Superannuation is important because it may be your only means of financial support in retirement.
Unfortunately most people have a huge shortfall in their retirement savings. The average Australian's superannuation balance at retirement is just $197,000 for men and $105,000 for women*, which is not much considering a comfortable retirement can cost up to $42,569 pa for a single person and $58,444 pa for a couple#.
Your employer's compulsory 9.5% Superannuation Guarantee (SG) contributions are unlikely to give you a comfortable retirement, but if you start contributing to your super now you can make more of your retirement later.
Super tax advantages
Superannuation is one of the most tax-effective ways to save for your future. Your contributions are taxed at up to 15% (up to 30% if you’re a very high income earner), which is much lower than most marginal tax rates. There are also further tax concessions on the fund earnings, and if your super is taken as a lump sum or converted to a retirement income stream.
Because of the concessional tax treatment enjoyed by super, there are limits on how much you can contribute each year and the rules can be complicated. It’s important to seek the right advice to ensure that you’re making the most of your allowable limits. And don’t leave it too late to start contributing, as contribution limits mean that you can no longer play ‘catch up’ when you get close to retiring.
If you earn less than $50,454, you may be eligible to receive a co-contribution from the Government. For every dollar contributed to super, the Government will match it with a co-contribution of $0.50, up to a maximum of $500. The co-contribution reduces by 3.33 cents for every dollar of income over $35,454 per year and phases out completely at $50,454 per year.
Salary sacrifice isn't really a sacrifice at all
If your employer permits it, a salary sacrifice strategy allows you to 'sacrifice' some of your salary to your super. The benefits of this are twofold:
Firstly, your salary reduces by the amount you contribute to super, so you could end up paying less tax or even drop down a tax bracket.
Secondly, super contributions are taxed concessionally at up to just 15% compared to your marginal rate, so you end up paying less in tax - twice!
Access your super while you are still working
As long as you have reached your 'preservation age', a transition-to-retirement pension allows you to access your super while you are still working and can be used in one of two ways: either to give your super one last blast before you retire or to help you ease into retirement sooner. For more information on transitioning to retirement, view the transition to retirement online video.
Contribute on behalf of your spouse
If you have a non-working or low income earning spouse, you could contribute to super on their behalf and receive a generous tax rebate.
Getting the right advice
Superannuation is complicated and it’s important that you see a financial planner who can help you identify appropriate super strategies and take control of your investments. Visit the Bridges website to find out more about Bridges and the vast range of services available, or call Silvana on 8212 6166.
How we can help you
Bridges Financial Services Pty Limited (Bridges) ABN 60 003 474 977, ASX participant, AFSL No 240837. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring members to Bridges, Credit Union SA does not accept liability or responsibility of any act or omission or advice provided by Bridges or its authorised representatives. Bridges is part of the IOOF group.
* ASFA Research and Resource Centre - March 2014 # ASFA Retirement Standard - March Quarter 2015