My wife is Australian. In Australia, the people there have a retirement plan called Superannuation. It is like the American 401K. The Supers give the Australian people a retirement. It rewards people for continuing to work. This is a post about how I saved my wife money on her super.
My Knowledge of Supers:
As of 2-3 weeks ago, I had no real prior knowledge of Supers. It is a foreign concept to me. I am an American, and we all talk about 401ks, pensions, Social Security, and IRAs. All of these terms could confuse most people, but I digress. Let’s talk about Supers, how it works, what are the usual fees, and how to save money.
How it Works?
A Super is a retirement account for Australians. The employer contributes 9.5% of the employee pay into the Super. The employee has options to put in more money being taxes at 15% if they would like. Upon the age of 65 or hitting your preservation age, they can start withdrawing money from the account tax free.
A lot of Supers have similar investment types. You have the Balanced, Indexed, Cash, and High Growth. I may have missed maybe one or two, but these are the basic plans for the Super.
High Growth is one touted to the younger generation to help them grow their wealth faster as they have more time than the older generation.
Balanced is for those that are getting ready to retire. With a lot of cash and bonds to help balance out a portfolio or REITs, Stocks, toll booths, infrastructure, and anything else they would like to add to that income generating portion.
Indexed Investments are index funds. Index Funds are by far my favorite. I am an Index fund guy because it is simple, and makes money in the long term without high fees. This is the newest type of funds to hit the Supers.
Jack Bogle created the first Index fund to help the average investor and it has finally seeped into the Australian finances. The investments are usually a mix of 75% stocks indexed split between Australian and Overseas Indexes. The other 25% is a mix of cash and bonds to help balance out the fund.
The Fees on the Super:
Just like the American 401k there can be fees like administrative fees. Most of the funds have fees. Just having a Super the company will have an administrative fee of like $1.50 or more a week.
Then there are investment fees. These investments are managed by money managers who expect to get paid so these fees can range from 0.40-1%, which can take a huge chunk of your portfolio to fees.
Most people do not know these are fees that are extracted from their portfolios, but after much investigation I have discovered these expenses. They are basically expense ratios levied on the investment. It is a fee for the expense of the active managers managing the mutual funds.
Since I am not a fan of fees I like Index Funds, which have the lowest fees in the business. They are low because you do not have to pay anyone to manage the funds. They just track the index. My wife’s Super Index investment has a fee of 0.02%. That is pretty cheap. In the long term, it saves money.
My Wife’s Super:
A few weeks ago as I was looking at our Net Worth, I was thinking about adding every asset we could have. The one that was missing was my wife’s Super. She had no idea what the value or the investments were in it. Everything was controlled by her father. He is a great man that tries to do the best for his family.
So I asked several questions about the investment. He sent along some paperwork for me to get a glance at, and fees really sparked my interest.
Granted, my wife’s Super is in a non profit industrial Super. It already has low fees. $1.50 a week is pretty minimum. I do not like losing money, but what can I really do about it?
I started to take a look at how to minimize the investment fees. The investment fees were coming in around 0.67%, and not generating the greatest returns. It was in one of those Balanced investments, which is a 50% growth and 50% of safety in cash and bonds. As a 33 year old, she needed some growth on her investments or they would sit low for the next 20+ years. She needed to save money on her super.
What the Barefoot Investor says about Supers:
I came across the Barefoot Investor. His name is Scott Pape, and he created a book and blog called the Barefoot Investor. It was time for me to find my answers.
People were asking questions about Supers. They had questions about fees and returns, and Scott had answers. On one of his posts he recommended the Balanced Index Investment of Hostplus, an Aussie Super, because of the low fees. It was like $78 a year, and an investment fee of 0.06%. That was like music to my ears. He was speaking my language.
Index Funds are low cost ways of achieving wealth. It is not chasing managers that promise to outperform the market. It is simply mirroring the market as a whole. He said the Index Funds was the way to go, and I believed him because that is what I invest in.
Further down he mentioned 3-4 other Australian Supers that have low fees as well. Lucky for me, I found the one that my wife was a part of. Her Super had an overall fee of 0.10% over her entire portfolio.
Here is the list of low fee Indexed Supers:
REST Super Balanced – Indexed (0.10% p.a, plus $67.60 a year)
AustralianSuper Indexed Diversified (0.16% p.a., plus $117 a year)
Vision Super Sustainable (0.15% p.a., plus an admin fee of 0.35% p.a., capped at $1,050 p.a, plus a reserving margin of 0.02%–0.04% p.a.)
Sunsuper Balanced – Index (0.29% p.a., plus $78 a year, capped at $800,000 balance).
How I saved my wife money on her Super.
The time was here to create some savings. My father-in-law allowed us to retake over the Super in order to manage it.
At that time, the Super’s investments were switched over to the Balanced-Index Investment. In the last 6 months it has gone up 14.76%, which is a huge jump in the value. The Balanced investment only went up 7%. That is a loss of 7% compared to the indexes.
Now the Super has 75% indexed stocks for Australian and Overseas markets. It has 25% with cash and bonds mixed in.
Taking a look at it today, it had increased in value quite a bit. Within a month of switching it over the value has increased $800. I know as the market goes up and down this will obviously fluctuate, but the excitement I felt knowing that indexing works. The best part, there are almost no fees eating away at the money.
Making changes to the investments saved money on my wife's super. I was excited, and it keeps growing as well.
It is a great feeling saving money. Making money is oftentimes a better feeling. As people get their financial plans into order you will need to think about how the fees affect your investments, what you are invested in, or even how much you will need when you retire.
Making these changes sound quite exciting. I saved my wife money on her super. As a disclaimer, I am not a financial planner or advisor. I am a random guy on the internet that reads a lot. Take a look at what you can do to make your money work harder for you, and see how you save money by making changes to investments.
” Spend less than you make, stay out of debt, and invest the rest”
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.