What is superannuation?
Superannuation (or ‘super’) is the preferred investment vehicle in Australia to set money aside while you are working in order to build funds so you’ll have money to live off once you retire. Your employer or you if you’re self- employed, direct a percentage of your salary to your nominated super account. This money is then invested by your super fund manager and those funds earn a return which are taxed at a concessional rate helping you grow your retirement nest egg savings faster.
Superannuation can be a minefield especially as it’s seen as an untapped pot of gold for governments to try and get their hands on in the future. Putting in place an effective strategy which not only helps you maximise your final retirement nest egg but also helps manage possible future risks of the governments getting their hands on it is important.
Apart from the family home, super is usually the second biggest asset most people will have from their personal exertion. So getting this right now will help build the retirement you not only need but want.
How Superannuation Works?
- Generally from the moment you start working and earn in excess of $450, you’ll be putting money aside for your super via your employer’s contributions.
- You can add more money to your super by choosing the option that works best for you like before or after tax contributions. In recent years the government has made changes to superannuation that allow you to place more monies into it that is in excess of the usual annual caps without incurring any penalties. This could be an option for you which could also result in reduced taxes being paid outside of Superannuation.
- When you join a fund, you’ll usual be invested in a default option usually the Balanced option, unless you choose another investment option.
- Your super account can also come with different types of insurance cover that you can access if you’re unable to work due to injury or illness. Cover includes Total & Permanent Disablement, Income Protection and Death.
- Your savings grow because your employer pays a compulsory sum of money into your super account. This sum is called the Superannuation Guarantee and currently stands at 9.5% of your before tax income with increases due to commence from 1 July 2021 if passed by Parliament.
- Depending on your age, as you get closer to retirement you can transition from your superannuation into a choice of Transition to retirement (TTR) Income stream which would pay you a regular income as you move towards your ultimate retirement. Other Strategies could also be put in place to boost your retirement funds while this transition is in place such as salary sacrifice for one example which could save you on taxes.
Superannuation if done effectively could potentially leave you thousands of dollars better off. As a financial planner navigating through the legislation and all the traps that could result such as breaching the caps becomes extremely important.
One mistake could cost you!
Why not make an appointment today to discuss it further with our financial planner?