Note: This article is the second in a series of special articles that SuperGuide will be publishing, designed to help SuperGuide readers more easily access the hundreds of questions and articles that we have published on the SuperGuide website.
The first article in the series is Super Checklist: 10 ways to save your super, which was published in November 2012 (the link for the first article also appears at the end of this page).
SuperGuide receives hundreds of questions every week from Australians wanting to create a better life for themselves in retirement. In some cases, the questions we receive from readers and SuperGuide’s coverage of a particular issue, prompts the superannuation industry and the Federal Government to review specific superannuation rules.
Due to the large number of questions and comments that we receive, we cannot answer every question individually. We do however read and acknowledge every question and comment that we receive and we aim to incorporate nearly every question we receive in broader articles on particular topics, or when publicising a glaring flaw in the super laws.
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Continue reading to discover 10 more ways to boost your super.
1. Set a date for your retirement, even if you change it later
Setting a deadline can be a big motivator for getting your retirement plans in order. You have a timeline target, which can help drive your strategies for boosting your super, or for working out whether your retirement date is too early, or not early enough! Setting a retirement date also helps you work out your savings target for your retirement, and for how many years your money needs to last after you finish working. A few scenarios to consider include:
- Retiring before the age of 55. If you retire before the age of 55, you generally cannot access your super. You must rely on your non-superannuation savings only. For those born on or after 1 July 1964, you won’t be able to access your super savings until you turn 60 years of age (your preservation age). For more information on preservation age see SuperGuide article Preservation age: I’m 58. Can I withdraw my super benefits?
- Retiring before the age of 60. If you plan to retire before the age of 60 (but after the age of 55), you can have access to your super benefits (if born before 1 July 1964) but you will probably have to pay tax on those super benefits. Importantly, you won’t have access to the Age Pension until the age of 65 (and many Aussies won’t have access to the Age Pension until age 67). For more information on the tax implications of taking super benefits before the age of 60 see SuperGuide article Retiring before the age of 60: the tax deal, and for working out when you can claim the Age Pension see SuperGuide article Take note: Age Pension age increasing to 67 years.
- Retiring after the age of 60 but before 65. If you’re male and retire before the age of 65, you won’t have access to the Age Pension. Women have an Age Pension age of 64.5, moving to 65 years from January 2014. The compelling case for retiring on or after the age of 60 however, is that your superannuation benefits are tax-free (except if you receive benefits from untaxed public sector super funds). For more information on retiring on after the age of 60, see SuperGuide article Tax-free super for over-60s remains in place and information on the impact of retiring before you’re entitled to the Age Pension see SuperGuide article A comfortable retirement: How much super is enough?
- Retiring on or after the age of 65. At this age you can access your superannuation benefits with no restriction, and if you’re born before 1 July 1952, then you’re eligible for the Age Pension (subject to meeting income and assets tests). For more information on Age Pension entitlements see SuperGuide article Age Pension: September 2012 rates now available and for information on super and retirement on after age 65 see SuperGuide article Tax-free super for over-60s remains in place.
- Never retiring. If you wish, you can keep your money in superannuation indefinitely and never withdraw it, that is, keep your super savings in accumulation phase. The earnings within your super fund will however continue to be taxed at 15%. If you start a superannuation pension at any time, then your fund earnings on assets financing the pension will be tax-free. Alternatively, you can withdraw your super on or after the age of 65 and never stop working. For more information on the tax treatment of superannuation money in accumulation phase and pension phase see SuperGuide article Super for beginners, part 15: Super tax – as easy as 1-2-3.
2. Make a plan – do nothing, do a little or do heaps
Thinking about boosting your superannuation savings doesn’t mean that you have to make radical changes to your life or lifestyle. The earlier you start thinking about your retirement plans the less likely that you will have to make any significant changes to your current lifestyle. In short you have 3 options:
- You can do nothing. Even when you think you’re doing nothing, there’s a strong possibility that half of your retirement saving challenge is already sorted. If you have a job, turning up for work means that your employer is making super contributions on your behalf. For more information on compulsory employer super contributions (known as Superannuation Guarantee) see SuperGuide article Superannuation Guarantee: 10 facts about your SG entitlements
- You can do a little. Even if you’re not quite ready to do any full-blown retirement planning why not try my six-step retirement planner – see SuperGuide article Retirement planning in six steps
- You can do heaps. After using my six-step retirement plan you may discover that there is financial gap between what you want and what you will have in super savings when you retire, if you continue what you’re currently doing. Keep on reading for tips on some of the straightforward strategies to consider, to bridge that financial gap.
3. Focus on 3 key factors to super success – long-term investment earnings (after fees and taxes), super contributions and lower tax
The 3 main reasons that superannuation is the most popular retirement savings vehicle, and consequently usually accumulates retirement savings faster than non-superannuation vehicles, are:
- Long-term investment earnings. You cannot access your super account until you reach a certain age which means your super savings are accumulating and compounding over a long period of time, assuming, of course, that your super fund is delivering strong long-term returns. Do you know your super fund’s investment performance over 1 year, 3 years, 5, 7 or 10 years? You can find out your super fund’s long-term investment performance by checking out your super fund’s annual report, or your super fund’s website. You can compare your super fund’s returns against the top-performers listed in the SuperGuide article Mirror, mirror… what super fund is the best-performing fund of all? and SuperGuide article Investment performance: We’re the best super fund. No, we’re the best… (go to Tips 5 & 6 if you’re unhappy with your super fund’s investment returns).
- Super contributions. Your employer is required to contribute the equivalent of 9% of your earnings to your super fund each year, and this percentage will eventually increase to 12% by 2019. You can also take advantage of tax concessions if you choose to make voluntary super contributions (see Tips 7 & 8)
- Lower taxes. The Australian government rewards you with incentives if you save for your retirement using a superannuation account. The general deal is that you must keep your super benefits in your super fund until you retire, and in return your super account pays a maximum tax rate of 15% on fund earnings. Super contributions are taxed at 15%, which makes voluntary super contributions attractive for anyone paying more than 15% in income tax. When you retire after the age of 60, your lump sum payment and/or pension income is tax-free (see Tip 10 for more information and also SuperGuide article Super for beginners, part 15: Super tax – as easy as 1-2-3).
4. Calculate how much you pay in fees
Every superannuation fund deducts fees for running the fund. The fees may be administration fees, investment management fees, adviser fees, and even withdrawal fees (when you take money out of certain super funds). Other charges against your super fund account include insurance premiums and taxes.
Along with investment performance, super fund fees can have a huge effect on the size of your final retirement benefit. Check out what fees your super fund charges, and then compare against the fees charged by the cheapest super funds in the SuperGuide article Super fees: Top 10 cheapest funds in Australia.
Note: You may be receiving other services that justify your super fund charging higher fees, so do your research first before choosing to leave a super fund. The rule of thumb is that if a super fund charges considerably more than 1% of your account balance in total fees, it is generally considered a high-fee super fund. Over a 30-year period, a super fund that charges 2% more in fees, will reduce your final retirement benefit by 20% compared to another super fund that charges 1% in fees, assuming investment performance, insurance charges and taxes are equal.
5. Change investment options, if necessary
If you’re unhappy with the investment performance that your super fund delivers, or you’re unhappy with the fees that your super fund charges, you don’t always have to change super funds to solve the issue. If you haven’t actively chosen your where your super money is invested, your super money will automatically go into a default investment option.
The most common default investment options available in super funds are the balanced or growth options. Typically (but not always), the balanced option invests 60 to 70% of your money in growth assets, such as shares and listed property which generally cost more to manage than the more conservative assets such as cash and fixed interest. A typical growth investment option can have up to 80% in growth assets.
If you decide that one of the strategies to boost your super savings is to change investment options, and you, say, move to more conservative, and cheaper investment options, then over the longer term, you can usually expect lower returns (even though in the past 4 years, conservative options have done relatively well compared to the growth options). If you move to a higher growth investment option, hoping for better returns, then note that your returns from year to year may be volatile.
For more information see SuperGuide article Super for beginners, part 20: Comparing your super fund’s performance.
6. Change super funds, if necessary
Changing superannuation funds can be a bit of a hassle, but if you’re not happy with your super fund and you can find a super fund that delivers you better long-term performance than your current super fund, and this alternative super fund charges reasonable fees , and also offers cost-effective life insurance, then changing super funds may be a worthwhile option.
Choosing a super fund that delivers decent long-term investment returns and charges competitive fees can substantially boost your final retirement benefit with very little disruption to your current lifestyle. For more information on how to compare super funds see SuperGuide article Fund choice: Comparing super funds in 8 steps.
7. Consider making concessional (before-tax) contributions
Regular super contributions can rapidly boost your final retirement benefit. You can make 2 types of super contributions – concessional (before-tax) contributions and non-concessional (after-tax) contributions – and each type of super contribution is subject to an annual cap. I explain non-concessional contributions in Tip 8.
Concessional (before-tax) superannuation contributions include employer’s compulsory contributions (Superannuation Guarantee), additional employer contributions (if applicable), salary sacrificed contributions, and personal tax-deductible contributions.
The annual concessional contributions cap (for all ages) for the 2012/2013 year is $25,000, and the cap remains at $25,000 for the 2013/2014 year. The following SuperGuide articles explain how you can take advantage of the concessional contributions cap:
- Super concessional contributions: 2012/2013 survival guide
- Super tax alert: Have you counted your super contributions lately?
- Salary sacrificing and super: 10 facts you should know
- Who can make tax-deductible super contributions?
- Superannuation Guarantee: 10 facts about your SG entitlements
- Super tax refund for lower-income earners starts July 2012
8. Consider making non-concessional (after-tax) contributions
When you make a super contribution from after-tax dollars, you are making a non-concessional super contribution. The annual cap for non-concessional (after-tax) contributions is $150,000 for the 2012/2013 year, and remains at $150,000 for the 2013/2014 year. Note, that if you’re under the age of 65, then it is possible to make up to 3 years’ worth of non-concessional contributions in one year ($450,000), using the bring-forward rules. The following SuperGuidearticles explain non-concessional contributions in more detail:
- Your 2012/2013 guide to non-concessional (after-tax) contributions
- Bring forward rule: 10 facts you should know
Note: If you are a small business owner you may be eligible for a $1.255 million after-tax contribution limit for the 2012/2013 year (indexed), which is lifetime contribution limit, in addition to the non-concessional contributions cap. This ‘capital gains tax’ exemption permits personal contributions resulting from the disposal of qualifying small business assets. If you believe that you may be eligible then seek independent advice because the rules that apply to this exemption are complicated.
9. Check if you’re eligible for a co-contribution
The Federal Government is giving away money to anyone who makes a non-concessional (after-tax) contribution to their super fund, and who earns less than $46,920 a year (for the 2012/2013 year). The tax-free giveaway is officially called the co-contribution scheme, and involves the Federal Government giving you a tax-free co-contribution when you make a non-concessional contribution, and you satisfy certain conditions. That’s tax-free money and effectively free money of up to $500 a year (although half of what it used to be) so why not check out if you’re eligible. For more information on the co-contribution scheme see the following SuperGuide articles:
- Cashing in on the co-contribution rules (2012/2013 year)
- Does the Government’s co-contribution count towards my contributions cap?
- Remember earlier Swan attack – freeze contributions caps and halve co-contributions
10. Fully appreciate the tax advantages available with super
If it were not for taxation, superannuation would not exist. You would simply invest in your own name. Superannuation is taxed at lower rates to encourage people to lock their money away for retirement. You can save thousands of dollars in tax, and increases your retirement savings by tens of thousands of dollars by knowing your way around super’s tax incentives, such as:
- When you or your employer make super contributions, but watch out for the dreaded excess contributions tax
- When your super fund makes money on investments on your behalf
- When your super fund pays you a pension or a lump sum
- If you die, and your family inherit your super benefits
For more information on the tax advantages available with super see the following SuperGuide articles:
- Super for beginners, part 17: Four must-knows about super’s tax rules
- Super for beginners, part 15: Super tax – as easy as 1-2-3
- Capital gains: Reducing tax via super contributions
- Salary sacrificing and super: 10 facts you should know
- Concessional contributions caps: 10 facts you should know
- Retirement: Taking benefits before the age of 60
- Tax-free super for over-60s remains in place
- Super for beginners, part 8: What happens to my super benefits when I retire?
- Estate planning: Dear Dad, Tax for everything
The list of tips above provides you with some tools to help you save your superannuation. The next article in this series will explore 10 popular strategies that can be used to boost your super savings even further (to be published in early 2013).
The first article in this series is Super Checklist: 10 ways to save your super.