Putting extra super away now will accelerate your nest egg’s growth
YourLifeChoices research indicates that an average couple needs a superannuation balance of at least $160,000 in addition to the Age Pension to afford modest living expenses of $42,000 a year during retirement.
But if your retirement plans include extensive travel, a major home renovation or upgrading your car every few years, then you need considerably more in your super nest egg.
As soon as is practicable while you are still employed, you need to consider ways of super charging your super if you aspire to some of life’s finer things in retirement.
The 9.5 per cent of your wages that an employer contributes to super is probably not going to grow your investment enough to allow you to splash too much cash when you hang up your hat.
But there are other measures you can take to boost your super in a bid to achieve a little more spending capacity later.
Consolidate your funds
If you have more than one superannuation fund and you haven’t considered pooling your savings into one account, what are you waiting for?
To begin with, unless you consolidate, you are wastefully paying twice if not more than you need to in fund fees.
Secondly, one of your funds might be a better long-term performer than the other. This has to be the one exception to the rule of ‘not putting all your eggs in one basket’. Check out how your funds perform and consolidate your savings into the piggy bank that fills up the fastest.
The beauty of putting some of your own dosh into your fund over and above the employer’s super guarantee payment is that this contribution is taxed at just 15 per cent. If you earn more than $37,000, being able to side-step your marginal tax rate by salary sacrificing will save you money.
Plus if you are one of the lucky ones who is a member of a high-performance fund, you will be earning way more interest on your salary-sacrifice payment than you would be if the same figure was in a regular savings account. If you are not sure whether salary sacrificing will benefit you, use the super contributions optimiser on the MoneySmart site.
Keep up the payments and the interest will compound, slowly but surely growing your nest egg faster than if you relied only on your employer’s contribution.
Let’s assume your pre-tax earnings are $90,000. If you do not salary sacrifice, the yearly tax on your wages will be about $24,000, including the tax on your employer’s super contribution. However, if you put $10,000 of your earnings into a fund, your total tax will be less than $22,000 – a compelling saving of $2000. At year’s end, your super balance will grow by $15,700 compared with less than half of that if you chose not to salary sacrifice.
Unfortunately, this before-tax payment, known as a concessional contribution, (your employer’s payment and your own salary sacrificed amount) cannot exceed $25,000 a year.
If you are an employee, you can also make non-concessional contributions from your after-tax wages of up to $100,000 a financial year. No tax deduction is available for this amount. However, if you are self-employed, deductions are available for non-concessional contributions.
And under a Government proposal, from 1 July, 2018 Australians aged 65 or more who wish to downsize may be able to deposit an extra $300,000 into their fund tax-free from the proceeds of the house sale. This amount is in additional to any other contributions.
Share with your spouse
If you are married or in a de facto relationship and your partner earns less than you, at the end of a financial year you can opt to split your super contribution with them. Additionally, if you contribute to your partner’s fund, you may be able to claim a tax offset of up to $540.
Make sure your superannuation fund has your tax file number so that if you are a low-income earner, the Australian Taxation Office can consider whether you are eligible for a government top-up to your super.
A low-income superannuation tax offset of up to $500 will be paid into your fund if you earn $37,000 or less, regardless of whether you salary sacrifice.
If your wage is less than $36,813 and you make after-tax super payments, the Government will deposit 50 cents into your fund for every dollar you contribute. These top-ups are available to those who earn up to $51,813, but reduce on a sliding scale the higher your income.