A common financial goal for which you will need to build a personal superannuation fund gradually is to save up enough money to live comfortably in retirement.
How it works
Like a long term savings plan, personal superannuation works where you put money regularly into a fund managed by a super provider, typically a bank or investments company. The money that you invest will need to stay in the fund until you reach retirement or when you begin your transition to retirement, usually after a specified minimum age.
In the meantime, your money will be invested in various assets such as property, shares of stock, cash and other financial products, along with the contributions of other members of the fund.
Advantages of a super fund
Some personal superannuation providers also offer additional benefits such as insurance coverage and total and permanent disability insurance, and in some cases, even income protection coverage. Financial planners recommend obtaining additional protection in case of emergency because you’ll be able to access your contributions only after retirement age.
Australian laws encourage people to invest in a retirement fund by providing attractive tax incentives such as imposing a lower tax rate of 15% on your super fund contributions and its earnings. Additionally, you are allowed to deduct the full amount of your contributions from your gross earnings, effectively reducing your taxable income.
Investing in a super fund also takes care of the hassles of monitoring assets and their earnings, keeping accurate records and paperwork, and compliance with super laws all of which require much of your time and skills if you’re doing it on your own.
Diversified assets: With the unpredictability and volatility of financial markets nowadays, the best way to secure your funds against huge losses is through a diversified asset portfolio. This means spending the fund on different companies, different sectors of the market and the economy. Most funds will issue a prospectus describing the investment strategy and the asset mix consisting of safe investments like cash and bonds as well as capital growth investments such as property and shares.
Investment strategy: When choosing a super fund, make sure that the fund’s strategy meets your goals and needs and exposes your money to a degree of risk that you’re comfortable with. Most funds are invested in a diversified portfolio and are professionally managed to spread risks and prevent serious losses.
The amount of personal superannuation you’ll need for your retirement depends on your individual needs so it’s best to consult a qualified and experienced financial planner who can calculate the right amount of contributions and the appropriate fund that is suited to your circumstances.