Worried that you’ll never be able to retire?  

Well, you’re not alone. But let me show you an example of how good financial advice with a clear plan can make a real difference to somebody’s financial future – and why you definitely don’t need $1 million to retire. 

Three posts into a series about planning for retirement, and I’ve barely talked about superannuation. Definitely a bit of a different approach to financial writing about retirement, that’s for sure! 

But, now here we are – time for superannuation to stride onto the stage and into the spotlight! 

Oh, Not The Acorns Again 

Yep, more acorn talk! 

Because we need to talk about what superannuation is (without reverting to legal definitions or quotes from the Superannuation Industry (Supervision) Act hopefully).  

To put it simply – superannuation is the sack the government has set up for people to collect as many acorns as possible over their working lives.  

The sack is stitched together with tax benefits, complexities, risks, jargon and tricks but at the end of it all, that’s all it is – a great big bag to collect your acorns in.  

And the idea is that you spend your working life putting a few acorns in every year. Then, after a while, those acorns start miraculously multiplying, adding a few extra acorns to the pile every now and then.  

You keep shoving acorns into this bag, while it keeps throwing extras into the pile, and over the years it fills with hundreds of thousands of acorns.  

Then, you stop working.  

So you take out enough acorns every year to keep yourself fed, now that the acorns from work have stopped coming in (I’m taking this metaphor all the way to the – acorn – bank!). 

While it keeps creating new acorns, as the sack of acorns depletes, the number of new acorns falls too.  

Until, eventually, the bag of seeds is completely empty.  

This cycle – accumulating acorns, letting the acorns multiply and, finally, using up the whole pile of acorns after you stop working – is superannuation. 

The Variables 

For all of the talk about the ins and outs of super – and, look, it is fiendishly complex – in the end, there are only a few variables we can actually control: 

• How much we put in (and how we do it). 

• How much we take out (and how we do it).  

Put fewer acorns in over your working life, and you’ll have a smaller pile when you stop working.  

Take more out every year in retirement, and the bag will empty faster.  

Pay too much in fees every year, and just like a hole in the bag, the acorns will run out faster and faster.  

Take out less each year – because you need less, or because you’ve qualified for the Age Pension, for instance – then the pile of acorns will last longer.  

For a lot of people, the goal is to have at least one acorn left when you die. For others, it’s to enjoy the acorns while you’re still able to.  

Either way, you will need to choose how you use the acorns after your time working comes to an end.  

But, no matter what, try to remember that there are really only two variables we can control when it comes to our super.  

Which brings us back to Tracey. 

Putting Money Into Super 

Tracey, you’ll remember, has an extra $175,000 (Tracey – What To Do With the House?) after downsizing her home and clearing her mortgage.  

So she would like to know what to do with it. Now, the specifics aren’t as important, it’s enough to say that some of that money will go into her superannuation. But: 

• How Much? 

• How? 

How Much 

How much of the $175,000 should go into Tracey’s super fund? As usual, this simple question has a fairly generic answer – it depends on her circumstances.  

(And, look, I’m skirting a bit of a line here – this IS NOT advice, and shouldn’t be seen as such. But making it too vague makes it practically useless. So, bear with me here! And if you’re wondering what to do, go and see a financial adviser!) 

Tracey wants to keep $50,000 in her bank account for emergencies. The idea of a big buffer like that is very appealing to her. 

In that case, we’d look at how she can best put $125,000 into her super. 

(Why not other investments? Broadly – it’s the tax that she’d pay. Money in super is taxed at 15%; investments in your own name have the income and capital gains taxed at – normally – a higher rate). 

How much to put in is entirely based upon Tracey’s circumstances (the same applies to you, if you ever have to tackle this decision – your circumstances must dictate the amount, not the other way around). 

How? 

Now, it’s not quite as simple as just putting the money in of course. It’s superannuation – nothing’s simple! 

For starters, you don’t ‘deposit’ the money – you ‘contribute’ it – of course! 

And even then – there are two different classes of contribution: 

• Concessional (before tax) 

• Non-Concessional (after tax) 

Each of them are then: 

• Taxed differently on the way into your fund (15% for concessional; 0% for non-concessional). 

• Limited in how much you can put in each year ($27,500 for concessional, four times that for non-concessional – or $110,000*). 

• Provide different tax benefits to you personally (concessional can often be tax deductible; non-concessional not so much). 

• Taxed differently when you die. 

*Even better – you can ‘bring forward’ up to three years worth of your non-concessional ‘cap’ to put $330,000 in. Or ‘carry forward’ any of your concessional cap you didn’t use in the last few years to put more than $27,500 into your fund.  

When I read that sentence, I can’t help but laugh – nothing’s simple about super! 

More Questions 

So once we’ve started looking at ‘how’ Tracey can put the money in, the field of questions opens up even more.  

These two simple questions begin the series of questions Tracey needs to answer before she ‘contributes’ the money into her super (these are some of the questions we advisers ask when providing you with financial advice): 

• What’s her current tax rate? 

• Will the 15% contributions tax she pays on a concessional contribution be more or less than the potential tax deduction? 

• How much of her $27,500 cap does she have left (remembering that her employer contributions count towards this – so try to project how much that would be over the course of the whole financial year)? 

• What will it mean for the ‘death benefits tax’ her beneficiaries may have to pay when she passes away? (This stuff is pretty far into the weeds – definitely get advice before doing anything about death benefits tax). 

• Does Tracey have any unused cap space she could ‘carry forward’ from the last few years?  

• And so on… 

Now, I’ll stop there – most people’s eyes are glazing over by this stage.  

So if you’re unsure about any of your answers to these questions, absolutely speak with a financial adviser and they can help you answer all of them.  

 Let’s Go Back A Step 

You may have noticed that we haven’t discussed the particulars of Tracey’s actual super fund yet. It’s all well and good, you might think, to talk about putting money into a fund – but how do you know which fund to use? 

Well, here’s where I need to tread carefully because I don’t want to give financial advice in this post.  

Or any of my posts, actually. 

So, yes, it is important that the fund you’re using is a ‘good’ one for your circumstances.  

Which often means a fund that: 

• Has relatively low fees. 

  • There are three levels of fees in most super funds – Administration, Investment/Insurance and Advice. 

  • Minimising these fees means more of your money stays in your accounts, growing more acorns. 

  • But sometimes, it’s worth paying more for certain options that are important or valuable to you.  

• Is easy to deal with.  

  • If you’ve ever sat on hold with a super fund for hours just to try and find out how to put more money in, you’ll know what I mean when I say the administrative side is important.  

  • You’re probably only going to deal with the fund directly a handful of times – if each of those times is filled with unnecessary friction, then it’s not going to make you feel better about your retirement.  

• Has the insurance you need.  

  • Insurance within super is a big topic, too big for this post. But if you can access the insurance you need through your super fund, there are some nice benefits that come with it.  

• Fits your needs. 

  • Like most financial decisions, the ‘right’ superannuation fund will depend on your specific circumstances. Because each option comes with pros and cons, costs and benefits. 

  • For some people, the benefits of an industry fund outweigh the hassles that come with using them.  

  • For others, the flexibility of a self-managed superannuation fund make the higher running costs and responsibility worthwhile.  

  • While people in good retail funds might like some of the added extras they come with.  

Another reason I haven’t tackled the specifics of Tracey’s fund though is that, to a large extent, it doesn’t really matter.  

Yes, it’s important your fund is useful, good value and fits your needs.  

But the main thing is how you’re using it.  

Because the real value is in the existence of this government-supported environment designed to help you save for your retirement – the specific badge you use doesn’t matter so much as how you’re navigating this wonderful, bonkers, complex, surprising system.  

In my next post, I’ll wrap up Tracey’s story and outline what the changes we’ve discussed actually mean for her as she moves towards retirement – financially, of course, but also emotionally.