In the previous article in the Road to Retirement series we explained how to transition from full-time work to part-time work as a staging post on the road to retirement.

In this article, Part Five, we explain how understanding super can lead to an improved retirement.

What is super?

Your super is your own individual pool of savings which is put aside during your working years for the purpose of creating a retirement income to be used when you are older. Because your funds are joined with other funds in a much larger pool of savings, which is invested over the decades, even relatively modest amounts can become sizeable assets. 

It is compulsory for your employer to contribute 11.5 percent of your salary on your behalf to your super. This is increasing to 12 percent from July 2025. But it is not your employer’s responsibility to make these savings increase. Your retirement nest egg can grow rapidly – or slowly – that’s up to you.

Many Australians are disconnected from their super, which can be their largest or second largest financial asset, depending upon their home ownership status. There are a few reasons why this is the case. For some, super feels like something they have no control over; they tend to avoid responsibility for it until that far off day when they might stop work.

This approach to super may be quite common, but it’s far from ideal. It also means that you may not maximise your savings if you don’t proactively make this money work as hard as possible on your behalf.

From an early age you can contribute extra, along the way you can ensure your investment settings match your risk tolerance and life stage and you can continue to make useful decisions about your super at certain trigger points before and during your retirement journey. Ultimately you are the boss of your own super – so how do you get into the driver’s seat and take control?

The levers under your control:

What are the main things pre-retirees need to know about super? Is there a short-cut way of understanding super so your ultimate retirement income ‘pay packet’ is as high as possible. 

There are three important points about super that pre-retirees need to know. These are:

• Performance evaluation
• The shift from saving to spending
• How super continues to grow, even after you start to spend
  

Ensure you are reviewing your superannuation regularly so you can enjoy a happy retirement. Photo: Dreamstime

Understanding your balance and your fund performance

Start with your most recent statement of balance (this is most likely to be for 30 June, 2024). With this statement you can check your investment settings and check your individual fund performance for the relevant financial year. Next, confirm that you have online access to this account. If you haven’t already set this up, it’s time you did – the rewards far outweigh the short time required. Now you will be able to see how your balance has grown over the most recent six month period (to 31 December 2024). There are three main ways your super savings could have grown:

• employer contributions (concessional or pre-tax)
• your own contributions (including salary sacrifice or extra post-tax contributions within the cap) or
• earnings – the amount by which your funds increased due to returns on investment of the total amount. Knowing that their fund is performing well is really reassuring for most people.

Using the Compare the Pair tool is a great way to see that your money is growing as steadily as possible. 

What happens when you stop work or need to access your super?

At age 60 you will have reached what is known as Preservation Age – the age at which you can access your super as a lump sum or through regular income payments, most usually in the form of an Account-Based Pension (ABP). Many will choose to leave their super untouched, others will start an ABP. There is a major difference in the tax treatment of super in accumulation (i.e. before you access it) and that held in decumulation (once you start drawing it down). It is really important to understand this change so that you can decide if you are going to leave your super in saving mode or move to the spending phase.

This is when a Transition to Retirement (TTR) strategy comes into play as well – a way of accessing super for those who do not wish to fully retire. At this point it will be helpful (if you haven’t already done so), to contact your fund and talk to an adviser about your options and the pros and cons of each one. There may be a modest fee for this consultation, but it is important that you are armed with all the necessary knowledge before accessing super so that you don’t make mistakes you’ll regret or incur unexpected penalties.

How does super continue to grow after you retire?

The vast majority of Australians will support their retirement through a mix of Age Pension entitlements (after age 67) and an ABP. This means that most will not withdraw all their super in a lump sum, nor spend it all in the early years of retirement. The mix of fortnightly Age Pension benefits and regular ABP payments will create a living wage for their retirement years (your super fund may have calculators to model how this works). As you will still have a balance of superannuation which is invested by your fund (according to your chosen settings), this balance will continue to grow.

Sometimes a retiree’s savings can grow sufficiently to support their ABP transfers so that the capital remains untouched. It’s important for you to factor this ongoing earning potential into your retirement income planning. Many people assume their savings are static, and as a result, can underspend in retirement at the expense of their own comfort levels. Again, it makes a great deal of sense to work with your super fund to understand your likely future earnings after an ABP commences.

Need to know

Super is not just about retirement income. Many savers also have insurance as part of their super account. It’s important for you to check any insurance you are holding through super, to ensure that it is age appropriate and that you have nominated the beneficiaries for this money.

You will need to understand whether your nomination is binding or non-binding and whether it complies with your own fund requirements as to the form of nomination. If it is a lapsing nomination, you will need to review and renew every three years. Again, it is important to fully understand any ramifications of your nominations for both your balance and any associated retirement income pensions.

In summary, super rules can appear complicated, but the main ones aren’t. Understanding how super grows and can then be accessed to supplement your retirement income is in your own best interests. A strong understanding of your super and frequent engagement with your fund are key to making the most of whatever savings you have.

Useful links

Ways to increase your super contributions:

https://www.industrysuper.com/calculators-and-tools/calculators/find-extra-money-for-super 

See how your super might grow:

https://www.industrysuper.com/compare/compare-the-pair

Understanding your super is part five of the eight-part Road to Retirement series. Next time we explain how to maximise your retirement and how to set achievable goals, create doable plans.

Want to learn more?

These two handy calculators on the Industry SuperFunds website will allow you to apply these thoughts to your own savings:

When can you access your super? 

Your retirement needs calculator 

Stick with your Industry SuperFund in retirement and your money could go further. Visit compareyourretirement.com today.

This content is produced by The New Daily in partnership with Industry Super Australia.

This information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.