselves that had been digitally manipulated to appear 40 years older. What they found was pretty bizarre. Once people had seen a realistic glimpse into their future, they wanted to save 30% more than people who hadn't seen those pictures. For people who hadn't met themselves in the future, the research says, "saving is like a choice between spending money today or giving it to a stranger years from now."
Perhaps it's not surprising then that we don't care too much about our retirement (and our retired future selves) compared to what's happening around us right now.
I know, I know: super is boring. I can't change that. But here’s a sobering thought: women live an average of 5 years longer than men. And even though we have to make our money last longer, we also earn significantly less and retire with a LOT less — currently, the average superannuation payout for women is a third of the payout for men.
This means we have to make our money work harder — and as anyone who knows anything about money will tell you, the earlier you start, the better. Right now, if you don’t have a fully paid-off mortgage, chances are that your super is your biggest asset. So here are 9 things you need to know about your super...and if you remember only one, it's that you should start caring about it now.
1. You should have only one super account
Research from the Association of Superannuation Funds of Australia (ASFA) shows that over 30% of people between 18–25 have more than one super account and 10% of them have three or more accounts. For those aged 26–30, nearly 20% have three or more accounts. If you're one of these people that has multiple super accounts, that means you're paying multiple sets of fees, which all add up. The good thing is, it's easy to check: just log into your myGov account, click on the link to the ATO, and you can check how many funds are open in your name.
2. You shouldn't just go with your employer's default super
Most people end up accepting the default superannuation option their employer offers. The problem with that is that not all super funds are created equal — far from it. The government has a super easy (ha!) tool to help you compare your super fund's performance against the rest of the market. And it's easy to switch too — all you have to do is let your new super fund know that you'll need to roll over funds from another account.
3. You should check your super account regularly
ASFA research shows that 40% of Australians under 30 have no idea what their super balance is! It feels like a no-brainer, but logging into your super at least once a year is a good idea. This is when you should be looking at your super balance — is it higher or lower than the average super balance for your age? Is the super fund performing (i.e. making Future You lots of money)? Are you happy with your chosen risk level? (More on this below). You should also take this time to check whether your employer has actually been making super contributions (it's not common that they don't, but it does happen!)
4. You can (and should) choose your risk level
Your super is meant to be a long-term investment, which means that you may be willing to take on a little more risk when you're younger. Moving your super to a high-growth investment option means that you're willing to take more risk, knowing that you have longer to ride out the ups and downs of the market.
5. You should consider contributing extra
If you're on a high salary (and therefore a higher tax bracket), you might want to consider salary sacrificing, which allows you to contribute to your super before tax (which can help you save on your taxes, too). But even if you're not on a high income right now, consider buying Future You a nice meal from your paycheque each month, whether that's $20 or $50 — which will translate to a lot more in the future. (An extra $50 each month will translate to an additional $60,400 when you retire!) Just set a reminder in your phone each payday so you can transfer the money over to your super.
When you imagine your retired self, are you eating beans and rice every night? If the answer is no, you might want to take a look at what AFSA considers to be a comfortable retirement.
6. You should look into your insurance
Let's be honest — after super, the word insurance is probably the next most boring word in the finance vocabulary. But insurance can help out if you lose your job, die or become permanently disabled, using the money in your super account. Although getting insurance through super is generally cheaper than buying it outright, it's a good idea to see if it covers what you need, particularly as you get older, get married, have children or buy a house.
7. You can use part of your super to buy your first home
Given how hard it is to save for a home in Australia, the government offers an option within your super to save towards your first home deposit, called the First Home Super Saver Scheme (FHSS). This allows you to save up in your superannuation account, and withdraw a maximum of $15,000 of your voluntary contributions each financial year to buy a place, up to a maximum of $30,000 (this amount is set to increase to $50,000 in July 2022). There are certain rules and eligibility requirements, so check out if the First Home Super Saver Scheme (FHSS) makes sense for you.
8. You should look into what a "comfortable" retirement means
When you imagine your retired self, are you eating beans and rice every night? If the answer is no, you might want to take a look at what AFSA considers to be a comfortable retirement, and whether you're contributing enough into your super to get you there. The truth is, the calculator probably underestimates how much you will end up needing, given that it assumes that you will own your own home by the time you're 65, which won't be a reality for a growing population of millennials and Gen Z — who may never be able to afford to buy property in Australia.
9. You can access your super if you get desperate
Your super is real money. And while it's designed to support you during your retirement, you can apply to access your super earlier if you're in dire need (which means you have no other way to pay for the expense) such as medical bills or home modifications that need to be made to accommodate your or your dependant's disability. However, if you needed to withdraw from your super during Covid (because you lost your job, for example) and are able to now, it's a good idea to look into replenishing your super.
The bottom line is, thanks to compound interest, the earlier you start caring about your super, the more Future You can live the fabulous life you've always dreamed of. No rice and beans, thanks!