How To Become A Millionaire By Doing Almost Nothing
Becoming a millionaire is actually super easy. And you’re probably already doing it: your employer is putting 9.25% of every salary payment away for you, and into the most boring product in the world: superannuation.
Superannuation literally means super (from the word super) and boring (from the word annuation). It was made by boring politicians. And with our attention spans now measured in seconds, the fact we don’t see immediate results renders it, well, boring. But stick with me, because it’s actually kind of the best thing ever.
Stop talking about superannuation and make me a millionaire
It’s hard to make this sexy, so I’m just going to wow you with some numbers.
Let’s say you are 25 years old.
You earn $50k (increasing at 3% per annum).
Your super fund earns 6% after taxes and fees.
You will have $1.2 million dollars when you retire.
That’s a lot of ginger ale and lawn bowls, people.
So if super is so important, what do I do?
Let’s talk about getting it in order.
I know you. You’ve been stashing away every letter about your super into your filthy box of shame. It’s OK. We’ve all done it. But you are probably losing your millions in unnecessary fees and multiple life insurance policies that you might not need.
Set aside literally 30 minutes and get your $1.2m prize money in order – just follow these four steps:
#1 Find it
Let me guess – you have about a zillion superannuation accounts? And you have no idea where they are? The average Australian worker has three accounts. That is not ideal.
There are several places to look. The first stop is the ATO’s SuperSeeker tool – it will help you find lost accounts that Superannuation Funds have handed over to the ATO. Then look in AusFund – this is a giant cash-wad of all the neglected industry super accounts, scooped into one sad ball. It’s wiping its golden tears with fistfuls of your cash.
You may have lost super that hasn’t been reported as lost yet, and is still sitting with an active fund. If you can find a cache of superannuation letters you’ve been ignoring for the last 5 years, make sure you pull out the account info in any of those letters, or do a simple e-mail search.
#2 Consolidate it
Here’s a tip: you only need one account! The process for pulling accounts together is known as ‘roll over’ and the government has tried to make it as easy as possible – in other words, not very easy.
Why pull them together? Each account comes with its own set of fees, so if you have multiple accounts, you are probably forking out way too much of your future millions.
Call the fund that has the lowest fees or otherwise tickles your fancy (see next tip), and tell them you want to roll in other superannuation accounts. They will do the heavy lifting for you, but you may need to provide some ID and sign a few things.
#3 Scrap the fees
I’m a bit of an old-hat sceptic on investing. Frankly, the default investment strategies of all the major superannuation funds are pretty similar. In fact, the Grattan Institute reported in 2014 that almost all funds generate the same gross returns, so the most important factor for you as a consumer is choosing one that charges the least fees.
Comparing Super is still a real pain, but as a general rule, you should be looking for something with fixed administration fees of <$100 per annum, zero management fees, and indirect/investing fees of <0.80%.
The larger industry super funds are fairly competitive, and the major banks have now come out with low cost offerings. You may have also heard of Self Managed Super Funds (SMSF) – in most cases, it is not worth directly managing your super until you have more than $100-200k.
#4 Get the insurance right
All default superannuation accounts come with a life insurance policy switched on. The theory behind this is that Australia is chronically underinsured, and this is an easy way for the government to ensure people are ‘insured by default’.
A life insurance policy might not be right for you, and the cost of the life insurance policy comes out of your superannuation. You should seek advice on this. If you do not have dependents (spouses, children, and/or people you care for), then you may not need a life insurance policy.
Note that other types of policies, for example TPD (covering Total and Permanent Disability) and Income Protection (covering your income if you get sick) may still be important even if you don’t have dependents.
Complete these four steps, and you’re on your way to retiring a millionaire.
Rob d’Apice is a co-founder of Sage, a new way to save heaps without thinking about it. He has trained as a financial planner, worked as a management consultant, and struggled as a serial entrepreneur. Rob presented the money segment Insufficient Funds on FBi Radio. He is also a bit of a geek.