Superannuation is the primary form of income for many Australians when they retire, and while it’s working alongside you for most of your life, it’s often paid too little attention. Superannuation is not a ‘one size fits all’ financial strategy, with your needs and working circumstances changing over the course of your life. That’s why it’s prudent to be informed so you can get your superannuation in top shape at each stage.
IN YOUR 20s
Get acquainted with the basics:
Your employer should make compulsory superannuation contributions to your chosen fund. Check your payslips and make sure these contributions are getting paid at a rate of 9.5% of your salary. You can also check this on your annual statement from your super fund – keep an eye out for it in September.
Do you work for yourself? Then you need to be making your own superannuation contributions.
Start developing a strategy now:
Because super is cumulative, you’re better off making additional contributions early. In fact, Stephen Blake, Director of BrisTax advocates that “You should make superannuation contributions as large as possible and for as long as you can for the best result long-term.”
Shaun McGowan CEO of Unsecuredbusinessloans.com.au “as an employee, take advantage of the salary sacrifice option”. Asking your employer to pay a portion of your pre-tax salary to your super fund gives you and additional benefit. Those contributions are taxed at only 15%, so the lower tax rates mean you are effectively putting more into your super than you would have had in your pocket.
As a young worker, you’re also more likely to have a low-income, which can make you eligible for government co-contribution schemes. Paying $1000 as a personal (after-tax) contribution gives you a 50 percent return from the government – a considerable incentive.
Re-think your perspective on superannuation:
Consider this: your greatest asset in your 20s is your earning potential. What would you have to fall back on if you could no longer work?
Your superannuation is not only a retirement fund, but a safeguard in the event an accident or illness prevents you from working. In that case, you might need your super paid out earlier than retirement. Super accounts can also come with life, disability and income protection insurance – often by default. These forms of insurance, as well as your super fund, can boost the quality of life you might otherwise have if relying only on government assistance.
IN YOUR 30s
It’s essential to maintain what’s already in place, but your financial strategy may need some fine-tuning. As you change jobs or industries, it’s important to consolidate your super accounts. Stay on top of this, to maximise your returns with your total funds sitting in the one super account. It’s also a good idea to seek advice from a financial planner with the following:
- Reviewing fees and comparing to other super funds
- Reviewing investment strategy and performance
If you haven’t already started making additional contributions, it’s prudent to start now. Investigate whether salary sacrifice or personal contributions are best suited to your situation. Be sure not to exceed contribution thresholds though.
If you’re starting a family, you should also think about changes that could occur with your employment. Having a child can often mean that the income of one parent drops significantly. In that case, the working partner may be eligible for a tax offset by making spouse contributions, via the super contribution splitting strategy.
IN YOUR 40s
Superannuation strategy in your 40s is similar to that of your 30s. However, it is even more critical now to seek advice, because there are usually only 20 years left before retirement. Wealth creation should be your focus, so salary sacrificing is still a great option. It’s considered too early to move to a more conservative strategy at this stage; growth should continue to be the aim.
IN YOUR 50s
Now is the time to seek financial advice on whether your strategy should begin to become more conservative and if it still suits your circumstances. According to Tim Luxton, Director of Financial Framework, “It’s prudent to review the insurance components of your superannuation strategy as you get closer to retirement, because those needs may have changed.”
It's never too early to secure your binding death benefit nomination with your super fund. The nomination ensures that your death benefit goes to your chosen beneficiaries and may even expedite the process should it occur.
Your preservation age is between 55 and 60, depending on your date of birth. Once you reach this age, consider starting a ‘transition to retirement’ (TTR) pension from your super fund. This allows you to reduce your working hours and draw the difference in income from your super fund. And there’s an additional incentive: the income and the earnings on the investments backing the pension are tax-free when you reach 60.
Date: Thursday, 8 November 2018
One thing’s clear. Get financial advice as early as you can for help navigating the tax system, and how it ties in with superannuation, to ensure if you’re ever without income, you’re in the best financial position possible.