Avoid these three things to maximise your retirement income
Everyone wants to start their retirement with enough funds to live as comfortably as possible.
One of the biggest sources of many Australians’ retirement incomes will be their super funds.
But, the banking royal commission found that super funds have some problems and don’t always serve our best interests as customers.
Here are three traps to avoid that could potentially save you tens of thousands of dollars.
Falling for bigger returns
Switching from an industry super fund to a retail fund might sound appealing, but the large returns these retail funds offer also come with high and potentially costly risks.
Appearing on 7.30, Michelle Bradley-Smith detailed how a cold-call from a smooth talking financial advisor put her retirement at risk.
“They were very persuasive,” she told the program.
With just $120,000 in her industry super account and rapidly approaching retirement, Ms Bradley-Smith was convinced to move her super from the industry fund into a higher-risk AMP account.
“He said that his company could make me another $24,000 as opposed to what the company I was with at the time could make me,” she said.
“And it sounded like $24,000 extra when I only had seven years of work left. It sounded good.”
After the 2018 banking royal commission started repeatedly calling out AMP’s conduct, Ms Bradley-Smith realised she made a grievous error.
She paid more than $4,000 upfront to transfer her super and had committed thousands more in annual fees.
Over the next six months, she watched as super balance began to shrink.
“After them telling me that they were there to make money, I lost … $7,000 and that’s not what I was there for,” she said.
“I thought, ‘I’m going to be losing money. By the time I’m 67 I might not even have $100,00’.”
Having multiple accounts
Approximately a third of Australian super accounts are known as “unintended multiples”, totalling about 10 million accounts.
Despite campaigns aimed at reducing the problem, nearly 40 percent of Australians have more than one super account.
Not consolidating existing funds can mean you pay more in fees across all of your accounts, ultimately reducing the amount of money available when you retire.
Most super accounts come with multiple forms of insurance such as life insurance, and total and permanent disability insurance.
When combined with multiple accounts, each coming with their own insurance, this can become a problem.
“One in four Australians are not aware whether or not they have life insurance through their superannuation,” the Productivity Commission chairman Michael Brennan told 7.30.
“And one in six have duplicate accounts, which means they’re paying premiums on more than one account.”
Though this might not seem like much of a problem, it comes with some unintended consequences.
“They can’t claim on both [accounts],” Mr Brennan said.
This means that you might be paying for multiple forms of insurance and only gain some of the benefits when it comes to claiming them.