The superannuation industry in Australia is going through an amazing period of development and media awareness. Retirement may perhaps be a long way off, however if you want to have more than the bare minimum when you retire, you can’t afford to be complacent.
Today, a growing number of individuals are realising that a Government pension will not give them the lifestyle they desire when they reach retirement. The need to save up money for the future is not just a hot topic, it has ended up being a huge wake up call to countless people who have low superannuation savings.
The standard superannuation contribution by companies is currently 9.5% of your income, however realistically, this is not even enough to cover basic living costs in retirement, so growing that nest egg is even more cruical than ever, and can set you up for life.
For Australians to live the lifestyle they want for their retirement from age 65, researches show savings would typically last just around 5 years, creating a super shortage of about 13.6 years (considering the typical life expectancy is 82.5 years old in Australia).
When looking closely at particular age, the researches revealed those aged in between 35 and 44 were most likely to leave themselves short if they retired at 65, while news for Generation Y was a bit more favourable as it was the group with the lowest shortage at 12.1 years.
So we have put together some simple ways to help boost your superannuation. Here are our top 7 tips to grow your retirement savings.
1. Regular Contributions
In addition to the 9.5% employer contribution, if you put some extra money each week into your superannuation account, the difference can be remarkable. If you contributed an additional $50 a week from the age of 25, this grows to over $160,000 extra by the age of 60.
There are different types of contributions you can think about:
Salary Sacrifice Contributions
Salary sacrifice is where you settle for have a portion of your before-tax income paid into your super fund by your employer. This is on top of what your company pays you under the Superannuation Guarantee, if you’re eligible, which works out at no less than 9.5% of your before-tax income.
While salary sacrificing is not compulsory, it does mean you’re taking less earnings home, however as you’ll only be taxed 15% on the money you salary sacrifice, it might be a tax-effective method to save if you are on a high tax bracket, which many Australians are.
Tax deductible personal contributions are also voluntary contributions, which you can contribute utilising after-tax dollars (such as when you move funds from your bank account into your super) and then claim a tax deduction during tax time.
Because personal contributions to your super fund (which you claim a tax deduction on) will just be taxed at 15%, this produces broadly the same tax benefit as a salary sacrifice plan. This is a fantastic option if your employer doesn’t provide any salary sacrifice, or if you get some money that you’d otherwise pay tax on at your full income tax rate.
Personal Contributions (and Co-contributions)
You can make voluntary contributions to your super using after-tax dollars that you do not claim a tax deduction on.
For instance, if your overall income is less than or equal to $37,697 and you make individual after-tax contributions of $1,000 (supplied you satisfy other eligibility requirements), you might receive from the government a maximum co-contribution of $500 too.
Your maximum entitlement will lower as your earnings increases. Keep in mind that these figures are indexed each year and might alter in the future.
Also, did you know about the spouse contributions tax offset? You can make after-tax contributions to your partner’s super account and declare an 18% tax offset if you satisfy eligibility requirements. Generally, to be eligible for the maximum tax offset (around $540), you need to contribute a minimum of $3,000 and your partner’s yearly income needs to be less than or equal to $37,000.
You may still be qualified for a partial tax offset if their earnings is above $37,000. Once their income reaches $40,000, you’ll no longer be qualified, nevertheless, you can still make contributions for them.
To be qualified to make a spouse contribution, the receiving spouse needs to be under 67 years old, or if they’re in between 67 and 74, they must have worked for at least 40 hours within a 30-day period under work test requirements.
Individuals aged 65 and over can now make a voluntary contribution to their super of up to $300,000 using the cash from the sale of their house no matter their work status, superannuation balance, or contributions history. For couples, approximately $600,000 per couple can be contributed towards their super.
When making super contributions, Downsizer contributions are not tax deductible and can be made regardless of super caps and limitations that otherwise apply.
2. Consolidate Your Super Into One Fund
Did you know that half of Australian employees have more than one super fund account? When it comes to super accounts, less is more actually. If you do have super with numerous service providers, there may be benefits to rolling all your accounts into one including paying just one set of fees instead of numerous.
It is a good idea to combine all your balances into one account. You can minimise your account management charges, one fund is much easier to manage, and there are less documents to worry about. It is important to search and select funds which charge low to reasonable fees.
There will be essential things to consider such as:
3. Check If You Have Any Unclaimed Super
One in three Australian employees have unclaimed super! Over $17 billion is sitting in unclaimed super funds. It’s easy to lose track of where your money is sitting, especially if you had chosen the default fund by your employer, or if you’ve ever changed jobs or address. Some of that lost super could be yours.
4. Review Your Super
Your super fund needs to be working hard for you, so it is very important to review it a minimum of once a year. A few of the important things you should check out consist of:
Many Australian employees are free to choose their own super fund, and it’s never too late to switch.
Comparison sites like Finder and SuperRatings can show you how your super fund compares to others. Finding the right super fund and sticking to it can also mean you are minimising account management fees being charged as you move from one job to the next.
5. Understand How Super Works
It may seem obvious, but the first step to rocking your super is to understand it. Here are the important things you must learn about your super:
- Finding out how much fund you have.
- Getting a feel for just how much you’ll require.
- Understanding the kinds of costs related to your account.
- Knowing how and where your money is being invested.
- Monitoring whether you have actually insurance coverages connected.
- Reading the finer details of your account(s).
- Understanding the strategy employed by your super fund.
- Selecting the risk level you’re comfortable with at your current age.
Did you know your balance can vary? Between unpredictable financial investment markets and ongoing fees and charges, your balance might in fact go backwards before it increase again.
6. Find Extra Cash
There might be a great deal of hidden treasures lying around you home that could be converted to money for your super. Look around your house for old furnishings, sporting items, electrical products, and gizmos. Put the profits from your garage sale into your super fund. The contributions will earn compound interest until your retirement.
7. Seek Expert Advice
Many super funds use complimentary or low-priced financial advice as part of its member services. This is a great way to understand how to increase your superannuation balance and the variety of investment choices offered. Contact your fund provider concerning the services available to you.
It’s tough enough simply to plan for next week, let alone retirement. Much of us are not well prepared yet for retirement, or do not understand how we can grow our balances faster. There’s still time. It’s never ever too late to build your super savings and look forward to a comfortable retirement. Start today. Speak to a Super specialist or monetary organizer, ask a great deal of questions, and make certain you fully understand the advantages and their costs before engaging their services.
Need Some Super Advice?
Whether you are interested in growing your super faster, or curious about your super fund’s performance, or wondering if you are on track with your retirement plan, or simply just have some questions, we are here to help.
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