How To Turbo-Charge Your Superannuation
Whenever I meet a new client and we talk about their future, I often hear the words, “I don’t know much about Super”. For most people, super will be one of your largest assets during retirement, and will be the main source of your income in your golden years!
In today’s post, I thought I’d share some tips on how you can turbo-charge your super to guarantee a secure and great retirement:
1. Don’t just accept the ‘default’ options in your Super
The default option for most super funds is ‘balanced’, not ‘growth’. And unfortunately, most people tend to leave the set-up of their super fund to their payroll department.
But would you let your payroll department decide which house or car you’d drive? Didn’t think so!
Balanced funds usually contain more Cash (instead of Growth investments) and they don’t perform as well as high growth options over the long term. So, if your retirement is more than 10 years away and you’re growth-focused, make sure to seek advice that you have the right investment option for you.
2. Protect your lifestyle now
Look at the smart strategies available for your Life, TPD and Income Protection.
Most super funds offer a small amount of personal insurance which usually decreases as you age. The cost of this insurance can also increase with age, as you’re most likely to claim in your later years. This strategy isn’t ideal as you most likely won’t have much cover when you need it most!
As part of our advice, financial planners will look at whether Stepped or Level premiums are right for you – and it’s important to know the difference!
- With Stepped premiums, your insurance premium increases with age (as the risk of you claiming increases)
- With Level premiums, the cover is ‘locked in’ at your current age, and does not increase due to age.
Level premiums are often favorable for those wanting to hold their insurance over the long term.
Additionally, having adequate insurance cover means you won’t need to use your savings or super in the event of illness or disability – protecting your nest egg and your lifestyle.
Personal insurance strategies are complex – so seek professional advice, because when this is set up correctly for you, it can save you tens of thousands of dollars over your lifetime.
3. Consider salary sacrificing
A popular strategy for boosting retirement savings is a strategy called ‘salary sacrifice’. This allows you to take a cut in take-home pay in exchange for additional pre-tax contributions to your super.
Salary sacrificing provides a double benefit – not only are you adding more money to your retirement nest egg, but these contributions and their earnings are taxed at only 15%.
If you earn between $90,000 and $180,000 per year that money would otherwise be taxed at 39%. By sacrificing $1,000 per month over the course of a year, you’ll be $2,880 better off just from the tax savings alone!
Be aware of the cap: It’s important to remember that if your combined salary sacrifice and superannuation guarantee contributions exceed $25,000 in a given year, the excess will be added to your assessable income and taxed at your marginal tax rate.
4. See if you’re eligible for assistance
Low-income earners can pick up an easy, government-sponsored, 50% return on their investment just by making an after-tax contribution to their super fund. Of course, there are limits but if you contribute $1,000 of your own money, you could receive up to $500 as a co-contribution into your super fund.
5. Making your Super equal
Another strategy couples can take advantage of is called ‘super splitting’. This is where a portion of one partner’s super contributions are sent over to the partner with a lower super balance.
This evens out the balances over time and helps you both to take advantage of the magic of compounding growth- where it takes money and contributions to make money! This is a preferred strategy where one member of a couple is taking time off from paid work to care for family.
6. Listen to Advice
A recent study by Sunsuper & CoreData proved that a couple using a financial planner could be up to $240,000 better off at retirement due to the advice. The problem is that people think that financial advice is expensive, but it’s actually more affordable than what you think, plus it’s an investment in your future that really pays off. Advice relating to your Super can also be paid from your Super fund with little or no out of pocket costs – making it affordable and accessible, and it pays for itself many times over.
By stepping out of your comfort zone and seeking advice that is personalized to you, you can have a massive impact on your retirement nest egg and your quality of life in your later years. All while saving tax in the process and protecting your lifestyle and family.
It’s important to have a good team of people around you, so reach out to a financial planner who you feel comfortable with, to ensure you have the best set up for your finances.
This article was written by Tamara Gillman, a Certified Financial Planner who loves helping people achieve financial independence. Tamara is the Director of True Journey Financial Planning and provides advice on personal insurance, superannuation, budgeting and wealth creation.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice for your situation, prior to acting on this information.