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Retirement

Talking super with my daughter

By Matt Kerr
  • April 01 2020
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Retirement

Talking super with my daughter

By Matt Kerr
April 01 2020

“Let me say at the outset, I am a proud dad!” writes Matt Kerr.

Talking super with my daughter

Talking super with my daughter

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By Matt Kerr
  • April 01 2020
  • Share

“Let me say at the outset, I am a proud dad!” writes Matt Kerr.

Talking super with my daughter

My daughter received her superannuation member statement the other day and instead of doing what the vast majority of Australians do – chuck it in the bin – she opened the envelope and then asked me to explain it to her.

To begin with, I told her that there are some things about super that are important and other things that are less so. We hear a lot of hype about fees and costs associated with superannuation, but what is often misunderstood is that there are costs that we pay directly and costs that we never really see.

What she is paying out of her account are the direct costs, but the indirect – or invisible – costs are reflected in the returns she gets on her money.

When it comes to returns, I told her it is important to understand what her money is invested in – is it high growth, conservative or somewhere in between? Over her lifetime, the difference in returns of the various investment options can have a massive impact on the balance of her super.

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We then looked at her contributions and spoke about the government co-contribution. This is where the government will contribute up to $500 into her super account if she makes $1,000 of her own contributions. It didn’t take her long to calculate that she could earn a 50 per cent return on her investment.

We spoke about how she can make that $1,000 contribution and realised that by saving $20 per week, it would be easier for her than trying to find $1,000 at the end of the year.

The other advantage of this approach is that her regular contributions will be buying investments regardless of what the sharemarket is doing. With the current downturn, this approach means her $20 is buying more assets and this will put her in a better position when the markets recover.

Then another proud moment occurred when I realised she has listened to me over the years while I banged on about compound interest.

She said, “If I do this now and get the money from the government, then with compound interest, that will make a huge difference in the future, won’t it?”

Of course, my answer was, “Yes.”

Then she asked a difficult question.

“Why doesn’t everyone do this if they can get a 50 per cent return?”

While there are some rules around who can benefit from this offer, it’s accessible for many Australians. The short answer to her question is, “I am not really sure.”

Maybe some people are not aware of the opportunity, or maybe there is still some stigma around superannuation.

For years, I have heard people talk about their super and how it is “not really my money”. As a financial adviser, let me be the first to tell you this is complete rubbish. Super is absolutely your money, so you must take an interest in it.

Recently, the government made the unprecedented decision to allow Australians to access up to $20,000 of their super over the next two years – this will certainly bring the reality of their superannuation nest eggs home to many people.

My daughter and I also spoke about using her super as a means of helping buy her first house. She understands the sooner she starts saving for this, the better position she will be in when she wants to enter the property market.

We then looked at her insurances to make sure she still had cover. Now as a student, you may wonder why we care about whether she has insurance, but we feel it is a priority for her to be covered with no exclusions or loading.

If these past few months have taught us anything, it’s that we do not know what the future holds. Just look at COVID-19 – we still don’t know the long-term effects of the virus, so if she contracts this now, she may end up with lifelong health issues. She drives, so could have an accident, and she rides horses for sport and could have a fall.

I may sound like a concerned parent, but there are so many unknowns in life. Failing to get insured now could actually prevent her from getting insurance when she is older.

As the saying goes, “A bird in the hand is worth two in the bush.”

I am so proud of her because she realises that by doing some very simple things, such as choosing her investment option, saving a regular amount and keeping her insurances, she has helped to set herself up for the future.

As a financial adviser, I see too many people come in to my office regretting that they did not pay attention to their own finances when they are young. I have lost count how many 35 to 40-year-olds tell me they wish they had started taking an interest in their money earlier.

It doesn’t take long to get your affairs sorted, but it can make a massive difference over your lifetime. The cost of doing nothing is far more than the cost of getting some help to get on top of your finances.

Matt Kerr is a principal in the wealth management division at Pitcher Partners Newcastle.

Talking super with my daughter
Talking super with my daughter
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