Super funds. Bigger isn’t always better. And less is definitely more.
In life, some things are worth the extra money. Artisanal cheese. A good tailor. A well-fitting bra. But paying more for super doesn’t necessarily mean you get more.
We believe when it comes to super fees, less is more
The more money you have in your super fund today, the more it can grow for you over time. By switching to a lower fee fund and reducing pointless super fees the average (*1) Australian woman could save around $108,000(*2) over their working life. For men the story is even more compelling. Typically men have more in their super, so they can save even more by cutting back on fees. OK, take a deep breath… the average savings for men is $166,000!
That’s a whole lot of extra play money to enjoy at retirement. More travel? Daily lattes with friends? A golf membership? Whatever it is, it’s your money and you deserve to enjoy it because you worked hard for it – and for those who may be struggling to make ends meet in retirement, it’s going to make a big difference.
What about performance? And growth?
Some people believe in chasing investment performance. We totally get it! Growing your cash sounds like a good idea. With the media always talking about which funds are performing best and which have dropped behind, it’s easy to buy into the idea that performance is what matters most. But for the average Aussie, there are better things to focus on.
This is why…
In most situations you’ll pay more for funds which are chasing growth and promising better performance. The justification is often that higher fees are necessary to pay bigger teams to actively manage the funds. For this to make sense, you need to believe that they are actively managing your super for you – that means they need to be active all the time, tweaking the investments to try to make more money from the market and to avoid losses). And you also need to believe that they can actually deliver on that promise of better performance. That’s where things can come unstuck.
Unlike a luxury car, there’s little evidence that paying more for your super will deliver a comfier ride. That is, paying higher super fees has not been shown to deliver better performance over the long term. And yet you are paying for it.
Treat super like a committed relationship, not dating (or, don’t swipe left with super)
Aussies are living longer and we want more out of life at every age. Super is a tax effective savings plan and like a committed relationship it’s a long term deal. We can get on with life today, while still saving for the future.
In the finance world we talk about investments with a long term investment horizon. That means you’re investing to make a return over a longer period of time, which really impacts decisions on how much to invest, what to invest in and how often you change it around.
Superannuation is the perfect example of this. We’re saving for our retirement and for a lot of us it’s still some time until we’ll be 67. What that means is that most Aussies are better off in lower cost funds which don’t take on the levels of risk of funds chasing performance. It also means more of your money will be in the fund so you’ll benefit from growth over time.
Chasing after performance is a little like online dating. Swiping left or right means one thing only: a little excitement, along with lots of uncertainty and change. In contrast, when you settle in for a happily ever after with your low cost super fund it may not be as exciting, but it’s a committed relationship that will be reliable, smooth and a whole lot healthier in terms of your bank balance.
Paying more for a super fund doesn’t necessarily mean a better product
Shopping for super is nothing like shopping for shoes. Or buying a car, a house, champagne or pretty much anything else. Unlike shoes, paying more for super doesn’t mean it will be a better fit, comfier, sexier or stand the test of time. It’s not a sure bet. There’s no certainty around how it will perform and the stats show there’s no link between paying higher fees and better performance.
The other way you could be paying more than you should be for your super is if you’re shelling out fees on multiple funds. Now with shoes it’s obvious – you absolutely need multiple pairs! In saying that you probably don’t need as many shoes as I have – TBH nobody needs that many shoes! With super funds though you definitely do not need more than one.
Switching or consolidating into a lower cost superannuation fund will deliver more certain benefits over time than chasing performance.
Today the lowest cost funds are charging annual fees of about 0.06 per cent of super fund balances. If all super funds charged fees at this level, even with their super in a poor-performing fund, a typical working woman would retire with approximately $108,000 more.
Imagine what a difference that would make to the lifestyle of the average Aussie in retirement! Now imagine what a difference it would make to you.
*1/ This average is based on a 41 year old, with the average balance for someone that age today for their gender, and working an average of 50% of the time for women and 92% of the time for men (averages again). The average super fund fee for the projection is today’s average of 1.14%pa, and compared against the lowest fee fund today which is $78pa + 0.06%pa, using 7.5%pa growth rate for a balanced fund, inflation at 2%pa and compulsory super guarantee charge rates per current legislation. This model cannot accurately predict savings due to unpredictable market returns, inflation, wage growth and changes to tax and superannuation legislation. Do not rely solely on this estimation to make decisions about your own retirement, as there will be other factors you should consider including your own investment objectives, financial situation and needs. You may wish to obtain independent advice from a licensed financial adviser.
*2/ The estimated average savings figure of $180,685 is in what finance people call ‘the current dollars’ estimate. But it’s important to remember that because inflation eats into the buying power of money every year, that money in today’s dollars won’t buy as much in retirement. In this example, at retirement in 26-years’ time, it will equate to around $107,973 in inflation-adjusted (“real”) dollars.
General information only
hello@superfierce.com.au