How To Manage Your Super In Your 40s

Ignore the panic merchants. It’s not too late to turn your super around in your forties and fifties. At this point, you may have paid down some debt and even squirrelled away savings. That extra cash flow can go a long way if invested strategically: you just need a plan. According to the Association of Super Funds of Australia, women aged 40-44 have an average super balance of $61,922, while women aged 60-64 retire on $157,049. With three children, Catherine, 44, and her husband hope to retire with more than that (and ideally on the Greek islands). They save $500 a month on top of paying off their two-storey Sydney home and contributing to a multi-asset super portfolio. “I’m really interested in knowing how to reduce risk in my super investments while maintaining steady growth,” says part-time journalist Catherine. She has a few options. Let’s take a look.

Take Control

Do you have a retirement goal and are you on track to reach it? “Your forties and fifties are a great opportunity to really start thinking about super as part of your retirement,” says Dixon Advisory director Ishara Rupasinghe. “This is the time to work out how to maximise your super contributions and think about what is tax effective.” Look closely at your current super set up to see if it is bringing in the goods. With clever planning, you can gradually cut back your work hours and begin sipping martinis… errr… accessing your nest egg between 55 and 60 under transition to retirement rules.

Go It Alone?

More women than ever are opting for self-managed super funds (SMSFs), but this DIY option isn’t for everyone. Flexibility and autonomy usually come with more responsibility and in some cases, extra fees. First up, do you have enough money? Although there is no minimum balance to start an SMSF, the Australian Securities and Investment Commission suggests a starting balance of at least $200,000. SMSFs can have up to four members (who would usually also be the trustees), allowing you to combine your super with your family. Trustees are responsible for investing fund assets, ensuring the SMSF complies with tax and superannuation laws, and staying on top of admin (tax returns, independent audits, record-keeping and more). To get the most out of your SMSF, especially if you’re a busy parent or professional, Rupasinghe recommends using the services of a trusted SMSF specialist. If you get it right, the rewards are high.

Weigh Up The Investment Risk

As you edge closer to retirement age, it’s natural to want to play it safe with money. Revisit your super’s investment mix. “There is this rule of thumb that your percentage of investment in stocks should be 110 to 120, minus your age,” says Miss Money Box founder and CEO Bronwyn Bruce. “So a 40-year-old woman should have 70 to 80 per cent of her super in the stock market, and 60 to 70 per cent for a 50-year-old woman.” But Rupasinghe says women shouldn’t fall into the “trap” of safe investments as they approach retirement. “It’s not uncommon for women investors to be concerned about risk – and that’s a good thing – but it can also be a trap if it means we are too conservative as we may have to save more to get the same end figure,” she says.

Sacrifice Your Salary For Super

Asking your employer to put some of your before-tax salary into super (on top of the 9.5 per cent compulsory contribution) is a “no-brainer” if you want to turbocharge your savings, Rupasinghe says. The cap is $25,000 a year, with contributions taxed at just 15 per cent. “Think about someone in their 40s who might have close to $500,000 in super,” Rupasinghe says. “If they’re going to make a salary sacrifice of $25,000 each year, plus an extra $1000 per month in a non-concessional contribution, over 15 years, that’s almost $1.5 million. That’s not a number to pass up.” You can also now make catch-up concessional (before-tax) contributions if your super balance is under $500,000. This means that if you contribute less than the $25,000 cap this financial year, you can carry forward any unused cap into the next one.

Disaster-Proof Your Life

Taking out insurance through your super can be cost-effective. But ask yourself: Is the coverage enough? Are the premiums too high? Can I get a better deal? “Insurances can be tax effective if done through super, like Total and Permanent Disability cover and life insurance,” Rupasinghe says. “But others, like income protection and trauma cover, are typically best held outside of super.” Bruce says opting for life insurance cover through your super has its benefits. “It’s often cheaper than a stand-alone life insurance policy because super funds purchase insurance policies in bulk,” she says. It’s also a good idea to check your fund’s death benefit nomination so your money goes to the right people.

Call BS On Dodgy Dealers

Your investment decisions will determine when and how you retire, so make sure you take the right advice. But who can you trust? The Financial Services Royal Commission has exposed a litany of misconduct – and it has barely scratched the surface. “Women have reported that due to a dearth of female advisers in Australia, the financial advice they receive comes more in the form of a sales pitch rather than a mutual conversation,” Bruce says. “They also feel pushed into riskier investments that don’t meet their needs.” Do your homework. “Assess how well an adviser listens to you and is prepared to answer your questions,” Rupasinghe says. “Attending seminars can be a good way to get a feel for their business before you join up.” Check out an adviser’s credentials on the financial adviser’s register and scour their Financial Services Guide for information on fees and kickbacks. “It’s really up to you to recognise the needs of your future self,” Bruce says. “By embracing risk, investing appropriately and making extra contributions, you’ll be able to enjoy many years of comfortable retirement.”