A $200k super blunder: here’s what not to do with your nest egg

However, despite being in such a fortunate position with experts on speed dial, I’ve had several absolute facepalm moments when it comes to retirement savings – and it’s cost me thousands of dollars in the process.

I’ll admit it. Some mistakes were caused by my own stupidity. But others reflect the complex nature of the super system and its ever-changing rules. It really is complex, even for those interacting with it on a daily basis.

Hopefully by understanding where and how I messed up, you won’t make the same costly errors. Here are three big ones that hurt financially.

1. A stupid super switch

Switching to a new fund before properly claiming a tax deduction for contributions to the previous fund was an expensive mistake.

My wife and I lost tax deductions totalling about $12,000 because we switched to a better-performing fund but only filled out the ATO form informing our intention to claim a deduction after switching, even though we still had plenty of time to lodge our tax returns.

When I asked the ATO, it was clear on the rule that “when an individual rolls over their money to another super fund, it is no longer classified as a personal contribution”.

When I chatted about this with some adviser mates, they agreed that it was tricky and had caught out many people. That still doesn’t make you feel any better when you’re thousands of bucks worse off than you should have been.

Lesson one: double check the rules, even if you think you know them.

2. Failing to check investments

The experts harp on about this a lot. We should examine how our super is going at least once a year to ensure we are not paying too many fees and that our investments and life insurance match our needs and tolerance to risk.

A few years ago I didn’t check a retail super fund for a year or two, only to discover that personal and employer contributions had been going straight to cash rather than the desired mix of investments.

This was during the stockmarket’s post-GFC surge, so that money went nowhere rather than climbing sharply in value, and I hate to think of the missed benefit of it compounding in value over several decades.

Lesson two: Check your investment mix at least annually.

3. Curse of the self-employed

Speaking of missing out on the benefits of compounding, many Aussie sole traders and business owners get so caught up in their careers and business growth that they forget about or ignore superannuation.

While employees now benefit from 12 per cent compulsory employer contributions, it’s purely voluntary for business owners, which means super can slip way down the list of priorities.

The power of compound interest over decades is huge. Punch some numbers into Moneysmart.gov.au’s compound interest calculator and you’ll see that every $10,000 invested at an average annual return of 7 per cent will grow to $20,000 after 10 years, $40,000 after 20 years, and a whopping $81,000 after 30 years.

I’ve calculated that my household has missed out on at least $200,000 of compound interest growth by ignoring superannuation during periods of self-employment several years ago, and that loss will continue to climb in the years ahead.

Lesson three: if you work for yourself, set up monthly direct debits into your super – ideally 10 to 15 per cent of your income. Otherwise you will probably regret it later in life.

The most important lesson for growing wealth through super is to seek good advice, either through your fund or a professional financial planner.

While planners are harder to find these days – and more expensive – following an industry exodus, good super funds are offering more assistance, tools and advice to members.

Superannuation cops a lot of criticism, especially when governments tinker with the rules as we saw again this month, but it remains the best and most generous savings vehicle for Aussies wanting a tax-free retirement.

This article first appeared in The Australian as Writer’s $200k super blunder: How to protect your savings