The pandemic has negatively impacted many of Australian’s super balances. However, there are strategies you can put in place to get your super back on track.
According to APRA, over 3 million Australians took advantage of the COVID-19 early release of super program. The average withdrawal being almost $8,000 and 25% of withdrawals resulting in super balances of less than $1,000.
The risk of the early release of super scheme is that many are failing to recontribute the withdrawn amounts back into their super accounts. The super withdrawals have left massive holes in many Australians future retirement savings.
It is time to inspect your super balance and put in place strategies to get your super back on track. Even if you didn’t withdraw super, job losses, reduced working hours and stock market downturns, have all had a hand in contributing negatively to your super savings.
To help you get back on track, we’ve put together a list of strategies to help boost your super savings, so you can reach your retirement savings goal.
Put aside extra money into super
By examining your budget and spending habits, this will allow you to find additional cash within your budget and boost your super savings.
Saving is much easier if you commit to putting the money aside at the start of your pay period. And spending what is left, rather than trying to limit your spending and saving the amount left over.
You don’t need to make your personal contributions as a single lump sum – you can make payments throughout the financial year. Your super fund will instruct you how to make personal contributions. Most funds offer you several options including BPAY®, direct debit or directly through your bank account.
You may also be eligible for a super co-contribution from the government. If you’re a low or middle-income earner and make personal (after-tax) contributions to your super fund, the government may also contribute (called a co-contribution) up to a maximum amount of $500. Check out the ATO to find out if you meet the criteria for super co-contribution.
Salary sacrificing is way to boost your super, by 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 current before-tax (concessional) contribution cap is $27,500. 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).
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 it’s a great tool to show you how small contribution can make a big difference to your super balance.
Make extra super contributions after tax
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.
Make the most of windfall
If you’re lucky to come into some extra money from an inheritance, or a lump sump from tax refund or sale of car, it would be beneficial to you by putting some of it towards your super balance.
Make sure you are aware of contributions cap before making any lump sums to your super.
Spouse super contributions
If your spouse is a low-income earner or has taken some time off work due to raising family or they have been impacted by covid-19, making an after-tax contribution to their super account we’ll help boost their super balance.
Spouse contributions allow you to make an after-tax – or non-concessional – contribution from your own money to your spouse’s super account.
To be eligible, your spouse must be aged under 67, or meet the work test or work test exemption if they are aged 67 to 74. You must also both be Australian citizens and living together – find out more by visiting the ATO to check your eligibility.
Another way to help boost your partner’s super balance is through transferring up to 85% of your own concessional – or before-tax – super contributions you’ve made to your fund, to your partner’s super account – a strategy known as contribution splitting.
Unlike spouse contributions which involve the payment of your own funds directly to your spouse’s super account, contribution splitting involves the transfer of a portion of the contributions made to your super account to your spouse’s super account.
Contributions that can be split generally include your employer’s Superannuation Guarantee contributions, salary sacrifice contributions and personal after-tax contributions for which you’ve claimed a tax deduction. The contributions need to have been made or received in the previous financial year.
Note that you cannot boost your spouse’s super by splitting any of your after-tax super contributions, other than those for which you’ve claimed a tax deduction.
Contact your super fund to ensure they offer contributions splitting and check out the ATO website.
Review your super fund
Another way to help improve your super balance is to review your current fund by conducting a super health check and review your strategy to ensure that its working for you. Compare your super fund and check whether you’re on track to having enough super to retire on.
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.
Get financial advice
Setting yourself up with a financial plan will ensure you have the money in retirement to last the distance. This is when you may need some professional advice from a financial adviser and put a financial plan in place.
Talk to a financial adviser and they can review your super balance and put in place strategies to ensure you can reach your retirement goals.
It’s important before making any decisions about your super, that you understand what’s best for you. This will depend entirely on your income and personal circumstances.