Do you really know how much you will need for retirement? No one wants to fall short, so start looking at ways to build up your superannuation.
Seek advice about superannuation strategies you can implement now to increase your retirement income and minimise tax. As you approach retirement, it is absolutely essential to seek professional advice to ensure you can achieve the lifestyle you want. Putting strategies in place now can make a world of difference during retirement.
Some strategies could include:
- Splitting super contributions with your spouse in the lead up to retirement
- Accessing part of your super pre-retirement
- Salary sacrificing into your super fund
- Making deductible contributions into your super fund
Your superannuation fund is a pool of money which, if invested wisely could allow you a financially independent retirement. If you are a wage earner, a percentage of your pre-tax salary is automatically paid by your employer (known as superannuation guarantee) and placed in your superannuation fund to accumulate for your retirement. It is estimated however, that this contribution alone will not be enough for many Australians to maintain their lifestyle throughout retirement. One of the main reasons for this is that we are living longer, and are now living up to 1/3 of our lives in retirement. Your money in superannuation is not accessible until you meet a “condition of release”. This normally occurs when you retire from the workforce after reaching your preservation age (currently 55), stop working after age 60 or reach age 65.
To provide for a financially comfortable retirement, you are able to increase the savings in your superannuation fund via a number of different ways:
- Salary sacrifice (before-tax) contributions
- After-tax contributions
- Government Co-contribution
- Transition to retirement account based allocated pension
Salary sacrificing into superannuation means forgoing part of your ‘cash’ salary and instead having your employer make additional superannuation contributions. The major benefit of making these additional contributions is that they are paid directly from your pre-tax salary and are not subject to income tax, which could be as high as 46.5% (depending on your finances). These contributions are instead subject to contributions tax of up to just 15% and can generally be withdrawn in retirement, tax free, after age 60. Salary sacrificing can therefore be extremely tax effective. There are various limitations to salary sacrificing that relate to your age, the hours you work and the amount you earn, so speak with your Count Adviser about how you can make the most out of salary sacrificing.
After-tax contributions (also known as non-concessional contributions) are contributions you make to your superannuation fund from your after-tax money. This for example, could include funds you receive from an inheritance, the sale of an asset or a gift. Before you make plans to contribute after-tax monies into your superannuation fund, speak with your Count Adviser as there are certain age limits and dollar amount limits in making after-tax contributions.
As an added incentive, if you make after-tax contributions into super you may be eligible for a Government Co-contribution. The Government Co-contribution is a system where the government will make payments to your superannuation fund when you make after-tax contributions. The more you earn however, the less the government will contribute and once you earn over a certain amount, you will be ineligible. Speak with your Count Adviser to see if you could benefit from this strategy.
Transition to retirement account based allocated pension
Following improvements to the super system, it is now possible for those who have reached preservation age (generally 55) to keep working and also access their super early, via a pension. In other words, they can use a portion of their super money and convert it into a Transition to Retirement Account Based Pension (TRP) – an income stream that will provide them with regular, flexible income payments. A TRP is ‘non-commutable,’ meaning that it cannot be accessed as a lump sum amount. Accessing your super early can make the transition to retirement easier as it provides additional income if you decide to cut back your working hours as you get older. It is also flexible as you can still make additional contributions to your super while you work. A Transition to Retirement Account Based Pension can be an ideal way to re-structure your life and boost your retirement investment at the same time
Why invest additional money into your superannuation rather than investing it elsewhere?
One of the main benefits of investing in superannuation rather than investing your money elsewhere is the tax benefits that you can gain. All income earned on monies invested within your superannuation fund is taxed at a maximum of 15% which can be a lot lower than your marginal tax rate that applies to income on your non-super investments. In addition, if you commence a pension through your superannuation when you retire, income earned on the assets supporting this pension will not be taxed at all.
To ensure that your superannuation investment tailored specifically for your needs and is as tax-effective as possible, speak with your Count Adviser.