Super Insider podcast: Episode 20

Joshua: Hi and welcome to Super Insider, the podcast where we talk to you about all things to do with your super to make sure that you are making the most of it. My name is Josh van Gestel. I’m the Senior Manager of Education at Australian Retirement Trust and I'm sitting in for Anne Fuchs, our regular host.  To assist me in today's podcast, I'm joined by Ruth Weaver, one of our wonderful education gurus. Hi Ruth, how are you?

Ruth: I'm really well, Josh. It's lovely to be here.

Joshua: And today, Ruth and I are going to talk to you about, really, how you can awaken your super and make sure that you're taking the small steps that can have a huge difference down the track.

Before we start though, I'd first like to acknowledge the traditional owners of the lands from which we all come today. I pay our respects to their elders, past, present, and emerging and acknowledge their strong connection to the lands in which we work, live and the community connections that they have.

I also acknowledge that today's podcast is general advice only. So really encourage you to consider whether it is right for you.

Now, as I said, I'm joined today by Ruth and what we're going to do is talk about 6 steps to awaken your super. And the reason why we're using that terminology is that many of us are often oblivious to our super and the size of it. Research tells us that over half of Australians aren’t actively engaged with their super⁴, and that more still are unsure how much they may need to fund their retirement². But Ruth, we often talk about a lot of people really don't know the potential of their super. They don't even know how much they've got in their super. But we also often say that super’s going to be one of the largest pools of money that many people will often have. How do you talk to people about their super and just starting to think about it?

Ruth: I think one of the issues we have with superannuation, particularly when we're young, is the fact that it's a future problem. And if you think about a young person considering their superannuation, it's almost like visualising something in the far distance. And when you've got distance, it will look quite small and as it's getting closer to you, this thing starts to appear bigger and gains momentum. So, I often say your superannuation is almost like a slow-moving beast that's approaching you as you're getting to retirement. And it is important that we think about it a bit more often.

Joshua: I think even with that analogy that the future is probably where we look at our super. We don't think about the tangibility of it now, but if we think about your super, the average member at Australian Retirement Trust has a balance of about $123,000. If I put $123,000 on the table in front of you now, would you ignore us?

Ruth: I would not. And I can tell you one thing, that's a lot more money than is currently sitting in my bank account right now as well, so I certainly would not be ignoring it.

Joshua: And I think that's what we've got to talk about today, even though for some of our listeners that super might feel a long way off. I think it's about how you make a connection with it today. So, thinking about that connection, what is the first thing that you should really think about in sizing up your super, and starting to have a conversation about it?

Ruth: Look, the first step is the easiest step, but it's also the most important. Because if you don't take this first step, you're going to find it difficult to implement any other steps. And that is simply to connect with your account. And most of us today will connect with our accounts digitally.

We've all digitally connected with our bank accounts. We're all on the apps and we can log in at any moment to look at our bank balance. And we should be able to do the same with our superannuation balance.

Joshua: I think about all the apps I have on my phone and thinking about my super app. It's probably one of the ones I very often go into.

Ruth: Yes.

Joshua: It's a great way to start saying what your super is doing. It's an easy process to set up the app and connect in the first place, isn't it?

Ruth: Yes, it is. It’s the same as if you're downloading your banking app. There are no extra steps involved. So, we do need to look at this the same way we would look at our bank balance, for example, because it is our money.

Joshua: But how do you then start bringing it to life? You've got the app. You look at the amount that's in there. It might mean something to you, it may not. How do you start giving that amount meaning?

Ruth: It's hard to get context on your super balance, and that's because we don't talk very much about money openly. We've all grown up been told it's a bit taboo or rude even to talk about money, and that's part of the problem. We don't know what other people have in their superannuation balances and it's very hard to then have context whether you're doing well, or whether you're not doing well. So, I think it's important that we talk a bit more openly, frankly, about our superannuation and retirement savings.

I often encourage people, particularly young people, to find themselves a super buddy. I have a super buddy. It's somebody around the same age, potentially earning a similar income and just checking in with each other on a regular basis as to how your balance is growing.

And what it does is it highlights red flags. If one of you is lagging behind the other, it might highlight some issues or some areas of your superannuation that might need attention. So just having a bit better context around how your peers are also doing is important.

Joshua: I love the whole concept of a super buddy. I've got a twin brother, as you know.

Ruth: A perfect super buddy.

Joshua: Probably the perfect super buddy. But I think the other thing is if people want to have some external touch points, that's a lot of research out there. There's a lot of tools to compare how much should have based on your age and gender, for example, and even on the Australian Retirement Trust website. So, that could be a good way to start thinking about how much you might need. But, before we take action on our super, you often talk about the need to do a bit of housekeeping, a bit of admin.

Ruth: Yes, there's a really important step that we can sometimes overlook. And, historically, it was a difficult step. That's not the case anymore. And that is considering bringing your superannuation together¹. Now, we are getting better at this as Australians because the process to consolidate our superannuation is so much easier today. And there's lots of ways you can do it by logging into your accounts online. Most funds will give you the capability to do it through your online portals. But also, through your myGov account as well, you'll be able to bring that superannuation together if you want.

Joshua: Why is it important, though? You've got this mishmash of super funds potentially. Why is it important to think about bringing it together?

Ruth: It's important to think about bringing it together because if you have 2 accounts, for example, you are paying 2 sets of administration fees. And the silent killer can also often be the insurances, and many of us will have insurances on our accounts that we weren't aware of, and you would be paying for that as well. And it's important to remind the audience as well, it's okay to have 2 super funds. It's not the worst thing in the world, but you need to be able to articulate why you've chosen to have 2, and that might be for insurance reasons or investment reasons. But if you're not able to explain why, or you don't have a strategic reason for holding more than one account, you probably don't need to have more than one account.

Joshua: It's for that reason it's important before you do think about combining super funds. Maybe just think about what's going to happen with things like insurance that you might have. But, okay, you've started a discussion with your super buddy. You're of looked at comparisons online. You've done a bit of that housekeeping and tidying up. And now you're starting to notice that, like you were saying, there might be some red flags. My super isn't quite where I want it to be, or where the comparisons say it should be. Probably the first thing you can think about is choosing your own ‘super style,’ we call it. Thinking about your investments - why is that an important part of the super discussion?

Ruth: It's an important part because the investment performances that your fund is generating for you will depend very much on which particular investment option, you're in. And it plays a significant role in determining what your balance might be able to get to by the time you retire. So, thinking about how comfortable you are with your money exposed to different types of assets, like shares for example, or property, is an important part of determining what happens to your money. You talked about the $123,000 sitting at the table, and I would say if you saw that and somebody said, ‘Hey, look, go and invest that for you,’ I think most of us would be keen to know where exactly that's going. And your super should be no different.

Joshua: It's a beautiful opportunity which you have with almost no other investment that it is a very long-term investment. Some of us might have our super for 60 or 70 years or more. That gives a lot of opportunity around thinking about how you invest and the length of that investment, but also the compounding effect that it achieves. When you talk to people, though, about their comfort with investments, or how they should think about investments, if they don't know where to start, what do you often suggest to them?

Ruth: Well, the obvious call to action here would be to talk to your own super fund. And they will want to know things like your age, your existing balance, but also your own innate risk tolerance. So, by nature, we're all very different. We all see risk in a different way, and it will depend on personal factors like your age and your balance, for example, and how important that super asset will be to fund your retirement. In my own household, I have no problems taking risks. I have an appetite for it, but my husband is the polar opposite to me. So, we are the same age, and we've got similar superannuation balances and yet we're very different innately in how we look at risk and how we want to invest our super.

Joshua: And I think it's also important that in talking to your super fund, a lot of super funds have tools to help you identify how you might feel about investments, or what sort of investor you are. Australian Retirement Trust has one of those, and if it comes to wanting to make an investment change, it's not that scary a process, is it?

Ruth: Yes, people really overthink this, ‘I've got to switch my investment portfolio,’ ‘How long does it take’ or ‘What are the rules around it’? Everyone in Australia can decide how their superannuation is invested within the menu that's on offer to them. We're no different. So, our members can, you know, pick their own investment portfolios through the mobile app or through their accounts online.

Joshua: I think in my own case, I think I've made 3 or 4 investment changes with my super over the last 30 years or so. So, there is power in making some big steps with your investment decisions as well, isn’t there?

Ruth: And trusting the purpose of the investment option you've chosen. These investment options within super, they're not designed to be erratic and short term. They are designed to be long term because that's what super is. It's a very long-term asset and the portfolios are built to respect that.

Joshua: So, thinking about that, a key part of that is feeding your super. Contributions, it's probably the most confusing part - putting money into super. Without getting into the detail of it though, why contributions are important, you've got your employer putting in like 11.5% into your super or going up to 12%. Why should a person think about putting more in themselves?

Ruth: Well, because of the compounding effect it has really. And what I will say though, is if someone is beginning their journey of engaging with their super, I wouldn't be too stressed about the contributions until you've ticked all your other boxes. So, be comfortable with the environment first, understand the environment you're investing in and once you start to fall in love with it and trust the process of super, you'll be naturally wired to want to invest in super. It's a very tax effective way to invest money. You can choose to invest before tax, where in a lot of cases you would catch 15% tax, which is a lot more friendly than the tax bracket most of us are paying. So that's one option of getting it in before tax. The other option is getting it in after tax. You'll have different benefits for different people, depending on your income and the stage of life you're at, on how you feed it.

But you're feeding it because you want to benefit, number one, from the tax effectiveness. But number two, because of the compounding effect. Every single dollar will have once it lands in there. And it's important with compounding as well to remember that in the short term you might experience ups and downs with your balance, but over the long term, it's incredibly powerful.

Joshua: And it's important to think about these different incentives the government also gives. If you put money pre-tax into super, there's a tax advantage that the government gives you. If you put it in post-tax, depending on your circumstance, the government might help put in a co-contribution. But even as you get older, the ability to downsize your home and put proceeds from that into super as well. I often look at super as when you're young, you can afford to take small irregular steps. As you get older and more focused on your super may be those steps that you take, particularly around contributions, need to be a bit bigger, maybe a bit more regular and a bit bolder. Would you agree with that?

Ruth: I do, because the problem is, or the benefit you have when you're young, is time. So, time is your greatest resource with superannuation when you're young. So, you only have to put a small bit in, and time does the work. As you're getting older, you've lost the benefit of time, so you've got to compensate with extra money going through. So, you do need to strike a balance there with taking advantage of the compounding effect.

Joshua: Super also has this important insurance component. So, you talked earlier about insurance being a silent killer. What do you mean? And what should a person think about when it comes to their insurance in super.

Ruth: It can be a silent killer because it's an extra cost associated with our superannuation balance. Whereby you didn't need it, or didn't know you had it, that's where the damage can be done. But in the same breath, it's also an important component of our superannuation accounts. Things go wrong in life. And I know where you've got households where budgeting is restrictive and we're all trying to manage this cost of living; insurance is often the first thing to go.

And I think it's comforting for people to know that holding insurance in your superannuation is a way that doesn't necessarily impact your immediate cash flow. So, it does give protection to you, and the family, through a channel that's not directly impacting your bank account balance on a week-to-week basis. So, it's an important component of superannuation, but you do need to keep an eye on it because it isn't there for free. It is a cost that's associated with the account and making sure you're striking a balance between being protected and having the right insurance for you. But also, being mindful of the impact that those costs can have on the growth of your balance.

Joshua: That is the important balance. Yes, super is there to fund your retirement, but it's also there to protect your present, if something means you're not going to get to retirement. We talk about ignoring your super, ignoring your insurance and ignoring that protection, you don't think about it until you need it.

Ruth: Until you need it, that's right.

Joshua: There's a lot that we've talked about, but probably the key thing to then think about, and I go back right to my opening where I talked about this being general advice, is how can people start to explore this further? How do people start going, ‘Well, actually I want to be more informed’ or ‘I want to understand this more’ what are the steps that we really encourage them to take?

Ruth: You really need to be reaching out and getting advice. Superannuation can seem very overwhelming and complicated when you've not engaged with it before. You need to take the first step, and I understand it's overwhelming and it's intimidating for many people to take that step.

Joshua: A lot of people will ignore it because of that.

Ruth: Yes, and I think the issue we have is our financial literacy around super is quite low, and it serves as a real barrier to us. We need to be reaching out and talking to our super funds more openly and more honestly. So, reaching out and getting guidance and advice. The reason you need to do that is because there are wonderful opportunities in superannuation. We spoke about some of them, particularly around investment and contributions. But there's also pitfalls. And what the advice does is it highlights the opportunities so you can take advantage of them, but it also waves the red flag around those pitfalls so you can avoid them. It's so important that people are reaching out and seeking that advice and guidance.

Joshua: I think when you again, using that analogy of the slow-moving beast, super is a long way off in the distance for a lot of people. But that also means it's got this enormous potential. It really has this incredible potential that I think for most people is unrealised because they're not seeking out that guidance or advice just to assist them to know what small steps can I take to really unleash that potential.

If we think about pulling that all together, we've talked about our 6 steps to really awaken your super, to bring that future potential to life today. Think about sizing yours up, that super buddy, and how does that compare? Clean up that mish mash of super funds where you don't have the need to have more than one. And think about your super style - how should you invest and what's right for you? But also, how do you feed your super to make sure that it grows and takes advantage of that compounding effect Ruth talked about. Remember to take cover - your super isn’t just there growing your wealth into the future, it's to protect your present. And lastly, but most importantly, remember to also unleash the potential of your super by seeking out guidance, advice, and asking questions about the actions that you should take today to improve your future tomorrow.

So, Ruth, thank you so much for your time and for your wisdom. I've certainly learned some things from it, and I'll be finding out what my twin brother’s got in his super.

Ruth: Yes, you need to talk to your super buddy. You need to get a race and celebrate those milestones. That's what I do, we like to celebrate those big milestones when we reach a particular balance and we set those goals for ourselves. It’s a wonderful way to keep yourself connected.

Joshua: I think that's fabulous. Well, have a wonderful day and thank you, everyone, for joining us. 

1. Before you consolidate your super, please consider if the timing is right to bring your super together, and if you will lose access to benefits such as insurance or pension options, or if there are any fee or tax implications. 

2. ART Financial Wellbeing Index 2024. Survey of 1,000 Australians, carried out by Ipsos on behalf of Australian Retirement Trust from September-November 2023. 

4. Investment Trends 2022 Super Member Engagement Report, page 107