Superannuation
What is superannuation?
Superannuation is basically an investment strategy for your future; a deferred savings plan which allows you to accumulate funds for your retirement years. Because these savings are specifically for your retirement, there are restictions on when you can access your money and how much you can contribute each year at the concessional tax rate. Your ‘preservation age’ determines when you can access your money, even if you have not retired. It is based on your date of birth and ranges between 55 and 60.
Why is super so good?
Anyone under the age of 65 can contribute to super. You also benefit from the magic of compounding interest, that is, interest on your interest, which together with the lower rate of tax helps your balance grow even faster. You can continue to make contributions if you are between 65 and 74, just as long as you meet certain criteria.
And when it comes time to retire, once you turn 60 you will be able to access all your super benefits tax-free regardless of whether you take your money in the form of a pension or a lump sum payment. However, if you need to access your super before you reach age 60, some tax will be payable.
Your superannuation is likely to be one of your biggest assets and will be an important source of income for you after you stop working. Careful planning now can help you maximise your benefits later.
When you finish work there is no longer an employer paying your wages. Instead you will need to pay yourself, most likely using your superannuation savings. The nine per cent Superannuation Guarantee alone might not be enough for the retirement lifestyle you desire, but how much is enough?
Some say up to 60% of your pre-retirement salary, which may sound a little scary, but achievable if you have the right plan in place. A Bridges financial planner can help you determine your goals and objectives and recommend strategies to help you achieve them.
A well planned superannuation strategy
One of the first steps to planning your super strategy is to set yourself some goals. What sort of lifestyle do you envisage in retirement? Everybody’s picture is different and sure, as your priorities in life change so will your goals, but having a plan in place can help you make the most of every opportunity as it arises. Rather than procrastinating, having a plan in place will give you peace of mind and a greater sense of security about your future.
So, how do you contribute to super?
Super contributions are classified as either concessional contributions which are made from pre-tax money or non-concessional contributions which are made from after tax money. There are different ways for you to make both these types of contributions.
Concessional contributions:
Superannuation Guarantee (SG) contributions are made by your employer on your behalf and are usually equal to 9% of your salary.
Salary Sacrifice contributions are made from your pre-tax salary whereby you choose to ‘sacrifice’ a portion of your salary to your super fund. As these contributions are made from your pre-tax salary they are only subject to the concesssional tax rate. Not only that, but your taxable income is also reduced, so depending on how much you choose to sacrifice and what your salary is, you may even drop down a tax bracket.
If you are self-employed, you can make personal deductible contributions up to the concessional contribution limit and claim a full tax deduction for the amount of your contribution.
Non-concessional contributions:
Personal contributions are made with your after tax money so are not subject to contributions tax upon entry into your super fund. If you are self-employed, you can claim a tax deduction for these contributions.
The Super Co-contribution is a helping hand from the Government. If you are eligible and make a personal contribution, for every dollar you contribute the Government will match it with a Super Co-contribution of $1.50, up to certain limits.
Spouse contributions
If you have a low income earning or non working spouse you can make a super contribution on their behalf and qualify for an 18% tax offset.
How much can you contribute?
As a result of the generous tax concessions super receives, the amount you can contribute each year is limited.
If you are under age 50, concessional contributions are limited to $50,000 per person per year. If you are aged 50 or over, or from the year you turn 50, transitional measures allow you to contribute double that amount, up to $100,000 per person per year, but only until 30 June 2012.
Non-concessional contributions are limited to $150,000 per person per year. However, if you want to make a larger one-off contribution, you can bring forward two years worth of contribution limits to be able to contribute up to $450,000 in one year.
So why not make the most of the limits that apply to you. Ask your Bridges financial planner about strategies that could work for you
Consolidating your super
How many super funds do you have? Consolidate and reap the benefits.
If you have had more than one job, chances are you have more than one super fund. Having more than one fund means you will be paying fees and charges for each of those funds. By consolidating your super funds, you pay one set of fees and charges and reap the benefits of one larger account balance working harder for you.
Then you need to make sure you contribute as much as you can whenever you can. Your priorities will change throughout life and super may not always be top of the list, but remember that a little bit along the way can make a huge difference later.
Another thing to consider is how your money is invested. It needs to be in line with your own personal circumstances. The longer the time frame, the more riskier investments you may be willing to consider.
Too many people fall into the trap of having their super in conservative style investments, such as cash. Although the risk is reduced there may not be the opportunity for higher returns which can mean earnings fail to exceed inflation which could reduce the money available for retirement. Although investing in growth assets, such as shares and property has higher levels of associated risk there is the potential for stronger returns over the longer term.
Seeking professional advice to help you make the most of your super is an important investment in your future. Bridges can help you define your goals and develop a strategy to help you achieve your objectives.
Call Bridges today to arrange an appointment with a Bridges financial planner on 1800 645 303.
