What is Super?

A hero, sure, but what is Superannuation?

If you’re under the age of 50 you probably don’t give super much thought. Retiring doesn’t seem real to you yet. However, superannuation is likely to become your biggest asset one day. It is a good idea to know a little bit about it.

Superannuation is a forced savings plan. It builds over your lifetime to provide money, to you, in your retirement. If you are employed, then your employer will contribute a percentage of your salary to your superannuation, each year, on your behalf.

The best thing about super? It is a tax-effective place to invest, for most people. The maximum rate of tax on money in your super is only 15%, compared to over 30% for tax on your salary normally. Plus, when you use your super for income in retirement, the tax rate is only 0%!

What things you can do to maximise your super?

Track down lost super

If you have had many jobs over the course of your career chances are you had a different super fund with each job. This means multiple fees, insurance policies and more.

You need to locate all your super funds. You can do this by pulling out previous years’ statements or, if you have lost these, you can now link the ATO’s online services to your MyGov account. This will show you details of all your super fund accounts, including those you may have forgotten about. There is a lot of money in lost super. At last count there was over $14 BILLION dollars of lost and unclaimed super money.

Consolidate multiple accounts.

Rolling all of those accounts into one account saves you money in fees, reduce the paperwork and make it easier for you to keep track of your super, your investments and more.

However, before you consolidate you need to think of a few things:

• Are there exit fees? Or entry fees to the new account?

• Are there some good insurance policies you want to keep?

  • If you rollover your money into another fund you will lose all insurance policies.

• Will your employer contribute to your new super fund?

A good financial adviser can help you answer these questions.

Review where your super is invested.

For more information on investments, please go back to the Savings and Investments page.

Investing inside super is almost the same as investing outside of super, except you have limited access to your super while you are of working age. Plus, investing inside of super has better taxation rates of a maximum 15%.

Consider investment timeframe

Growth assets will produce a higher return in the long run than Defensive assets but will come with some short-term market risks. Defensive assets return wealth over a longer period of time.

If you are under the age of 50 you have a good 10-40 years of investing ahead of you. This is not the only factor which influences how you invest, however with such a long investment window you might feel more comfortable taking on more risk as you’d have a better chance to recover if it does not all work out.

Understand the fees you pay.

If you are invested into growth assets your return will fluctuate and will be at the mercy of investment markets. In other words – you have no control over it. But, what you CAN control is how much you pay, in fees, in the amount you invest. This has a HUGE effect on the balance at the end of your investment, when you retire.

Getting money into your superannuation.

There are 2 types of super contribution:

• Concessional Contributions – a tax deduction has been claimed ie employer super guarantee contributions; personal deductible contributions; salary sacrifices contributions.
  LIMIT- $25 000 per person, per annum

• Non-concessional Contributions – made using after-tax money ie from the sale of an investment or inheritance.
  LIMIT- $100 000 per person per annum. OR, you can “bring forward” 3 years’ worth of investing

Getting money out of superannuation

You cannot access your superannuation until you reach your ‘preservation age’ and retire or meet another ‘condition of release’.

Other conditions of release are:

• Reaching the age of 65.

• Permanent or temporary incapacity.

• Sever financial hardship

• Compassionate grounds

• Terminal medical condition

Government Super Contributions

Lower income earners will have less saved for their retirement than those earning higher wages. As such the Government has set up a couple of bonus super contributions to help.

The Low Income Super Tax Offset helps those earning less than $37 000 a year by effectively refunding the contributions tax paid by your employer to super contributions. The maximum for this is up to $500 per annum. It seems small, but this does add up over time.

The government co-contribution is also a bonus payment scheme of up to $500 for non-concessional super contributions up to $1 000, if you earn less than $52 697 per annum.

How much super is enough?

This is a big question to ask, and one only you can truly answer. Over the years the figure of a million dollars will pop its ugly head up. There is really no magic number that you need to have saved by the time you retire. A million might be fine, it might be more than enough.

Your retirement number will depend on many things, including:

• How much income you need to live comfortably.

• Do you own your own home or are you renting?

• How much income will you receive from other sources, such as the Aged Pension?

If you’d like some more help in understanding how much money you may need to retire, visit our calculator pages.