If your kids abandon you in a nursing home, make sure you’ve got a super fund.  

Superannuation is generally not a thing that’s discussed by university students as we are usually in the throes of self-induced debt, caused by an excessive consumption of food, alcohol and shopping. However, it is very important to have a superannuation account set up, so that future you has a safety net to fall back onto; especially once you take into consideration the compounding effect of the funds. 

What is a superannuation?

Superannuation is a safety net (similar to a pension) that is set up when you begin employment, wherein a small portion of your income (9.5%) is paid by your employer into a superfund.  These payments are called super guarantee contributions or concessional (pre-tax) contributions and are paid in addition to your salary. Investment companies (also known as super funds), invest this money on your behalf into a variety of investment options such as shares, property and managed funds.

Initially, the effects of superannuation will be negligible however, throughout your time in employment, the compounding effect of the super contributions will accumulate. Had these funds been left alone in an ordinary bank account, the interest accumulated would have been very low as the funds are in the one place. Comparatively, super funds have the ability to invest your contributions in a diverse variety of options that generate higher investment returns.

For one to be eligible for superannuation you have to be 18 years old and earn over $450 (prior to tax) in a month, regardless of whether or not you’re employed on a full time, part time or casual basis. Although your employer is obligated to contribute to your super, it is important to note that you also have the option to contribute as much or as little as you would like over the course of your working life.

Which investment option should you choose?

There is a lot of flexibility in regard to what super fund you want to have your contributions paid into and how you want it to be invested.

The investment strategy that you opt for should be dependent upon a number of factors:

  • Your age
  • Whether or not you want higher returns at the expense of higher risks or more secure investments at the expense of having lower returns
  • The preservation age (which is the age you have to reach before you can access the funds)
  • Retirement goals
  • Level of involvement in your superfund

Type of Investment Options  

Growth –  this is where approximately 85% is invested solely in shares or property. This specific type of investment option is if you’re looking for something that will give you high returns over a long-time period. However, it is important to take into account that these higher returns come at the expense of a higher risk.

Balanced – choosing the balanced investment option will see approximately 70% of your super invested into shares or property whilst the remainder is invested in fixed interest and cash.  This option offers more security however the lower risk means that there will be a lower return.

Conservative – this option sees around 30% of your superfund invested into shares and property whilst the rest (if invested) goes into fixed interest and cash. This option is one you would opt for if you’re not as comfortable with investing at a higher risk. Thus, you’re more inclined to accept a trade-off in regard to having a lower return but more security. 

Cash – choosing this option would see 100% of your super fund invested in deposits with Australian deposit-taking institutions or in a capital guaranteed life insurance policy. By opting for this investment strategy, there is a very low volatility and thus it is very secure, however it comes at the cost of a very low return.

There are also other investment options such as: lifetime, socially responsible, aggressive, diversifiable bonds, international shares, Australian shares etc. so you’re not short of options to choose from.

Caitlyn Chan