It’s not unusual these days to change jobs several times as you build your career. Before you know it, you’ve got multiple super accounts and a vague feeling that you should do something about it one day. Australians do not consolidate their superannuation accounts for a number of reasons including not knowing how to, believing it would be too difficult and simply not getting around to it.i If this sounds like you, you’re not alone.
While it’s it is common practice to spread your retirement savings across a wide range of investments, a process known as diversification, it’s rarely a good idea to have more than one super account. That’s because super isn’t an investment, it’s simply the structure used to house your investments. When it comes to super accounts, less is generally more.
Consolidating your super can help:
- reduce costs by paying only one set of fees and only one set of default life insurance premiums. A portion of your super is used to pay the insurance premium which means you have less money working for you;
- reduce paperwork and time spent keeping track of multiple accounts;
- make it easier to manage your investments and develop a coherent investment strategy. This is especially the case if all your money is ‘default’ investment options which may not be appropriate for you.
If you’ve put super into the too hard basket, we can guide you through the process of consolidation and work out an investment strategy tailored to your personal goals and needs.
Teresa is 42, divorced with a long career in nursing. She has worked in many public and private hospitals and in her words “hasn’t got much super”.
Teresa decided to seek advice after seeing how limited her parents’ options were in retirement. Despite a lifetime of hard work, they were only able to afford a very basic lifestyle and could only dream about travel overseas or around Australia. She was surprised to find she had a total of just $72,000 across six different accounts.
What’s more, all her super was in the default “balanced” option. Balanced options typically invest about 70 per cent of your money in shares or property and the remainder in ‘safe’ but low return cash and bonds.ii
Not only was she paying fees to manage six accounts, but the balanced option was unlikely to provide the retirement she dreamed of.
Teresa was pleased to get some help to understand basic investment principles such as the relationship between risk and return, diversification and her time horizon. Because she has at least 25 years until she retires, Teresa agreed she could afford to invest more aggressively because she had time to ride out market fluctuations. The amount of money Theresa had in growth investments was increased to 85 per cent. As she gets closer to retirement she can choose to wind that back to reduce risk and preserve capital.
Now that Teresa has a senior role in health management she can afford to make additional contributions to super. So she has decided to give her savings a boost by setting up a salary sacrifice arrangement with her employer.
As Teresa’s experience demonstrates, consolidating your super isn’t just about reducing. It’s often the first step in taking control of your retirement savings to build a brighter, more secure future.