Why would you put your money into growing your superannuation while you are still young? Consider this:
- You might live to 100 (or older) so your money will need to last that long
- The cost of living will continue to rise over time; it’s a given
- The aged pension (if it even exists by the time you retire) will not be enough to ensure that you lead a comfortable lifestyle
- Tax benefits of contributing to your superannuation can make it a great way to invest for the future
- You could even be eligible for bonus contributions if you start today
But before you start funneling every spare dollar into your super fund you need to consider your finances and your financial goals as a whole. And then you need to consider that type of superannuation fund that will best suit you.
“Will your superannuation be enough to finance the lifestyle you have planned for your retirement? ”
Currently your employer, regardless of your age, contributes a minimum of 9.5% of your salary into your superannuation but often that may not be enough to finance the lifestyle you have planned for your retirement. We feel it is important for people of all ages to start pitching extra into their super accounts and with this is mind there are steps you can take today to increase your super:
Salary sacrifice
You and your employer can agree to contribute an additional portion of your salary to superannuation. If you earn more than $37,000 per year this can be a tax-effective strategy with the right guidance from an accountant.
After-tax contributions
You have the option of simply depositing additional money into your superannuation account. This option is called after-tax super contributions since they occur after your income has already been taxed.
Low income contributions
If your income is less than $37,000 per year you are eligible for a low income super contribution from the government up to the amount of $500. This payment is applicable regardless of whether or not you put extra money into your superannuation account. If you meet the criteria than the ATO should automatically make these payments but it’s definitely worth keeping to make sure you are receiving them.
Government co-contributions
If you opt to make after-tax superannuation contributions and you earn a before-tax income of less than $50,454 a year, you are eligible to receive matching contributions from the government. If you earn less than $35,454 per year the government will contribute 50c for every $1 that you contribute, up to $500 per year. The amount of the government co-contribution reduces as your earnings increase towards the limit.
Self-employed contributions
Currently it is not mandatory for the self-employed to contribute to their own superannuation but if you don’t then you may have nothing when it comes time to retire. If you are self-employed super contributions can be claimed as a tax deduction up to a pre-set limit.
Self managed super fund
You can also maximise your superannuation earnings by setting up a Self-managed Superannuation Fund (SMSF). An SMSF is a trust structure that can be used to manage retirement savings on behalf of its members. SMSFs are established for the sole purpose of providing financial benefits to its members in retirement, the benefits can also be passed to beneficiaries upon death.
According to the Australian Taxation Office’s Self-managed super fund statistical report released in June 2015, there are now over 500,000 SMSFs in existence and with the benefits experienced you can understand why more and more people are considering them as a way to build their superannuation.
Visibility and control
For most Australians, superannuation is their second largest asset behind the family home – so naturally they want to understand it, control it and have greater visibility of their retirement savings. With an SMSF, you can decide how you would like to invest your retirement savings, and you can see how your super is tracking.
Combine family assets
Self Managed Super Funds (SMSF) can be a great way to combine your super assets with a partner or extended family. With an SMSF, you can have up to four members so you are able to consolidate multiple super accounts to create a larger balance – and because it’s consolidated into one SMSF you only pay one set of fees.
Choice of investment
SMSFs offer a wider range of investment options than traditional retail or industry super funds. With an SMSF, you can invest in direct shares, high yielding cash accounts, corporate debt, direct property, unlisted assets and much more.
Tax-efficiency strategies
Depending on your circumstances, one significant benefit of an SMSF is the flexibility the trustees have over the tax position of the fund. Additionally, as trustees move towards the retirement phase, there are a number of financial planning strategies which can be used to help reduce the overall tax burden.
Cost
While SMSFs are not necessarily cheaper to run than public super funds, the real benefit trustees enjoy is greater control of their costs. With an SMSF, you will incur certain fixed costs. You’ll be required to pay for an annual tax return and audit, as well as any ATO fees. With respect to the fixed costs, the larger your SMSF balance grows the more cost effective it becomes. The total cost of running your SMSF will depend on the investments you make within the fund and whether you decide to pay for any professional SMSF services or specialist advice.
Estate planning
SMSFs can allow you to control how your benefits are passed on upon death. With an SMSF, you can build a tailored strategy suited to your family situation and intended beneficiaries. However, because this is an extremely specialised area it is always recommended that you seek personalised, professional advice.
Seek professional advice
Your superannuation planning has a huge impact on your future and retirement, so it’s essential that you seek professional advice from a financial planner, accountant and or solicitor before taking action.