Planning for retirement is one of those things that almost all people think about and do some kind of planning for, but never really think about what it will mean for them when the time comes. Superannuation is one way to set aside a certain amount of money for that time when your working life ends and you begin the next stage of your life. It’s a long-term savings plan where money is set aside during your working life, typically through mandatory employer contributions, and invested to grow over time, and the funds are normally not available to use until you reach a specific age. In this post, we explore what it is and provide guidance on maximizing your plan’s benefits.
What Is Superannuation And Why It Matters
As touched on in the intro, a superannuation plan, or super as it’s typically more colloquially referred to as, is a way to save money via cash from both yourself and your employer contributions, that you can unlock when you reach retirement age. Different countries will have various ways of going about this plan, but the amount of retirement income from the New Zealand Superannuation, for example, can vary from retiree to retiree, and is generally based on your personal situation and how much other income you earn. But in general, you will pay a specific amount of your income into the plan while your employer will usually pay in at least 12% of your ordinary time earnings (which again differs based on where you’re located). This system can be a fantastic way to watch your money grow into a decently sized nest egg for when you retire. Although the end result will vary based on the assets the super provider has invested in, most are invested in safer investments, meaning that even with market volatility, you should find that your contributions have grown at a rate exceeding inflation.
How Superannuation Contributions Work
In a nutshell, you are required to invest a portion of your income into these funds so that you will have money over and above the conventional state pension to spend on things that will make your retirement an enjoyable experience rather than one filled with stress on how you will make ends meet. In most cases, the money will come from you, and a portion will be matched by your employer, which can be as high as 12% depending on your location. The benefit is that employers are legally obligated to contribute a percentage of an employee’s ordinary time earnings to their super fund, meaning that when you take advantage of a superannuation fund, you are getting additional money to bolster your fund even further.
Choosing The Right Investment Strategy For Your Super
While most super funds are based on safe investments, they can range from slightly increased risk profiles that have ht potential to yield greater returns, to secure and steady ones that are less likely to collapse but won’t yield much above your construction amount. In other words, the more risk you take, the more you can potentially receive upon your retirement (but also the more you could lose). Most supers will come with four options to choose from:
- Growth: Here you will have the most to gain, but also the most to lose. Only choose this option if you can afford to lose what you put in and have other sources of income to fall back on.
- Balanced: As you might imagine, this option offers a more balanced approach to investing your contributions, potentially mixing growth and defensive assets. Best for those unsure how to proceed but have a slight appetite for some risk.
- Conservative: This has a focus on defensive assets like bonds and cash (20–40% growth). Lower risk and returns, suitable for individuals close to retirement or those who are risk-averse.
- Cash: This is not typically recommended for the long term, as it will ultimately erode your wealth due to inflation over extended periods. However, it can be helpful to gain a small amount if you are close to retirement age and want to keep your money as liquid as possible.
Common Mistakes To Avoid With Your Superannuation
It’s easy to simply choose the first super fund that comes across your desk and put in some money each month, taking a hands-off approach. However, doing so will mean you miss out on some of the better options available, thereby limiting the amount you can access when the time comes. Instead, you should take an active approach and ensure you choose a fund with minimal fees that enables you to review and update your investment strategy when circumstances change.
Superannuation is a brilliant way to save for the future and ensure that you will have enough money to live a comfortable and enjoyable life come retirement. As long as you understand how they work, you will find that your fund should increase in value from regular contributions.
