The fact that you are managing-or at least considering managing-your own super fund, means you are comfortable with taking control of your own retirement fund. This doesn’t mean you are on your own. There are people and tools you can use to make sure your super is working as hard to meet your financial goals as you as you are to make those super contributions.
Plan Ahead
The first step to making sure your super fund will meet your retirement needs is to calculate what those needs will be. According to the Association of Superannuation Funds of Australia, AFSA, a comfortable lifestyle for a couple in retirement will cost around $55,000 a year. Even a more frugal existence will cost you around $31,000 when you include all living expenses. A good rule of thumb to estimate a reasonable retirement income is to allow for at least 67% of your current income.
Another issue many investors forget to include in retirement calculations is life expectancy. Our life expectancy has increased drastically in the last few decades. Retired Australians can realistically expect to reach 86 (for men) and 90 (for women). If you retire at 60, that means you will need to have enough money to live for up to 30 years.
Get Advice
Self-Managed does not mean you don’t need advice running your retirement fund. However, in order to keep expenses down, you must find high-quality and cost-efficient financial advisors that have experience dealing with self-managed super funds. After all, one of the main benefits of SMSFs is you don’t have to pay inflated managed fund prices. However, the right financial advisors can help you navigate the dangerous waters of super law while still giving you the freedom of action that attracted you the SMSFs in the first place.
Increase Your Super Contributions
The magic of compound interest works best when you give it plenty of time to work. In other words, the earlier you invest in your super fund, the larger the returns you will receive. To illustrate this point consider this example. Tony and Tamara both want to become millionaires. Tony puts $2,000 a year into his SMSF between the ages of 24 and 30. Tamara on the other hand decides to wait until she is 30 to start contributing $2,000 a year but she continues doing so until she is 65 years old. Let’s imagine they are both great SMSF managers and earned a 12% return every year until they reach 65. How much would each have in their retirement fund? Both would have $1 million, even though Tony only contributed $12,000 and Tamara had to invest $72,000 ($2,000 a year for 36 years). See the cost of waiting just six years to start contributing?