Ignoring costs means paying the price in retirement
Everyone knows about the power of compounding on investment returns, but fees also compound. Over a working life, the difference between high and low super fees makes a big difference to the eventual size of the retirement nest egg. It is estimated that paying 1 percentage point more in fees results in a retirement benefit worth 20 per cent less over 30 years.
Here are a few pointers on how to keep fees low. Holding several super accounts can be costly. That's because, usually, each account will have a fixed-dollar fee regardless of how much money is in the account.
One of the easiest ways to reduce fees is to consolidate super accounts. Think about whether you really need to be paying higher fees for the choice of 20 investment options, most of which you are unlikely to need.
Another potential trap is starting a self-managed super fund with too little money. Most experts say the absolute minimum needed for a DIY fund is $200,000.
Frequently Asked Questions about this Article…
Fees are one of the few things you can know and control about your retirement savings. They compound just like investment returns, so even small differences can significantly shrink your retirement nest egg over time.
Fees can have a big impact: the article notes that paying 1 percentage point more in fees can result in a retirement benefit that is about 20% smaller over 30 years.
Yes. Unlike future investment returns, fees are usually known up front and can be managed. Reviewing your account and taking steps like consolidating can help reduce what you pay.
Holding several super accounts can be costly because most accounts charge a fixed-dollar fee regardless of balance. Multiple accounts mean you may pay that fixed fee several times, which eats into returns.
Yes. Consolidating accounts is one of the easiest ways to lower fees since it reduces the number of fixed-dollar charges and cuts out duplicate costs you may be paying across multiple funds.
Not usually. The article suggests asking whether you really need to pay extra for a long list of investment options—many people don’t use most of them, so the higher fees may not be worthwhile.
It can be a trap if you start an SMSF with too little money. Managing an SMSF has costs, so experts warn that a DIY fund shouldn’t be set up unless you have a sufficiently large balance.
Most experts cited in the article say the absolute minimum for a DIY/self-managed super fund is around $200,000, because smaller balances are unlikely to cover the fixed costs of running the fund.
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