How to use the Moneysmart Superannuation calculator

I’m Kate from SuperGuide, and I’d like to show you how to use ASIC’s Moneysmart Superannuation calculator.

The title of this calculator says that it will help you to find out your super balance at retirement, but it actually does much more than that. It can help you to see the impact of fees on your final super balance and compare two super funds’ fees together to see how even a small difference in fees can have a significant impact on what you end up with at retirement.

The calculator will also help you to see the impact of making contributions to your super and different investment returns that you could achieve, as all of these have a really big impact on where you end up.

The calculator seems relatively straightforward, but like lots of things with super, it can be more complicated than it first appears. Hopefully, this walkthrough will be helpful for you.

To start, what you need to do is scroll down and insert your personal details: your age, your income, and when you plan to retire. I’m going to use someone who’s 25 and earning $60,000 per year, just in this example. We’ll leave the desired retirement age at 67, but you can change that if you would like to.

The second thing you need to do is put in your super details. Here you put in the balance that you have currently in your super account. For this person we’ll say they’ve just started out in the workforce, only have $15,000. The employer contribution amount here is already filled in for you at 11%, and that’s the minimum that your employer is required to contribute if you’re an employee. If your employer contributes a higher amount, you can change that here. Or if you’re self-employed, you can put in zero, and instead, add all your contributions that you plan to make as personal contributions.

You can see if you click on this question mark, it does give you that helpful information about what to do if you are self-employed. When you’re using these calculators, do keep an eye out for the question marks and hover over those to find out that extra information.

In the first instance, we’re going to say, No, this person doesn’t make any additional contributions to super. If you scroll down further, you can see now that the calculator requires you to insert the fees for your super sund. If you’re most interested in just seeing the impact of making contributions, you could just leave these at the default levels. But if you’re really wanting to see the actual impact of the super fund fees that you are charged, you can change these default numbers.

First, you have to click this box and select Other, and then these boxes stop being grayed out, and you can go in and add the fees that your fund charges you. The best place to find these is in your Product Disclosure Statement. You’ll need to visit your fund’s website, find the Product Disclosure Statement, and then look for a table within that document, which is called the fees and costs summary. That will show you all the different fees and charges that apply to your super.

They might have more different types of fees than are included in this calculator, and they may also be more complex. What the calculator can do is take into account any percentage-based fees and any dollar-based fees. It actually doesn’t matter where you put the fees in terms of what they’re called. As long as you put in all your dollar-based fees and all your percentage-based fees, the result of the calculator will be correct. To give you an example, I’ll walk you through some fees that I saw for a particular fund, which I won’t name.

First of all is the contribution fee. Now this was zero. Contribution fees are quite uncommon now in super funds. But if you have an older fund or you have a financial adviser attached to your fund, you’re more likely to see a contribution fee. This is a percentage that’s charged out of every contribution that you make into the fund. So if it was a 1% fee and you contribute $100, the contribution fee would be a dollar. So if you do have a contribution fee, which is percentage based, you would put that in there.

The second part is the administration fees. This is the only place in the calculator where you can put any flat dollar fees apart from insurance premiums. If your fund is charging other dollar-based fees that have another name apart from administration fees, you would still put them here. You’d add up all the dollar-based fees that your fund is charging you and put them here. In the case of the fund I was looking at it was $78 per year for their flat administration fee.

The next box here is the Indirect Cost Ratio. Lots of funds don’t call it this anymore, but if you look at your fees and cost summary, you may see quite a few different percentage-based fees that are listed as being deducted from the fund’s investments rather than out of your account balance. Those are indirect costs, so you would put these here. Some funds charge some of their administration fees indirectly in this way, and that’s what the calculator is looking for in this box. In the fund I was looking at, that fee was 0.19%. I will put that in here.

If you continue to move down, you can see we now have come to the Investment Option variables. Again, you can leave that as the default if you’re more interested in seeing the impact of contributions. But if we’re still looking for some fee information, you would change this, again, to say Other, and that will allow you to fill in these boxes. Here is where you put your investment fees. Again, these are normally deducted out of your investment before the return is credited to you. It’s not coming directly out of your account balance, but it is still an important fee because it affects the investment return you receive. The higher this investment fee is, the lower your investment return. The investment fee here was 1.1%.

Now do be careful here that you’re not inserting your fees twice. If you’ve already put investment percentage based fees up here in the Indirect Cost Ratio, you don’t need to add them again in the investment fees. It doesn’t really matter, as I said, where you put them, as long as you don’t duplicate your fees and you do include all of them.

The next thing we need to do here in the Investment section is estimate the Investment return and the Tax on earnings. The investment return here, if we hover over this question mark again, is before tax and fees. This is different from the return that your super fund discloses to you. When your fund tells you that they earned 8% per annum over the last 10 years, that’s the return they’ve credited to your account after fees and taxes have come out. The real investment return before fees and taxes might have been more like 9%.

What you need to put in here is what you think would be a realistic investment return without any fees and without any taxes for the type of investment that you’ve chosen for your super fund. In this example, we’re going to use 8%. For the tax on earnings, we’ll put 7%. That’s the default that this calculator uses, and it was the average tax on earnings that the Retirement Income Review found that super funds pay. So if you’re not sure, it’s a good place to start.

From here, we can now scroll down and see our results. And this shows you a graph of your balance year by year, and also your final estimated superannuation balance. So that’s a really good place to start. And it also shows you the total fees that you’ve paid throughout the life of your superannuation fund. Remember, this includes those indirect costs that you’re not seeing come out of your balance.

The second thing that we can do with this calculator is compare an alternative fund, so we can see the impact that different fees might have. We’ll do that now by clicking this down arrow. You can see again, we get all the same boxes to fill in fees. The first one, though, is a Withdrawal Termination Fee, so that you can insert that if there is a cost for closing your existing super fund. That’s very uncommon now that exit fees are prohibited in superannuation.

Again, you need to change the fee level from the default to the real fees of the fund you’d like to compare. Say, our comparison fund charges $65 per year, no other indirect administration costs, and their investment option has the same investment return and the same tax, but a lower percentage investment fee of 0.6% per year.

Now you need to scroll back up again to see the comparison of the two funds. We can see fund number one with the higher fees has this estimated balance of $445,000 at retirement. The comparison fund with the lower fees has an estimate of $521,000 at retirement. You can see the difference there in the dollar figures of fees as well. One here and one here.

That does show you that even a small difference in fees can have a really big impact on your final balance. The balance that it’s showing you here is in today’s dollars. The actual dollar value of your balance at retirement, if you’re only 25 now, would be significantly higher than this. But because of the impact of inflation, this is what it’s estimated to buy you if you had it today, so that it can give you a realistic idea of what your purchasing power will actually be in retirement.

You can change that assumption about how much inflation is if you were to wish. Let me show you that now. If we scroll down to the bottom of the calculator, there’s this Advanced section. You can use this to change the rate of inflation that’s assumed, and also to put in adviser service fees and insurance premiums if you’re interested in the impact of those.

Inflation is set by default at 2.5%. That’s the estimate of the increasing costs of goods and services rising at 2.5% per year. The calculator also has this additional rise in living standards. That’s built in because as time goes by, people tend to expect a better standard of living than they had in the past. Apart from just the rising cost of things, they’d like to be able to spend more money every year on a fancier holiday or a better phone, and that’s this additional 1.5% per annum increase. You can change those if you’d rather have different assumptions.

This insurance fee is built in at $214 per year. It’s a relatively low estimate of what you might be paying for insurance in your super fund. You can look at your real insurance premiums and change that figure here if you would like to.

Last of all, the other thing that this calculator does is allow you to estimate the impact of making contributions to your super. It doesn’t directly compare the situation of not making contributions with making contributions. What I would generally suggest you do is run the calculator first without making any contributions, see the result as we can see here. You can jot that down and then go back up and change the situation of how much you can contribute so you see the impact that that will have.

Let’s do that now. You go back to the top of the calculator. Instead of saying No to this question, we can say Yes. Now some more boxes will pop up. Let’s say this person is contributing from their monthly salary 5% of their wage. You can see this is a percentage figure here. If you contribute a dollar amount, just change that to dollars. Okay, but we’ll leave it at 5%. Then you can scroll down again to see your numbers and see how that’s impacted your final balance. And you can see if you remember what these figures were before, that that 5% contribution out of a person’s salary has had a very significant impact on the final balances that are estimated in each of those super funds that we’re comparing.

Last of all, it’s always important when you’re using a calculator to make yourself aware of how it works. So do come down all the way to the bottom and have a look at the disclaimers about how the calculator works and what it does. Essentially, it explains here that it’s only a projection. It’s only as good as the numbers that you put in. It’s not guaranteed that that’s what you’ll end up with, but it is a reasonable model that will at least show you the kind of magnitude of the difference that making contributions or choosing a lower fee fund may have on your final retirement balance.

The assumptions are also very interesting. They include things like it will adjust to put a co-contribution into your balance if you’re eligible for that and you’re making after tax contributions. It will also cap the amount that you contribute at the concessional contribution cap or non-concessional contribution cap, depending which way you’ve chosen to make contributions. You can read through all of those assumptions and the information to make sure that you’re happy with how the calculator works and that you understand it.

I hope this walkthrough has been helpful for you, and you can go and make use of ASIC’s Superannuation calculator.