Fri 09 Mar, 2018
Tips On Increasing Your Super Balance For Retirement
Despite the fact that mandatory employer contributions have been in effect in Australia for over 25 years, there are still grave concerns as to whether our super fund balance will actually live as long as we will. The earlier you start contributing extra to your superfund, the better the outlook for your retirement pot. Not only will you have longer to contribute, you’ll enjoy more tax benefits and more compound interest accumulations.
Contribute to your spouse’s fund
If your spouse earns less than you, you can offset some tax by contributing some of your salary into their fund. There’s a $540 annual tax offset up for grabs for those who contribute to their partner’s fund, providing they earn below $40,000 – which has risen from $13,800 as of July 2017.
Draw superfunds together
Depending on your age, you may have forgotten super accounts from your first jobs – probably in the days before you realised what super was really for. By drawing your accounts together, you can recover lost super payments, and reduce the amount of fees you’re paying. You’ll also combine your funds into a bigger pool, giving you access to potentially higher yielding investments.
After-tax salary contribution
Once your salary has been taxed and it’s yours, you’re free to contribute as much or a little as you wish. While in theory your contributions are tax free, you’ll have paid tax on them at your usual rate. You may choose to sacrifice small amounts each week, or contribute in lump sums – perhaps from a bonus, holiday leave payouts or gifts.
In some instances, you can ask your employer to contribute extra payments from your pre-tax salary to your super, which allows you to reduce your taxable income at the same time. Your contributions are then taxed at 15%, rather than your usual income tax rate of up to 47%.
Squirrel Says: Contributing an extra $10 a week into your fund for 30 years at a 5% interest rate will grow your fund by $34,548 overall. $15,600 of that are contributions, while the remaining $18,948 is interest – yep, that’s more than double what you put in.
Let’s think about that $10 a week. What would you have to give up to afford that? Two coffees? A beer? One lunch? Small sacrifices add up to big differences where your superfund is concerned. To calculate the benefit of your salary sacrifice contributions, use the the ASIC Money Smart Compound Interest Calculator. You’ll soon see things through financially-savvy eyes.
Depending on your income, you may be eligible for government co-contributions. Essentially, it’s free money from the government when you contribute your post-tax income to your superfund. Winner!
If your income falls below the lowest threshold set by the ATO each year, you may be eligible for a government co-contribution of up to $1000, providing you contribute the same amount yourself. As your income rises, providing it’s below the upper threshold set by the ATO, your co-contribution will proportionally reduce, but there’s still free money up for grabs. Check your salary against the ATO’s thresholds before committing – they change each year.
Remember, contributions to your superfund are final – it’s not like a savings account that you can access on a rainy day (or when you really need a holiday). Be careful with your contributions and be sure you can afford your lifestyle with what you’ve left yourself. It could be 50 or even 60 years before you get to enjoy your cash!
Beware: contribution caps
There are limits to how much you can contribute to your superfund per year. These limits vary by ATO policies, and also depend on your age, income and amount of concessional and non-concessional contributions each year.
Change superfunds or commence an SMSF
The only way to guarantee growth of your superfund is to make additional contributions, but if you’re looking for more, you can choose to opt for more high-risk investments. Whether that involves changing superfunds, reconfiguring your existing investment spread or managing your fund yourself, getting more involved in where your super is invested can boost your chances of increased savings. A common mistake Australians make is ignoring their superfunds until retirement comes a’knocking. The younger you are when you start focusing on your super, the better chance you have of a financially comfortable retirement.
Commencing a self-managed superfund gives you full control over where your fund is invested. Play your cards right, and you could generate better returns than if your fund was managed by a retail or industry provider.
Squirrel Super is transforming the SMSF landscape, and making self-managed investments accessible to more Australians than ever. We don’t believe you need to earn a six figure salary – or pay the fees to match – to manage your own fund successfully. Our expert teams are here to support your transition to a self-managed superfund owner, whether you’re going solo or combining your funds with up to four other members.