Despite superannuation being a hot topic, it still could be the single most overlooked and misunderstood asset you hold.
If you want to have a fulfilling retirement and a fantastic prime time, super is something you need to understand and get proactive about as early in life as you can. And – because making things about retirement and pre-retirement easier to understand is my gig – today we’re going to unpack the stuff you really should know.
If you feel confused about super, here are three things to wrap your head around.Credit: Simon Letch
1. How to get money into superannuation. It can be tricky to get money into superannuation. But it’s almost always worthwhile doing it.
In the accumulation phase, the most common way we get money into super is through employer contributions. Almost everyone who works in Australia is contributing to their super fund every month at the compulsory rate of 11 per cent. And we pay just 15 per cent tax on these contributions.
Eleven per cent might not seem like much, but it’s a solid amount. The average wage in Australia is now exceeding $95,000, so the average Aussie is contributing over $10,500 per year, many without realising it.
You can add to your 11 per cent, topping up your super with voluntary concessional contributions, of up to $27,500 into superannuation per year, at a cool tax rate of 15 per cent. And, if you don’t use all the cap in a year, you can roll it over for five years.
If you’re not paying attention, I can almost guarantee you won’t be making the most of the opportunities on offer.
The third way to get money into super is through non-concessional contributions, where you can contribute up to $110,000 per year, at your marginal tax rate, up to the $1.9 million cap. And there’s a clever bring forward rule, allowing you to contribute up to $330,000 in one go.
The fourth way is using the downsizer concession. If you are over 55, have owned your home for more than 10 years, and lived in it, you can downsize and slide up to $300,000 to your superannuation, tax-free. Couples can contribute $300,000 per person.
And the fifth is through the small business tax concessions available if you sell an eligible business.
2. How to make your superannuation grow. Once it’s inside your fund, the key is to make your super grow. You’ll be leveraging the remarkable power of compound investing, allowing your money to multiply many times over your lifetime. So, to make sure this happens, you need to be proactive.
The first thing you need to understand is how much risk you’re willing to take. Assess your risk profile, then review your investment mix. When you put money into super, unless you’ve actively changed your settings, it’s invested into a default fund. If you want to redirect the investments to a higher level of risk and growth, or a lower level, you’ll have to contact the fund.
The second is to monitor the performance of your investments. The consistency of your fund’s performance is crucial. The media loves to champion the highest performing super funds putting one year performance up in lights.
The number I prefer to look for is the seven to 10-year returns. Be aware funds will use the prettiest “legally correct” numbers in their marketing. So delve a little deeper than the website. Read between the lines.
And finally, check out the fees. Those sneaky little nibblers can eat away your compound returns. You can benchmark your fees on the ATO’s YourSuper website.
3. How to draw on your superannuation. Finally, the most poorly understood area of super is how to start spending it.
Your superannuation was designed to be the long-term saving bucket you use to fund your retirement, not to become a new type of legacy. So don’t be embarrassed or afraid to use it.
Just be sensible - build a budget, understand your cost of living, and how much you can afford to spend on lifestyle choices and don’t blow the lot on dumb decisions.
There are a couple of ways to get access to your super. The most common step people take is to technically retire, which you can do from preservation age, which sits comfortably at 60 for almost everyone these days.
To pull off technical retirement, you bid farewell to your daily grind, and then voilà – you’re ready to transfer your superannuation into retirement phase. From here, most start to draw an income stream using an account-based pension. Consider a lifetime annuity too, if you want to guarantee your income for a longer life or improve your eligibility for the pension.
Once you’re in the retirement phase, you have to draw down a minimum amount each year depending on your age. It starts at 4 per cent from 55 to 64, and it rises with age. You can certainly choose to draw more than the minimum.
If you don’t want to give up work, but you do want to start accessing your super, there are a couple of smart moves for you. You can put off drawing on your super until the age of 65, when you can convert it into retirement phase, or draw down lump sums with no strings.
Or, you can consider drawing down a transition to retirement income stream while you’re still working. Most people use this strategy to go part-time in the years before full retirement and draw a tax-free income stream to cover the gap. Then they contribute to super through their accumulation account at just 15 per cent tax. It can be a very strategic move.
And that’s it – the three most important things everyone should know about their super over their lifetime. Nothing more, nothing less! If you’re not paying attention, I can almost guarantee you won’t be making the most of the opportunities on offer.
Bec Wilson is the author of the bestselling book How to Have an Epic Retirement and host of the new podcast Prime Time with Bec Wilson. She writes a weekly newsletter at epicretirement.net.
Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Andrew Mitrovica
Mort Laitner
Rami G Khouri
Ali Fathollah-Nejad
Nikkei Editorial
visit website
