For most people, superannuation is something they’re happy to have but don’t give a lot of thought to.
Yet as Australians live longer – retired men are expected to live to 86 and women to 90 – we may be running the risk of outliving our superannuation.
“If you retire at the traditional age of 65, you have at least another 20 years to fund,” says Michael Nowak, adviser & partner at Joe Nowak Financial Services Group and national president of the Association of Financial Advisers. “It’s important to take steps to ensure you will have enough funds to last you through retirement.”
Thankfully, it’s never too late to take charge of your super. Here are some practical tips to ensure you retire with the maximum possible retirement fund.
Take an interest in your super
“From your first job you must own your super to maximise your long-term retirement outcome,” Nowak says. “Take an interest in your super and watch it grow. It’s unlikely you’ll take any steps to maximise your super until you’ve taken an interest in where the money goes and how it can grow.”
Look into the benefits of your current superannuation fund and investigate alternative options if it’s not likely to deliver the best result come retirement time. Competition in the super industry is delivering innovations, such as ING Direct’s relatively new Living Super product – the first balanced option available to Australians with no administration or management fees.
Consolidate into one super account
Unless you’re just entering the workforce, you’ve likely had more than one job and, in most cases, that means more than one superannuation account. Consolidating multiple accounts into a single fund will boost your overall balance and save you a ton on fees – not to mention make it easier to manage.
“You may be surprised and even inspired by the amount of super you actually have when you put it all together. My first port of call to find my funds would be the ATO’s SuperSeeker or seek advice,” Nowak says.
Don’t ignore the tax benefits
“One of the most attractive features of super is the tax benefits,” Nowak adds. “In the accumulation phase, your concessional contributions [the 9.25 percent salary contribution by employers and salary sacrifice] and investment earnings are taxed at 15 percent rather than your marginal tax rate (up to 46.5 percent). It gets even more attractive in the pension phase if you are over 60, with your earnings and withdrawals being tax free. Seriously, you don’t get much better than that.”
Make extra contributions
Superannuation Guarantee Contributions are currently 9.25 percent and increasing to 12 percent by 2015, but you can boost your final retirement fund by making additional contributions. “There are advantages, such as the contribution tax concessions already mentioned, plus the power of compound interest cannot be underestimated over time,” Nowak says.
To demonstrate the benefit of extra contributions, Nowak cites the following example: a 40-year-old on an $80,000 salary with a current super balance of $100,000 will retire at 65 with a projected balance of $1.075 million. If that person adds a salary sacrifice of $2,500 per year into their super, they will retire at 65 with $1.215 million – a difference of $140,000. The reduction in their annual salary due to the $2,500 salary sacrifice contribution would be a modest $1,650.
At the moment, so-called non-concessional (after-tax) contributions are capped at $150,000 per year (or a $450,000 lump sum over three years). Concessional contributions are capped at a yearly sum of $25,000 for those under 60, and $35,000 for those over 60.