03 Dec SUPERANNUATION AND NEW CARS
Superannuation can be one of the most baffling topics when it comes to managing our finances so let’s relate looking for the right fund to something that might be more enjoyable – buying a new car. What do you look for?
Size and speed
The engine of growth in super is the investments you choose. At one extreme, you can select “moped” investments that will be slow and steady. At the other extreme, you can choose supercharged V8 investments to take you faster (but sometimes give you a few hairy moments going around corners!).
For younger people, high-speed investments might be appealing. For older people, “steady as she goes” might be preferable. You can have a super fund where you have “hands-on” involvement or you can leave it to professionals.
Safety features
Whilst you want your car to “go” you also want it to stop and be safe. You will want good brakes and seat belts and air bags. There are some risks you can never completely avoid in your car such as the antics of other drivers.
With super, you might reduce the risks by diversifying your investments or arranging insurance in your super fund. Insurance can be for a basic amount or can be increased to cover all of your needs. There are some types of cover that cannot be in your super fund such as trauma and health insurance.
Trusted name
Many people look for a well-known name when buying a car. There is a feeling of safety buying from an established company because they have their reputation to consider if things go wrong.
With super, you want this same degree of safety knowing a large and established organisation is behind the fund. You want it to be managed well and to comply with all of the rules and regulations. You expect consistent and reliable administration and for the manager to continually improve their services. You want the key people in the organisation to make wise decisions about your investments.
Education
The more sophisticated your new car the more assistance you need to ensure you use it properly. Many motorists seldom read the handbook until something goes wrong. If you are buying a 4WD you may look for driving courses, booklets and videos explaining how the vehicle operates compared to a normal car.
In a super fund, you may expect nothing more than an annual report and personal statement telling you how much you have accumulated. On the other hand, you may value newsletters, educational seminars and internet access to your fund. You may prefer to use an expert like a financial planner to help customise the fund to your needs.
Price
When buying a car, you may decide to trade in your old model or sell it privately for a better price. You will be concerned about how much you will have to outlay to drive your new car away. But it doesn’t stop there. Once you are driving, you need to consider fuel consumption, spare parts and maintenance costs. The costs will depend on how you drive and how you use your vehicle.
For super, there are the same complexities to consider. Will there be a cost to leave your existing fund? What would the changeover cost? The running costs will depend on how you use the fund – more complex investment options and more insurance will increase costs whilst staying with standard options will be cheaper.
Optional extras
Many vehicles now include standard features that were once optional extras, but you can still choose colours and accessories such as a tow bar, roof racks and so on.
Super is the same. For instance, you may be able to nominate who gets your super when you die. Membership of some funds may qualify you for special deals like access to home loans or discount travel.
Whilst you may only be concerned with accumulating money in super now, in the future you will want to use your super. This may mean making lump sum or drip-fed withdrawals. More people are seeing their super as a tax-effective way to provide retirement income. The nearer you are to retirement, the more important it is to select a fund that will serve you well when you start to draw an income.
Making the change
Buying a new car is not something most people do every day and it should be the same with changing super funds. It is a human foible that we tend to focus on short-term issues rather than the more important long-term outcomes. Buying a car is much more exciting and immediately rewarding than planning for your future.
“Super choice” provides an incentive to consider all of your financial needs and ensure your super fund is working for you.
And finally, you wouldn’t buy your new car from a dodgy dealer, so don’t rely on any old advice on your super. Always consult a professional financial adviser who specialises in this complex area.
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About Reuben Zelwer
Reuben Zelwer established Adapt Wealth Management in 2011 to help time poor clients achieve financial freedom. For over 15 years, Reuben has helped professionals, executives, business owner and those approaching retirement make the most of their circumstances by making good financial decisions. Reuben’s professional practice is complemented by substantial voluntary work, which has included setting up financial literacy and savings programs in the local community. |