Ways to grow your super

The more your super grows, the more you'll have when you retire. He will look at how the money in your super gross, how compounding can help you super grow faster, and how you may need to change your investment options as you get older. Will also look at ways to give you a super and added boost with salary, sacrifice, additional contributions, and consolidating any other super you might have.

Let's get started. Money in super grows because it's invested in things like the share market and property. And because you usually can't access your super until you retire, your money benefits from what's called compounding. With compounding. It's not just your investments that can make money. The earnings you make on that money can also grow. By the time you retire, around 60% of your super balance could be from your own contributions and the other 40% from these compounded investment earnings. The power of compounding can significantly increase savings in general. For example, think about what $10,000 could buy you. A few thousand coffees. A big overseas holiday. A used car.

Then look at what $10,000 could become with the help of compounding. Because the earnings you make a reinvested and those earnings also make money. In ten years, that $10,000, at 10% compound interest becomes $25,937.

Now, let's look at how investment options can power the growth of your super. When you start receiving super, if you don't make an investment choice, it's invested by a super fund in what's called the default investment option.

At Aware Super, our default investment option is called My Super Lifecycle, which is designed by investment experts to automatically adjust your investment mix to suit your age. When you're younger, your money is invested in higher risk investment options, which can grow faster. But as you approach retirement, the risk is slowly reduced to take a more balanced approach. This can help stabilise your returns as you get closer to the time you need to start using your super savings.

Your super is your money and if you're comfortable being more involved in how it's invested, you can choose from a range of investment options. The options you choose will depend on your investment goals and your comfort with each investment's level of risk.

Typically, higher risk investments can grow more over the long term, but that growth can be more uncertain in the short term. Lower risk investments tend to grow less, but steadily over time. At Aware Super we offer single asset class investment options, which means one type of investment like Australian shares or property or international shares or cash.

We also offer diversified options where a selection of different kinds of investments are gathered into a single option. These options can reduce risk by making it less likely that negative returns from one investment will impact the rest of your investments. Put simply, it means that all your eggs aren't in one basket. Our core diversified options are Defensive, Conservative, Conservative balanced, Balanced and High Growth. And they have a range of risk and potential returns suited for different periods of investment. We also offer diversified, socially conscious and indexed options. Now here's a chart that shows how investment options with different risks performed over time. The line at the bottom shows the performance of the cash investment option. Cash is a lower risk investment and this shows in its steady but slow progress. $100,000 invested in cash in 2013 was worth around $119,000 ten years later. Compare that to a Conservative Balanced option, which

grew to around $184,000. And as you'll see, that growth encountered some ups and downs along the way. Finally, a High Growth option which climbed in value even more to $243,000. You'll notice the ups and downs are even bigger along the way here.

Choosing an investment option is about balancing this relationship between risk and growth potential, which can change over time. More than 85% of our super members are investing in our My Super Lifecycle option. Only 15% choose their own investment options. Now we're going to look at some simple ways to grow your super even faster. Starting with consolidating or combining your super funds.

Super funds charge fees to take care of and help you grow your money. And the more super funds you have, the more fees you could pay, which may mean less money for you in the future. Consolidating your super in one place means you could pay less on fees. It can also help you manage your money more easily and reduce paperwork. Let's look at an example. Lucy and Jane are both 45 and each has $93,000 in their super. Jane's $93,000 is spread across three different super accounts. Lucy's is all in one. Jane's annual fees this year are expected to be $302, whereas Lucy's are expected to be just $198 between now and when they retire. Jane will pay around $2,000 more in fees. The money Lucy saves in fees means she has more money to grow in her super, and by the time she retires, Lucy will have $3,000 more than Jane to spend in retirement. As we've just seen, one quick action can make a big difference to your super in the long run.

Now let's look at simple ways to grow your super faster by adding more money into it. But before you add to your super, it's important to think about how much you can afford to put away, considering you typically won't be able to access the money until you retire. There are a few different ways of making extra contributions, some of which come with tax benefits. Salary sacrifice, personal contributions, spouse contributions, and government co-contributions.

It's important to know there are limits to how much you can put in each year. And if you go over these, you might have to pay more tax.

With salary sacrifice, you can contribute more than your standard super contribution. This additional amount can be added directly to your super from your pay. The money you add to your super with salary sacrifice is usually only taxed at 15%, which is generally a lot less than your marginal tax rate, which can be as high as 45%. This makes salary sacrifice an easy way to boost your super, and the money you put in can actually save you paying more tax. It also lowers your taxable income, which could benefit you when it comes to tax time.

In the following case studies, you'll see how adding a little extra each month through salary sacrifice can help you in the long run. Jessica is 34 years old, earns around $68,000 a year and has almost $58,000 in super. She decides to start doing more to grow her super through salary sacrifice. To begin with, she adds $100 a fortnight. Then on her 53rd birthday, she increases this to $150 a fortnight. And when Jessica turns 57, she increases it again to $200 a fortnight. Over the years until she retires at 67, the total of Jessica's salary sacrifice contributions is $99,500. But because of compounding her final retirement balance, grows $135,000 more than if she hadn't salary sacrificed. As an added bonus because Jessica's taxable income is reduced, she also saves on average, about $700 a year in tax. That's almost $23,000 in total over the years. Let's look at another example. Jacob is 42, earns $106,000 a year and has $120,000 in super. Through salary sacrifice, he begins adding $100 a fortnight on his 52nd birthday. He increases it to $150 a fortnight,

and when he turns 57, he increases again to $500 a fortnight. When he retires at 67, Jacob's total extra contributions are $149,000. But because of compounding his final retirement balance, grows $176,000 more than if he hadn't in salary sacrifice. And like Jessica, salary sacrificing reduces Jacob's taxable income. This saves him, on average, $1,360 a year in tax or over $34,000 in total.

It's amazing what small amounts can grow to over the years. It doesn't have to be much. Just whatever you can afford to add. Now let's look at personal contributions, also known as after-tax contributions or non-concessional contributions. These are a way of boosting your super using your take-home pay or your personal savings. You can make a personal contribution to your super by using the aware app, by direct debit or with BPay. If you've had a pay rise at work or just saved some money, your extra cash could work harder for you in super because the money you make from investing in super will be charged at a lower tax rate. Investment earnings outside of super can be taxed at up to 45%, but you'll usually pay just 15% on super investment earnings. And if you're under 75, you might even be able to claim a tax deduction for some of the extra contributions you make. Of course, before making extra contributions, you need to bear in mind that you may not be able to access that money again until you retire. But if you can afford to invest your after-tax dollars in super, it can be a good way to grow your money. If you're married or have a defacto partner, adding to their super account can help you save more. And it could also have some tax benefits. Adding to a spouse's super account can help top up a super account if one of you has taken time off work, stayed at home and care for children or family. Even if you both have a healthy amount of super, you may want to take advantage of the tax benefits that adding to a spouse's super account offer. There are two ways you can top up your spouse's super. Paying directly into your spouse's super fund using after tax dollars, such as your take home pay or savings, or splitting concessional contributions like employer contributions, Or salary sacrifice contributions with your spouse using pre-tax dollars. Different benefits may apply under the two options depending on you and your spouse's circumstances, and your investment earnings could also be taxed at a lower rate than outside of super.

Okay, we've covered a lot. Lastly, let's look at government co-contributions, which is one way the government helps people on lower wages to save more for their retirement.

With government co-contributions, if you earn less than around $58,000, you could receive up to $0.50 from the government for every dollar you put into super from your after tax pay up to $1,000. That could be as much as $500 extra in your super account each year. And the best part is you don't have to do anything to receive it apart from your annual tax return. The Tax Office will work out how much you're eligible to receive and payment is automatically made into your super account.

As you've seen, there are lots of ways to pay your super. To find out more or to make sure you're on the right track, make a free appointment with one of our experts. Just visit aware.com.au/book.