7 Steps to Supercharging your Super for the Self-Employed
With Christina Hobbs, Verve Super CEO
I know… I know, facing up to your super can be a daunting task. It’s not everyone’s cup of tea for a fun weekend afternoon activity – especially when we’re talking about super for the self-employed and there’s no employer to squirrel that money away for you.
As the CEO of a super fund tailored for women, I meet women who are freelancing or self-employed all the time and concerned about their future selves. I can honestly say that the best advice is to have a plan.
Imagine having an extra $100,000 in retirement because you planned for it earlier in life. Or, imagine if you could just remove that niggling little reminder in the back of your mind that keeps telling you to sort your super.
Take an action a day for a week or sort your super in an afternoon. Whatever works for you. I’ve put together six simple steps to supercharge your super for the self-employed.
So book a date with your super, and work your way through this list to significantly grow your super balance.
Step One: Do you really need to do this? Let’s face the facts (it will help with motivation)
Australian women retire with 35% less super than men. This isn’t because women make bad decisions, it’s the result of compounded inequality (career gaps, the gender pay gap, all the other gaps that create economic disparity between men and women).
To eliminate the ‘super gap’, so much about our current superannuation, pension and work workforce policies needs to change. We need a system that is fairer for women and properly acknowledges the working lives of women.
But, at the same time, with care and attention, we can each take action to improve the long-term outlook of our own super balances.
Not convinced? See how one Verve member changed her own financial trajectory and even inspired her daughters to do the same.
Meet Jo, her story is based on that of a real Verve member. She’s 45 years old. Jo decided to contribute $300 per month to her super. Now, if that $300 alone earns 5% returns over 30 years, it could grow to approximately $250,000 extra in her super by the time she turns 75.
Step Two: How much super do you need?
Ask Australians how much they need to retire, and many will give a big answer –‘one million dollars’. That’s a lot of super to sort!
It’s the figure often thrown around as the financial retirement ideal; but for many of us, it’s enough to send us into a tailspin.
At Verve, we speak to women almost every day who are worried about their super balances. Yet, few people know how much they actually need to save in order to live a comfortable retirement.
The good news is, most people heading into retirement will not need one million dollars in super.
Knowing how much super you need to retire comfortably, is a great way to reduce unnecessary stress and worry. It’s the first step to building a solid retirement plan and gaining a greater sense of control.
According to the Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard, to have a ‘comfortable’ retirement, single people will need $545,000 in retirement savings, and couples will need $640,000. These figures assume that the retirees own their own home outright and are relatively healthy.
They also vary significantly between people. Take a read of this article about how to think through how much you need for your super.
Step Three: How are you currently tracking?
With your end goal in mind, let’s look at how your super balance is tracking at the moment. This is important! It gives you a chance to take stock and see if you need to make adjustments or extra contributions. For many people, this is an important step for peace of mind. It’s also the first step to help with any future planning.
To figure out your current position and project where your super might be at retirement, use this free online super planner from MoneySmart.
So, how did you go? Whether you’re on-track or a long way off your ideal super balance, keep reading to know what to do next.
Step Four: Gather what’s yours
The ATO reported that as at 30 June 2020, there’s almost $14 billion dollars of lost super in Australia. Any of these lost $$$ yours?
Search for lost super
Luckily, hunting down your lost super isn’t a tough task. Your super fund should be able to help you out to search and track down any lost super (and transfer these funds into your current super balance). Plus, you can also log into your MyGov account to easily check for any lost super.
Make sure all your past employers have paid up!
Under the government’s super guarantee policy, your employers (past and present) are generally required to be paying super on your behalf. You can easily check the minimum super guarantee rates on the ATO’s website to see exactly what percentage of your wage your employers should have been paying into your super fund.
Not sure if you’re an employee or contractor? Here’s how to decipher between the two.
If you notice payments are missing, get in touch with them. And if you’re having trouble getting a past employer to meet their payment obligations, you can ask your super fund to remind them or even contact the ATO.
Step Five: Consider consolidating your super
It is often suggested to consolidate your super into one account. This can maximise your returns and minimise your fees. However, as with most things, there are pros and cons. If your situation is complicated we recommend you speak to a professional advisor.
Having your super in one place can help with:
- Reducing fees and insurance premiums across multiple accounts
- Easing the load of paperwork and admin on your plate
- Making it easier to keep track of your super balances (and check your employer is always paying your contributions on time)
But wait! A few important things before you head off to consolidate! It may be worth keeping more than one fund if:
- You have a defined benefit fund. There was a time when government employer-funded superannuation arrangements were remarkably generous. With few exceptions, anyone with defined benefit superannuation should stick with it. Your first step? Seek professional advice.
- You have experienced significant health issues or are closer to retirement. In this case, it could be important to ensure you can access the same level of insurance cover before you close a fund and risk losing insurance cover you may not now be able to access or able to access at an affordable premium. Ensure you investigate this before making a switch.
The good news is that you can actually ask your super fund to help you consolidate other funds for you. Easy, right? Otherwise, in most cases you can do this through the online member portal of the super fund that you choose to go with.
Step Six: Compare funds and find the best fund for you
It has been estimated by Canstar that a 1% difference in the annual returns generated by a super fund, could lead to a difference in over $380,000 by the time someone retires.
The reality is that not all super funds are created equal. So, it’s important to look at the features of each fund and consider returns and fees in order to ensure that your money is invested in the right place.
Here are some areas to consider to help choose the right fund for you:
- Performance & risk
- Service & transparency
- Ethics: Consider if your super fund is investing in line with your values (note: if they don’t clearly show what they are and aren’t invested in, then you probably won’t like the answer. You can always call or email them to find out). Ethical funds have demonstrated through past performance, that they are able to out-perform the market over the short, medium and long term, so there is no longer a need to compromise returns for values or vice versa.
Step Seven: Boost your super
No matter what your financial situation looks like, there are practical strategies you can take to supercharge your super balance.
If you’re self-employed
Pay yourself super: Make sure you’re contributing to your super balance on a regular basis. Consider meeting the required super guarantee rate of your annual wages. Check with your business accountant or adviser for your personal situation.
Leverage super tax benefits: If you make contributions from your pre-tax income, you can claim it as a tax deduction. But, make sure not to exceed the concessional contributions cap per year.
Automate your contributions: By setting up small, regular payments into your super fund so you’ll easily keep on top of your cash flow and boost your retirement savings at the same time.
If you’re on a low income or parental leave
Check if you’re eligible for the Low Income Super Tax Offset (LISTO): if you’re earning less than $37,000 per year, you may be eligible to receive a refund into your super account of the tax paid on your eligible concessional contributions, up to a cap of $500.
Take advantage of the government’s super co-contributions: if you make personal contributions to your super, when you lodge your tax return you may be eligible to receive up to $500 in co-contributions from the government if you earn less than $54,837 a year.
Split super with your partner: if your partner earns a higher wage, you could consider splitting their super contributions into your fund. That means your partner will transfer money from their super fund into yours, there can also be tax advantages for doing this.
So, are you ready to sort your super?
Christina Hobbs is the CEO of Verve Super, an ethical superfund for women. Christina is joining us in our next online masterclass to share her super for the self-employed wisdom and practical steps to get more from your super in retirement, and set a plan to get there! Secure your free ticket and see you online Wednesday 23 June, 2021 at 12 PM.