Many of us turn a blind eye to our super, until its too late. By starting now and making some small changes to how you approach your super savings, you can get closer to the retirement you’ve dreamed of – and hopefully make your savings last longer.
According to March 2021 figures from the Association of Superannuation Funds of Australia (ASFA), individuals and couples, around age 65, who are looking to retire today would need an annual budget of $44,412 and $62,828 respectively to fund a comfortable lifestyle. Or $28,254 and $40,829 respectively to live a modest lifestyle, which is considered better than living on the Age Pension.
To help boost your retirement savings, we’ve put together 6 strategies to help grow your super balance.
Tax deductible contributions
Tax deductible contributions are voluntary contributions you may choose to make on top of what your employer might pay you under the super guarantee, if you’re eligible.
You make these contributions using after-tax dollars (such as when you transfer funds from your bank account into your super) and then claim a tax deduction for them when you’re doing your tax return.
Putting money into super and claiming it as a tax deduction may be of benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this may often be higher).
Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction. This could help reduce or even eliminate the capital gains tax that is owing altogether.
Co-contributions from government
If you’re a low to middle-income earner and have made an after-tax contribution to your super fund, which you don’t claim a tax deduction for, you might be eligible for a government co-contribution of up to $500.
If your total income is between $39,837 and $54,837 in the 2020/21 financial year, your maximum entitlement will reduce progressively as your income rises.
If your income is equal to or greater than the higher income threshold $54,837 in the 2020/21 financial year, you will not receive any co-contribution.
If your spouse contributes into your super, it counts towards your non-concessional contributions cap – not your spouse’s contributions cap. For this financial year, the concessional contributions cap is $25,000 for all individuals regardless of age. Next financial year, there is an increase from 1 July 2021 to $27,500.
Important things to consider:
- To receive a spouse contribution in 2021/22, your spouse’s total super balance must have been under $1.7 million on 30 June 2021. They must also be eligible to receive spouse contributions.
- Your spouse must be eligible to have the contribution made to superannuation which may include age and work test requirements – see the ATO website for more information.
- Another way to boost your spouse’s super is through contribution splitting.
- You can’t access your super until you meet a condition of release such as reaching your preservation age and retiring.
Other eligibility conditions apply – see the ATO website for more information.
Salary sacrifice contributions
Salary sacrificing is adding before income-tax straight into your super fund by your employer, on top of what they might pay you under the super guaranteed. This involves you foregoing some of your salary now, to make the additional contributions to your super fund.
As salary sacrifice contributions are a form of ‘before-tax’ or ‘concessional’ contributions, they’re taxed at 15% rather than your normal marginal income tax rate (can be up to 47%). Therefore, depending on your circumstances, this strategy could reduce the tax you pay on your salary, wages, or bonus by up to 32%.
Additionally, earnings are taxed at a maximum of 15%, rather than capital gains tax rates. This means due to paying less overall tax you have more overall wealth and more invested in a tax effective environment for the future
Important things to consider:
- The before-tax (concessional) contribution cap for the 2020-21 financial year is $25,000. If you go over this limit, any excess contributions will be taxed at your marginal tax rate (which is generally higher than the 15% tax rate on before-tax contributions) and you may have to pay an excess concessional contributions charge.
- Be mindful that if you have more than one super fund, all before-tax contributions made to all your funds are added together and counted towards the collective cap.
- Remember to consider any bonuses and pay rises, as these may result in your employer making higher than expected before-tax contributions into your super account resulting in a breach of the contribution cap limit.
- You can’t access super until you meet certain conditions.
Check out moneysmart super contributions optimizer its a great tool to show you how small contribution can make a big difference to your super balance.
Downsizing in retirement
If you’re already over 65 years old or older and you want to boost your super, downsizing contribution might be for you. If you meet the downsizer contributions eligibility requirements, you may be able to make a downsizer contribution into your superannuation up to $300,000, from the proceeds of your home. You must make your downsizer contribution within 90 days of receiving the proceeds of the sale, which is usually the settlement date. We recommend reading ATO’s Downsizing contributions into super for further information.
Voluntary after tax contributions
A voluntary after-tax contribution is money you can choose to pay into your super fund form your after-tax income or savings. You can make voluntary after-tax contributions to your superannuation throughout the financial year – as a regular transfer or a one-off payment.
Making after-tax super contributions will boost your super, by even contributing a small amount each week or month it will make a big difference in retirement. For example – if you were to contribute an extra $20 per week for 30 years, you could potentially add an extra $85,000 – with only around $30,00 which came directly from your pocket.
Consolidating your super
Another way to boost your super is consolidating your super. Like many Australians who have changed jobs, moved addresses over the years, you might have several super funds.
If so, you may be paying multiple sets of fees for different super accounts. We recommend searching for your lost super. The ATO may have some of your unclaimed super on your behalf, find out more how to find your lost or unclaimed super.
There may be advantages to rolling multiple super accounts into one, but there are things to consider.
- One set of fees
- Less paperwork and admin
- It may be easier to manage an investment strategy that meets your specific needs.
- Some funds may charge exit or withdrawal fees
- There could be tax implications
You may lose some features and benefits you currently have, such as insurance cover.
Review your investment options
Most super funds allow you to choose from range of investment options and asset classes, and choosing which is appropriate comes down to the individual choice, risk and time available to invest.
If you’re young, you have more time to ride the ups and downs of the market and therefore you are more willing to take more risk with your investments. Although if your get older and you’re reaching your retirement years, you may wish to put your risk at the lowest conservative level to ensure your money is save from market crashes.
Seek professional advice
The super system is very complex and is subject to change, and everyone’s financial situation is different. Before making any changes ensure to speak to a professional financial advisor who can help tailor a retirement plan to boost your super and ensure you have the money you need when the time comes.
Whatever your goals and future plans may be, it’s important to remember that even a little bit of planning today could go a long way tomorrow.
The sooner you start retirement planning, the more likely you are to achieve your perfect retirement. Get in touch with Oracle to help you plan your retirement today!