Super - your money, your choice

Selecting a growth option can boost your super
The higher returns offered by a growth fund can make a tremendous difference to your super over time. As a guide, let’s say Steve, aged 40, earns an annual salary of $85,000. He currently has $100,000 invested in super, and as he has never provided instructions on how he would like his super invested, it is held in a default option – in this case a balanced fund.

If Steve relies only on his employer’s compulsory super contributions, by the time he reaches age 65 his super will have grown to $431,000.

However at age 40, Steve is at least two decades away from retirement. This gives him plenty of time to invest his super in a growth option to gain the benefit of stronger long term returns.

Let’s say for example that Steve switches his super to a growth option, and then at age 55 reverts back to a balanced option as he heads towards retirement. By following this strategy, Steve’s final super balance will be around $500,000, which is $69,000 more than if his super was invested in a balanced option during his working life.

Clearly, taking an active interest in the way your super is invested can make a worthwhile difference to how much super you have on retirement. And that makes it an easy way to have more money to live on when you’re no longer working.

Things you should know
All calculations assume a current salary $85,000. Initial investment value $100,000. Balanced/default fund return is based on 3% above inflation, and inflation is assumed to be constant at 2.5%. Active fund return is based on 4.5% above inflation. Returns are net of fees and tax. Consider your personal objectives, financial situation and needs before acting on the information. Past returns are no guarantee of future performance.

Susan chooses a growth fund and enjoys an extra $135,000 in retirement
Taking the time to specify how you would like your super to be invested is an important part of retirement planning. Remember, your super is your money, so it’s worth taking an interest in how and where it is invested. Your choice of underlying investments – also known as your ‘asset allocation’, can have a significant impact on the quality of your retirement.

To see why it is so important to take an interest in how your super is invested, let’s look at the example of Susan, aged 30, earning an annual salary of $85,000.

Susan currently has $50,000 invested in super. Unless she specifies how she would like her super to be invested, Susan’s retirement pool will be allocated to a default option – in this case a balanced fund. On average, a balanced fund will provide long term returns averaging 3.0% above the level of inflation (which we’ll assume is 2.5%). If Susan relies only on the standard 9% employer contributions to her super, by the time she reaches age 65, her fund will be worth around $508,000.

Now let’s see what happens if Susan takes a proactive approach to asset allocation and chooses to invest her super in a growth fund up until age 55. Over the long term, she can expect her growth fund to earn annual returns of 4.5% above inflation. Then at age 55, she switches back to a balanced option, which may provide more stable, albeit slightly lower returns until she retires at age 65. The combination of a growth strategy followed by a balanced option will see Susan’s super grow to an average of $643,000 by age 65, giving her an additional $135,000 to live on in retirement.

Things you should know
All calculations assume a current salary $85,000. Initial investment value $50,000. Balanced/default fund return is based on 3% above inflation, and inflation is assumed to be constant at 2.5%. Active fund return is based on 4.5% above inflation. Returns are net of fees and tax. Consider your personal objectives, financial situation and needs before acting on the information. Past returns are no guarantee of future performance.