Planning for your super the smart way

Planning for your super the smart way

No one likes to think of getting older, but in the case of your super, it pays to plan things out, ensuring you get the best super you can for your retirement.

At one point in time in the future, you’re going to retire. It’ll happen, and hopefully you’ll be prepared for it, ready to enjoy some years without having to make your way to a job for some much needed income.

That’s where superannuation comes in, because a super fund grows in the background and gives you a nest egg to retire on. However, not every super fund is created equal, and there are things we can do to help maximise the potential of our superannuation accounts.

To start making the most out of your super, you need to first look at your super accounts, understanding why you have it and the goal you need for it.

What is the point of having super

Your superannuation is a portion of your money set aside not so much for a rainy day, but rather when you’re older. You don’t want to think about it – trust us, we’re the same – but that day is coming, and the older you are, the faster it will arrive.

Superannuation is money set aside for retirement, for when you’re too old to work and just want to enjoy yourself. It grows based on the amount you accumulate and interest you earn, and while employers are required to add to it as part of your salary, you can add your own money to help it along.

Eventually when you hit a “preservation age” and are within a condition of release, you can access your superannuation and use it. Most conditions associated with accessing superannuation are based on age and employment status, as superannuation is typically paid out to people who are leaving the workforce.

Set a goal

You probably won’t be thinking of leaving the workforce for quite some time, and that’s fine, but you should know how much money you want to leave with. Really, it’s about how comfortable you think you’ll need to be.

Superannuation helps ensure that when you’re older, you’ll have money if you decide to stop working in retirement, or even if you decide to continue (at age 65 and over, you can access your super even if you haven’t retired).

Money is important, and so is working out how much you’ll need, though this can be impossible to work out exactly.

However, what you can do is calculate what you think you could live on comfortably, and set a goal accordingly. 

ASIC’s Superannuation Calculator is one tool that can help, providing a glimpse into how much money your current pay-packet and super balance will amount to, and giving you a firm understanding of how much money you’d have when you eventually cash out.

After a few simple calculations by the superannuation calculator, you should have an idea of what you’ll get if you continue at your current rate, and that might prompt you to set a goal and change some of what you see. As such, you can compare what this result shows against funds that offer more growth and with potentially lower fees, while finding out what a result would look like if you contributed to your fund outside of your day job.

Your contributions are an important factor, and can help improve the amount in your super fund significantly, growing the balance with your own additions. It might seem like that money is just preventing you from buying something new and fancy now, but imagine what it could do later on if it grows substantially into a more impressive retirement fund.

Compare super funds

Once you have a goal in mind and have decided that it’s possible to get to that goal, it’s time to really put your money where you mouth is and compare funds.

Superannuation funds aren’t going to be the same across various companies, and even they probably won’t be the same across various products in the same company. Some super funds may end up giving you a better result than others, and so it’s worth looking into what super funds typically return.

Much like a term investment fund, the more money you have to play with and the better the performance of the fund, the better the result, so it’s worth checking out the options to see how your money can work for you.

It’s not just a matter of performance, either. Super funds will generally take fees out of your account for the cost of managing it, including membership fees, administration fees, adviser fees, performance fees, insurance fees, and various other fees that a super fund can charge to your fund. Unsurprisingly, these fees can add up, so it’s worth comparing funds to see if your super is getting the best deal possible.

Comparing super funds at least gives some of the power back to you, putting your retirement fund in your hands and affording you more control to what you can get out of your finances.

To start improving your eventual retirement fund, compare finances and work out which fund is right for you.

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Learn more about superannuation

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

How many superannuation funds are there?

There are more than 200 different superannuation funds.

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

What is MySuper?

MySuper accounts are basic, low-fee accounts. If you don’t nominate a superannuation fund, your employer must choose one for you that offers a MySuper account.

MySuper accounts offer two investment options:

  1. Single diversified investment strategy

Your fund assigns you a risk strategy and investment profile, which remain unchanged throughout your working life.

  1. Lifecycle investment strategy

Your fund assigns you an investment strategy based on your age, and then changes it as you get older. Younger workers are given strategies that emphasise growth assets

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

How can I withdraw my superannuation?

There are three different ways you can withdraw your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension (also known as an income stream):

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

How do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or wages.) So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, it is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

When is superannuation payable?

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.