5 Simple Steps to Understand and Review your Superannuation Statement

Oh yay I’ve got my Superannuation Annual Statement!  

Fran’s put together 5 Simple Steps to help you Understand and Review your Superannuation Statement:

Firstly, pat yourself on the back. You’ve kept your contact details up to date and your fund knew where to send the statement. Secondly, you opened the envelope.. that’s a good start!

You’ll need to resist the urge to file it away, and make some time for a basic review.  The ‘Productivity Commission Report on Super‘ presented in November 2018 is full of reasons why you need to give this document a look over.

There’s lots of information laid out for you and this is a great time to review your decisions.

Why your superannuation statement is important

This little pot of gold must grow to maintain your lifestyle for 30 or 40 years after you retire!

The report uses an example of an employee starting work at 21 and retiring at 65. On a constant salary of $50K per annum, they will have $100,000 less (12%) in their fund if they paid just 0.5% more in fees each year. Your money is in the fund for a LONG period of time and small charges can have a big impact over the course of those years.

Understanding your superannuation statement

Here’s a step-by-step process to help you review your superannuation statement:

1. Check your details are correct.

Address, contact information, date of birth, tax file number and so on.  If you think you’re missing a statement, the address is the most likely problem.

You should also jump on the ATO website and check for any superannuation you may have lost track of.

If you have a MyGov account, check there first (here’s some instructions from Lacey on how to do that), or click on this link for a form to request help with locating lost superannuation:  https://www.ato.gov.au/forms/searching-for-lost-super/.

2. Locate the summary

This shows your opening balance, benefits paid and deductions.

Opening Balance

If you have your previous report, the opening balance on your new superannuation statement should be the same as the closing balance on the prior one.

If you have only one fund, the contributions should equal the compulsory rate of 9.5% of your income.  So if you’ve earned $80,000 according to your PAYG Statement, the contributions should be at least $7,600. Some companies pay higher than the minimum. You’ll find a transaction report included in your statement to show the deposits made to your fund. If the amounts don’t look right, look into it in more detail.

Benefits Paid

Next, look for the summary of benefits “paid” to see what has been paid out of the fund. Generally this will be pension payments and other deductions such as fees, tax on your contributions and insurances. We’ll go into more detail with these in the next steps.

Now let’s look at your net earnings.  This will show you how much your super fund earned.  It could be from interest or successful investment. After deducting the expenses, your fund will deposit the net earnings into your account. This amount should be positive and somewhere between 2% and 10% of your account balance.

Closing Balance

Lastly there will be a closing balance on your superannuation statement. This is the net value of your fund at the end date of the report.

Your balance will be divided into 3 sections:

  • Preserved – money you cannot access until you meet a condition of release, most often this will be reaching your preservation age (somewhere between 60 and 70 depending on your birth year)
  • Restricted non-preserved – some amounts paid in before 1/7/1999
  • Unrestricted non-preserved – amounts you can withdraw without meeting a condition of release (generally after-tax contributions you have made)

Hopefully the balance gives you a reason to smile!

Although it may be locked up for now, this is your money, and some day it could make a huge difference to the quality of your life. It’s important to keep track of it and do whatever you can to make sure that balance keeps growing.

3. Review your current investment choice.

Most funds offer a range of different investment types. If you don’t make your own selection, you’ll be placed in a default fund based on general criteria such as your age.  These funds may be called “balanced” or “growth” funds or they may also be comprised of a single type of investment like “Australian Shares”.

The investment choices are categorised according to the degree of risk associated with them. Funds that have their money in bank deposits and bonds will be low risk. Funds that have invested in shares will be high risk.

Risk ‘Rules’

The general rule is, younger folk (whose money will be in the fund for decades) are allocated into higher risk investments and older folk (nearing retirement) are allocated to low risk investments.  It makes sense, but this is certainly an area where your choices could effect the growth of your nest-egg.

Most superannuation funds allow you to allocate your funds by percentages. For example, you might specify 80% in balanced funds and 20% in growth funds, or you can select from the particular offerings with this provider.

No doubt about it, this is one of the most confusing and difficult matters when thinking about your superannuation.

We have approximately 40,000 different Superannuation Products in Australia to choose from, and no comparison website is going to cover more than a handful of these.

Add to this the overbearing reality that past performance really is NO GUARANTEE of future performance, and you could be forgiven for deciding you’ve heard enough!

The truth is, we’ve had a long period of good economic conditions and it’s been 10 years since the GFC and the horror stories of superannuation balances disappearing overnight.

Don’t Panic!

Don’t panic about which individual investments to choose, instead check which type of investment your money is in and whether you can sleep well with that selection. If you’re not comfortable, contact your fund, change it, and move on.   You could change the percentages each year, or every few years, or perhaps you’ll start out with high risk funds and move it down to lower risk as you near retirement.  You can get as technical with this decision as you like by looking into detailed reports on the performance of each option, or you could choose on the basis of risk levels.

The people whose funds didn’t take a big hit in the GFC were those who reacted by moving their superannuation into a “cash” option. Most superannuation funds allow you to move your money from one investment choice to another without charge, several times a year. So if you are worried about the possibility of a severe economic downturn, contact your fund and move your money into “cash”.  It won’t grow very fast, but it certainly won’t disappear.

You’re almost there …

4. Review those deductions.

There are some you can’t change (contributions tax and fixed fees for example) but other deductions, such as insurances and variable fees, can be substantially affected by your choices.

Fixed Fees

You will see a ‘fixed fee’ which is a management cost charged at the same rate to each account holder. This fee is often left out when superannuation funds publish their results because it cant be converted to a percentage. For example, a monthly fee of $30 will be 3.6% per annum of an account of $10,000, whereas the same fee charged on an account of $100,000 will be only .36% of that account.

Variable Fees

Variable fees relate to the type of investment and will be higher where more administration is required. If you choose an investment option that requires frequent buying and selling of assets (like shares) it will require more hands-on management and fees will be higher. It’s also likely to be higher risk and would be expected to have higher returns.

Total Fees

Add together any fixed fees and variable fees and divide by your account balance. You’re looking for a figure between 1% and 2%.  If your balance is low ($20,000 or less) the figure will be higher. If you’re in a fund with fixed fees, they’re usually in the $hundreds per annum.

Industry funds are generally not geared towards profit, meaning they have lower fees. The flip-side is, the funds that ARE set up to make profits do so by increasing your account balance. If your account goes up as a result of better returns, it’s a win for you!

Keep an eye out for one-off charges like ‘advice’ and ‘exit’ fees. These relate to events that occurred during the reporting period.

Since increased competition has bought fees into focus many have been scaled down and ‘switch’ and ‘exit’ fees are now rarely charged.

Insurance

Paying insurance out of your superannuation account is quite common and often makes good sense. You should make a point to review this regularly to ensure it suits your current circumstances.

Do the types of insurance you have cover what you need covered? If your family situation has changed maybe you need to adjust levels of life or TPD insurance? If your employment has changed, perhaps you need to change your income protection policy? Get a quote from a different insurer and check the amounts you are paying seem reasonable.

Consider the effect of having these policy payments coming out of your superannuation fund. Remember these are reducing the amount you have in your balance.  If you have a small balance do you really want it used up on insurance?  Especially if you are off work for some un-insured reason and there is little or nothing going into your account.

5. Check your balance.

There are new rules governing inactive funds of $6,000 or less. These rules allow your Superannuation Fund to cancel your insurances and transfer your balance to the ATO for management.

If your balance is under $10,000 make sure you understand the implications and don’t get an unexpected surprise. Your fund should give you adequate warning, but you’ll need to make sure they have your current contact details. Probably best to give them a call if you’re unsure.

Your Turn

Hopefully these 5 simple steps have helped you understand and review your superannuation statement. We encourage you to take an interest in the management of your super and to ensure you’re on track for a comfortable retirement.

If you liked this article, you may also enjoy:

Our TEDxUWA talk: why you should think about financial independence and mini-retirements

We’re thrilled to share the TEDxUWA talk Lacey delivered on 13 October 2018 to over 400 people at UWA’s Octagon Theatre:

Prefer to read? Here’s the transcript:

A decade ago, I was the definition of time-poor.

I was on the fast track to a VP role in a major mining company and I thought my work was so important that I could not afford to take even a single day off. So I didn’t, for 18 months. I was working my butt off. Sadly only in the metaphorical sense. In the literal sense my butt was expanding thanks to my neglect of everything not related to work.

That all came to a halt when I fell ill and not just a little bit ill. I was bedridden for five weeks.

If you’ve ever had an experience of being ill for longer than you thought of, you know, like a common cold you think’s going to be one week, drags into two, drags into three. Some of the feelings I experienced were things like helplessness, like I had no control over my body, like I could do nothing to get myself out of bed, like all that motivation and ‘get up and go’ that had got me so far in my career was going to be no use to me.

I also felt hopeless, like that bed was going to be my future. I was just going to be surrounded by tissues from crying my eyes out for the rest of my life and it got so bad that in week four I stuffed myself full of every drug they’d given me and got myself on a plane and flew 4,000 kilometres home to my mummy so she could look after me.

It turns out that it was a virus that sent me to bed but it was my poor health choices and my lack of energy reserves that kept me there.

As a result of that sickness I’ve lost half of the hearing in my right ear and I now have gold crowns which I call my ‘mouth bling’ on my rear molars because I split my teeth in two grinding them in my sleep from the stress. Having your health irreversibly damaged when you’re 26 years old is no fun at all. But it was the wake-up call that I needed.

I decided to take leave without pay and went travelling to South America with my partner. And having now seen it I can say there’s nothing quite like a man-made marvel such as Machu Picchu to put the insignificance of your work into perspective.

Adam and I getting some perspective around Christmas 2008

Three months later I had seen six countries and my eyes had been opened to a world beyond work and beyond Australia. And I thought about why I had made work such a big part of my life when there seemed so much more to be discovered.

Alas, all good things must come to an end. I flew home and back to work. When I got back to work, it was a bit of a shock but I soon fell into my old routine.

Until three months later, my little sister Megan committed suicide. She was 24 years old and I thought she had everything to live for.

Megan Image for Courses Money School Page

Megan’s death brought that idle pondering into sharp focus. I became consumed with questions about why we work ourselves to death, why we spend so much of our time at work not enjoying it, and sacrificing so much. My life to that point was an example like a textbook. I had allowed myself to be worked to the point of physical and mental collapse for a company that would have replaced me within a week if I’d gone under a bus.

It seemed like a waste of my time and like most people in personal crisis I went looking for help and I started in the self-help section of a book store back when you used to, like, actually go into a bookstore. And that’s when I came across Tim Ferriss’s 4-hour Work Week and it was a revelation particularly on the topic of time.

It’s no surprise that time-poor is the catch-cry of our era because it’s our most precious non-renewable resource.

We lament the lack of hours in the day to do all that we could want to do never mind that you and I have the same 24 hours a day as Beyonce or Barack Obama. It just never feels like we have enough time and that’s over the microscale of a single day.

Over the macroscale of our lifetimes, we spend 40 plus of our best years grinding away – sometimes our teeth – at work and then finally we reach the official retirement age and we get to stop. We finally are time-rich instead of time-poor. We can do whatever we want with our time. We could travel, we could volunteer, we could spend time with our families. Only now we’re old. What we wouldn’t give at that point to have some of that time-rich feeling when we were young.

The thing is, we made end-of-life retirement up. It’s not compulsory. Retirement was invented in the 1880s in Prussia in response to socialists demanding more for the public. And at the time they set the retirement age at 70 years old and that was the approximate lifespan in that era. So not everybody got to retire. They didn’t actually get to have what we get now. And when they did retire they probably only got a few years.

Retirement became widespread in the work scarce times following the Great Depression when it was seen as a way to get older members of the workforce out of the way so that younger people could come through because they needed that money to raise their families. Times have changed, lifespans have increased, and yet end-of-life retirement remains. And the retirement age is pretty comparable, around the mid-60s for most developed nations. So now instead of having a handful of years for a handful of people to look forward to, most of us are looking at two decades of that time-rich feeling when we’re old.

From 1880’s to 2010’s

In the book, Ferriss asked the question what if we could take some of that end-of-life retirement and bring it forward into our youth in small chunks so we could have that time-rich feeling when we’re young and healthy? He called these small periods of respite mini-retirements.

My trip to South America had a new name. It wasn’t a holiday, it was a mini-retirement and I was thrilled by the idea of making them a regular part of my life so I set about redesigning my lifestyle and my work. I promptly quit my job and in five years I took five mini-retirements totaling 22 months off. In between those periods of mini-retirement I would do consulting gigs in the mining industry and I’d also tinker with my startup which later became my business.

Now, the question that might be rising in your minds right now and it’s a logical one is how does someone in their late twenties afford to take more than a third of their time off work? How do they afford a roof to sleep under or a car to drive? How do they afford to eat?

It’s a really important question.

In the book, Ferriss talks about a muse, an online business that can be used to fund your mini-retirement so that you can be off sipping cocktails on the beach while money is pouring in from the sky from the web. But that’s just one way to make mini-retirements a part of your life. There’s another alternative and it’s called FIRE. And what does FIRE stand for? Financially Independent Retiring Early.

It’s a term coined in the mid-’90s by Vicki Robin and Joe Dominguez. And it’s a very simple, which is not to say easy, concept. Basically you stop spending so much on stuff. You take the money you would’ve spent on stuff and you save it. And once you’ve saved it, you then buy assets with it. Assets are things that pay you, things like property, shares, bonds, index funds. And you keep going like that through your working life and eventually you reach a point at which the income from your assets is enough to sustain your lifestyle. At that point you don’t have to work anymore because you don’t need a wage to survive. Working becomes a choice.

Let’s use an example. I’ll talk about Fred. Fred’s a software engineer. He graduates from university and gets his first job and he does not make the mistake that most of us make which is going out and spending every cent he then earned because he was so excited to finally have an income. Instead he keeps living like a student, you know, baked beans on toast, that kind of thing. And he keeps going like that and he manages to save 60% of his income. Think about that for a minute, living on 40% of your wage.

He keeps that up for 10 years. He takes the money and puts it into an investment property and into some index funds. And then at 30 years old suddenly the income from his assets is enough to meet his living costs which are about half of those of his peers because he hasn’t gotten into the habit of spending so much money. At 30, he can choose to stop working, he can retire.

Fred’s a real person. His name’s actually Pete Adeney and he goes by the moniker Mr. Money Mustache. And he’s one of a slew of bloggers out there who’ve been through this experience. They’ve had the chance to reach FIRE and now they teach other people how to do it.

Lucky for me, I came to FIRE, and my beginning of that journey, much earlier. I started when I was 10 years old. My mum taught me the importance of saving and taught me about the power of compounding. And as a result I saved half of every dollar that I ever got from that age whether it was from pocket money or birthday money or the profit from my first business which I started at that point.

When I was 14, I was old enough to get a job, I got two. And I kept saving. And then at 19 years old I was in the second year of my degree in chemical engineering and I had a pretty impressive bank balance and I was going to buy a car with that bank balance and it wasn’t going to be a crappy old bomb like my friends were driving. It was going to be gorgeous. It was at least going to have air conditioning and power steering and I was very excited about the fact. So I showed my mum. I said Mum, look what I’ve saved. I’m going out to buy this car.

And my mum said one sentence that changed my life. She said, “Lacey, that could be the deposit on a home.”

My mind was blown. It planted a seed which took root and within a couple of weeks we were out apartment shopping. And a few months later I was the proud owner of the ugliest, brownest, crappiest tiny apartment you have ever seen. But at 19 years old that was pretty exciting.

A couple of years later I graduated from university and I flew 4,000 kilometres away to the wild west of Australia to join the mining industry. And because I did a bit like Pete Adeney, I didn’t extend my living to the income that I had, I was able to save quite a bit of money. And so I bought another property when I arrived. Couple years later I bought another property.

Then my employer introduced a share scheme and so I started learning about shares and I got interested in that. So I started trading in shares as well. And I kept going with property and shares and so by the time I was 26 and I had that experience of the health breakdown, I was actually well on my way to financial independence.

And that’s a point that I reached when I was 31 years old which was fabulous timing because that’s when I had my first child and I had the luxury of being able to stay at home with her and not have to think about how I was going to earn an income because my assets were paying my living costs.

After about 18 months at home I finally got some sleep, as you do, and I started thinking about the meaning of life and what I wanted to do, which is also what you do when you’re at home with the toddler it turns out. And I was growing increasingly frustrated with my friends who had been making terrible financial decisions, getting into bad debt, paying way too much for things that they really wanted like cars, and not saving and not investing.

And I looked back on our school system and realised that we are not getting taught about money. We’re not even taught that FIRE is an option at school. I’d never even heard the term. And so my life became about teaching young people the skills they need to become financially independent so they can have what I’ve had.

At that point, I moved full-time into my startup, Money School. And a couple of years later I started a second business, Maker Kids Club, which tackles the same problem from a slightly different angle. And those two businesses plus being a wife and a mother and a handful of volunteer roles are where I spend most of my time.

Now, that doesn’t sound too much like retirement, does it? And here’s where FIRE falls down. Sipping cocktails on a beach gets boring eventually. You’ll have to take my word for it. Young people when they reach FIRE don’t actually retire. Just read their blogs. These are not the kinds of people who sit around twiddling their thumbs or doing nothing or watching endless reruns on TV. They’re out changing the world.

The difference is that their work is not motivated by money. It’s motivated by other rewards. They aren’t retiring early. They are in fact time rich.

This point is so important I’ve dedicated an image to it.

They get to choose how they spend their time. And that’s the point of this exercise. It’s to be able to choose how you spend the seconds, minutes, hours, and days that will make up your life. You choose if you work, when, where, how, on what, and perhaps most importantly, with whom you work. You get to choose when you stop working and you get to choose when you start again. You get to choose because you don’t need a wage to support your lifestyle.

So if you’re thinking this FIRE idea sounds fabulous, don’t make early retirement your goal. Make your goal time rich.

And if you’re still not convinced, here’s why we all need you to be time rich.

Humanity has pressing problems, overpopulation, pollution, homelessness, war, food production, the list is endless. If we can’t solve those problems, all of our time will be meaningless. We need our brightest minds focused on solving these problems not working out how to get us to click an ad. So I implore you, save and invest. Catch FIRE Become time rich. Discover the joy of work that is not motivated by money and start solving those problems that fascinate you.

We, humanity, need you to. Thank you.

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Right now, it raises several questions:

Why hasn’t Karl – a man who wore the same suit for a year to demonstrate how much abuse his co-host got for her appearance – resigned in solidarity? Does he condone Channel 9 paying Lisa less? Or does he think he’s worth twice as much as she is, or does twice as much work? Does he just really, really need that pay packet after his divorce settlement? Read more

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 Could a 19 year old do the same today, in 2016?

My short answer is: yes, they could. I’ll outline how in this post.

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Money School Achieving Financial Independence Course - Get your financial education

Concept to launch in 29 days: What I learned

By Lacey Filipich BEng(Hons) MAICD NFP Gov (Cert)

After six years of struggling to get my course on financial independence out of my head and into an easily digestible format for the masses, I’d had enough of ‘part-time entrepreneurism’. I decided I was taking our Achieving Financial Independence course online. This post is a summary of what I learned in the process. I hope you enjoy it.

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