4.2 Superannuation

Consumer and
Financial Decision
DCS Commerce
Lesson
Instructions
1. Open workbooks
2. Write the date
3. Write heading:
4.3 Superannuation
Lesson
Objective
Discuss the role and importance of long-
term financial strategies, including
superannuation.
What is
Superannuati
on?
Superannuation (commonly
just called ‘super’) is money
that’s put aside and saved
while you’re working.
It is a compulsory savings
account where each time you
are paid, your employer will
allocate a percentage of your
income to the account.
It is currently around 10% of
your income.
You may also want to pay
additional money into your
account because this does
have some tax advantages..
When you retire, you may be able to
access an aged pension in order to
survive.
This is an amount provided by the federal
government to help you meet your basic
needs.
It does not allow for a luxurious or a
preferred lifestyle.
As a result, you may need to work longer,
or sell assets in order to generate the
cash flow required.
Superannuation is an account that
provides money when you retire..
You are probably wondering why
you should worry about
retirement at this stage of your
life.
Well, imagine what your life will
be like if you have no regular
income when you eventually
retire.
Your lifestyle will suffer.
What you need is a long-term
investment plan —
superannuation — that lets you
save for retirement.
It little bit of attention and
sacrifice now will have a huge
impact later in life.
It is best to start a savings
program early in life.
For most people, super
begins when you start
work and your employer
starts paying a
percentage of your salary
or wages into a super
fund account for you.
Those under 18 years old
are only paid
superannuation if they
work for more than 30
hours in a week
Most people can choose
the fund their super goes
into.
Your super fund invests
and manages this money
for you until you retire..
The most common long-term
Why is financial goal is to fund a
comfortable retirement.
Superannuati Because Australians are living
longer, the government is increasing
on the age that people can access the
Important? aged pension to 67 years.
Even then, this pension will provide
only enough funds for a very basic
lifestyle.
Increasingly, people need to fund
their own retirement if they are to
continue to enjoy the standard of
living they are accustomed to.
While people can adopt many
investment strategies over the long
term to achieve this goal — such as
investing in real estate, shares and
managed funds — the most
common is superannuation..
The answer depends on many factors, such as your lifestyle and expenses.
In other words, in order to figure out how much money you need to save,
you need to consider how much money you are likely to spend when you
stop working.
In order to maintain the same standard of living when you retire as you
enjoyed when you were working, you will need approximately two-thirds
of your working wage during retirement.
This approximation is constantly updated as the cost of living keeps going
up.
The figure takes into account aspects such as the price of food, utility bills,
changing lifestyles and spending habits.
Case Study:
Jason
Jason began saving for his retirement when
he started my first part-time job at the age of
16.
His employer began contributing to his
superannuation
He had a great time for a few years and
enjoyed spending his money.
But once he had started working full-time as a
plumber, he immediately began contributing
to his work superannuation fund.
Later on, when he had children and money
was tight, he kept on contributing but at a
slightly lower rate.
Case Study:
Jason
Once the children had become self-
supporting, he increased his superannuation
contributions to the highest level.
Now, at the age of 70, he is pleased he made
those earlier decisions.
His superannuation balance of $615 000 is
sufficient to allow him to do the things he
would like to do in retirement — travel,
update my car and enjoy life.
Case Study:
Megan and Tom
Megan works in the human

resources department of a
large company and her
husband Tom was a mechanic.
They have been married for 30
years and have two children.
They were fortunate in that,
over the years, they had
always had a financial plan.
As part of this plan, they had
always contributed as much as
possible to their
superannuation scheme.
Case Study:
Megan and Tom
Once they retired, they

intended to take this
superannuation as a lump sum
and pay off their children’s
university debt and then invest
the rest in a combination of
bank term deposits, real estate
and shares.
This they hoped would provide
them with more than enough
to fund a very comfortable
retirement.
.
Case Study:
Megan and Tom
As they aged, they also

planned to sell their large four-
bedroom home and purchase a
small apartment.
The money left over from this
could also be used to pay for
any aged care if needed.
Case Study: Sue and Edwain
The following table shows the details of Sue
Edwain
and Edwain’s super accounts.
Sue
Starts investing at age 25 40 Both are 60 years old.
Sue has been investing $2000 each year (less
Invests until age 60 60
than $40 a week) while Edwain invests $5000
Investment
timeframe
35 years 20 years
each year.
Investment per year $2 000 p.a $5 000 p.a The fund returns 8 per cent on average over
the years.
Total amount $70 000 $100 000
invested Even though the total Sue has invested is
Investment value at $372 204 $247 115
much less than what Edwain has invested
age 60 overall, she is more than $125 000 richer.
Source: UniSuper. This is because she started investing at age 25
and Edwain started at 40.
More time means much more money when it comes
to superannuation.
This is because of compound interest.
Compound interest, put simply, is when you are being
paid interest on the interest earned from your
investment.
$1,000 per month ($540K) $5.3 million (45 years 8%)

$500 per month ($270K) $2.6 million
$250 per month $1.3 million
Case Study: Leisa
Leisa was 22, had completed a media
degree from The University of Sydney
and had just been accepted to work at
a national media organisation.
She did not start for two weeks and
during that time she decided to get
her administration in order.
Leisa had funded her own way
through university by working
numerous jobs, including waitressing,
working as a kitchen hand, gardening
and even picking fruit for a short stint
in the Riverina of NSW.
She had never taken any interest in
superannuation and, each time she
started a job, had just filled out some
papers and joined a new scheme..
Case Study: Leisa
When going over her superannuation
paperwork, much of which she
previously hadn’t even bothered to
open, she discovered that she had
joined six funds and had paid a total of
nearly $20 000 into her super.
However, she was angry when she
found that five of the fund accounts
had been closed due to low balances
and that the money had been
transferred to the Australian Tax
Office.
Leisa was eventually able to retrieve
the money and have it paid into her
remaining account. However, she had
still lost a considerable sum in fees
and lost interest.
Case Study: Leisa
When Leisa started work at the
national media organisation, she told
the HR department she wished to use
her remaining account as her
superannuation fund.
This was quickly organised, and all
future payments would go into it.
Leisa enjoyed her new job but for a
long time she was very angry with
herself for losing that money in lost
fees and interest.
Lesson Learnt: Having more than one
superannuation account is very costly in
fees.
Superannuation: Summary
When you change jobs, if eligible you will
again be given the option to choose your
own super fund.
This is a good time to review your current
super fund and consider whether you are
happy with its fees, fund performance and
investment strategies.
Adding a little extra, choosing a fund whose
investment strategies align with your
circumstances and checking how much you
are paying in fees and charges will help your
super grow over your whole working life.
You should choose your own superannuation
fund and not just accept the one the
employer uses.
Your decision should be based on the fund’s
fees and its history of returns.
It is very important to have just the one
‘super’ account because this will minimise
your fees and maximise your returns..
Worksheet
Superannuation
Research Activity
Superannuation Which Fund?

4.2 Superannuation

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Consumer and

Megan works in the human

Once they retired, they

As they aged, they also

$1,000 per month ($540K) $5.3 million (45 years 8%)

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