I recently attended an industry roundtable that asked the question ‘how do we get young people to take super seriously?’. There were many attempts to answer this, including a ‘rebrand’ of super to make it appealing to younger people. Someone floated the word ‘pension’ instead of ‘super'. I’m not sure that would’ve worked with me when I was 20.

There were plenty of decent pathways put forward to engage younger people with their retirement savings. Lucky for me though, I received an email from Vanguard the next day that they had already done the hard work for me. Their study revealed the jolt that people needed to engage with their super – and it was to understand the consequences of not engaging.

The survey focused on fees in superannuation and their impact on retirement savings. It found that half of Australians say they’ve never switched their superfund.

However, laying out the potential savings from switching funds would cause 72% to consider taking action.

The potential savings shown to the participants included analysis showing a lower cost superannuation fund could save a typical full-time worker around 12% of their super balance which would be $100,000 by retirement.

Mark and I recently ran through a model at a presentation that we did at an Asset Allocation conference. It focused on the majority of Australians who don’t engage with their superannuation and stay in the default fund, even if it isn’t optimal for their retirement goals. 90% of AustralianSuper’s members are in the Balanced fund option which has more than 24% of the fund in defensive assets.

We can’t speak for any single individual, but we can definitively say that of the more than 3 million people in that option a good deal of them should not be in a balanced option because that is not going to get them to their retirement goal. The model showed that over the last 10 years the High Growth option from Australian Super has delivered annualised returns of 9.04%. The Balanced option has delivered returns of 8.07% per annum. If we extrapolate those returns out for an investor contributing $10k a year into Super for 35 years, the investor in the Balanced option would have $1,750,244. In High Growth the investor would have $2,176,748. That is almost 25% more in retirement savings.

Small changes, especially when you are younger, can mean a much more comfortable retirement. I’ve written on this before, in an article that looks at the difference to my retirement outcomes if I took super seriously in my early 20s, instead of in my 30s. I looked at minor alterations – insurances, asset allocation, fees.

I don’t want investors to think that they need professional intervention to create a more comfortable retirement., Especially as flat-fee financial advice fees become the norm and are out of reach for many lower balance clients.

These hypothetical scenarios have been written about ad nauseum, but I want to embrace the Vanguard results. An investor’s circumstances within the projections could create the motivation to optimise your retirement savings.

Going through the exercise where I modelled out the differences in my scenario and my retirement savings only strengthened my belief in my investment strategy and effort towards my retirement goals.

So, I encourage investors to do the homework I outline below. Simple use your personal circumstances in the model.

Firstly, it is worth figuring out how much you need in retirement.

These are free tools and calculators that are available to investors. Below is one that we can use as an example.

Moneysmart Retirement Planner

The great thing about tools like this is you can adjust the variables to understand how your circumstances may change. Adjust the contributions, the fees and the rate of return. Understand how changing your salary sacrifice amounts, a lower fund or adjusting your asset allocation will change your retirement outcomes.

What does all of that mean?

Superannuation funds can’t be personalised for each member and their goals – unless it is a Self-Managed Super Fund. The fund you’re in, the insurance you are enrolled in and the fees that you’re paying have not been designed for your unique circumstances. The superfund has created profiles that you can elect that best match your situation. It’s likely that if you’ve never reviewed your super before, you would be in the default superfund where you haven’t even selected that profile.

Asset allocation is one of the biggest changes that you can make. This is choosing between the funds that may have names such as Balanced, Growth, Aggressive etc. I’ve written about how asset allocations is my biggest focus as it will have the largest impact on performance. I focus far more on asset allocation than the actual individual investments that I hold within my portfolio. We can go through all of the variables in the retirement planner, and how to figure out what is right for you.

Step One: Fill out the calculator with your current situation

Enter in your current situation. The calculator allows you to elect whether you are single or partnered. Compare this number to the number you got from ‘how much you need in retirement’. In the ‘advanced settings’, you are able to adjust the fee level and the investment return. Enter in the fee levels of your fund, and the investment return over the last 10 years. Past performance is not a reliable indicator of future performance, but we can use this historical data as a relative comparison point for each of the fund options (e.g. 6.5% for Balanced, 8% for High Growth).

If you would like a forward-looking option, Morningstar has projected returns for asset classes and different portfolio mixes This is available for Morningstar Investor subscribers or trialists (free, for four weeks). You can find them in the Investment Policy Statement feature.

Step Two: Adjust the variables to reach your retirement goals

There are a few levers that investors can pull to reach a financial goal.

  1. Time: Retire later
  2. Contributions: Contribute and save more for your retirement by maximising concessional contributions (pre-tax contributions). More on the types of contributions here. Moneysmart have a Superannuation Optimiser tool that can look at the best-case scenario between contributing to super and saving on tax.
  3. Returns: When you invest, you’re exchanging risk for return. Riskier assets tend to provide higher returns. Investing in more ‘aggressive’ assets will provide higher potential returns. This needs to be balanced with the time you have left until retirement.

Step Three: Review the fees and insurances

Other determinants of your return are any costs. The main types are fees and insurances. Fees can be a huge drag on your returns.

The ATO does provide a YourSuper comparison where you can compare the fees of your funds to other funds on the market. You can use these fees as a comparison point in your own model and adjust the fees in the ‘advanced settings’ section. I’m wary about sending investors there without the additional context from step one and two. The website gives a high-level comparison with fees and performance. Different funds have different objectives and invest in different assets that attract different costs. They perform differently. Ensure you are comparing funds, apples for apples.

Same for your insurances. I’ve written here about what to consider when choosing your types of insurances.

You’ve just completed a basic superannuation check to optimise your super. Understanding the difference you can make to your retirement outcomes through some tweaks.

Some caveats

This is a point in time snapshot. Over the course of a working life, your contributions will hopefully change as you start to earn more money. Inflation will fluctuate. Markets will fluctuate. Fees will change.

This is not a reason to pull back from this exercise. It is a demonstration that a comfortable retirement requires you to pay attention. It’s worth it.

If you have a friend, family member or colleague that you think could do with potentially increasing their super balance at retirement (maybe by 25%!) please share this article with them.

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