A superannuation fund is an investment vehicle, rather than an investment. Many fund members, journalists and even investment analysts are confused about this distinction. For example, asking whether property or super is the better investment is the wrong question. The right question to ask, is whether the tax savings offered by a super fund structure justify shifting most of your savings into a superannuation fund.
It is not uncommon for individuals who don’t understand how super works, to make comments such as: ‘Shares are a better investment than super’, or ‘Property is a better investment than super’. A superannuation fund is not an investment: rather it is a structure — a tax-effective investment structure.
For anyone considering strategies for a comfortable retirement, a useful starting point is reading the following SuperGuide articles:
- SuperGuide checklist: 10 ways to save your super
- SuperGuide checklist: 10 more ways to boost your super
In your 30s or 40s
If you’re in your 30s or 40s, you have the advantage of a long timeframe, which means making a start on some superannuation strategies right now can transform your life in retirement, assuming you are clear about how you plan to achieve your retirement planning goals.
Some of the key questions all Australians need to ask (and in particular Australians in their 30s and 40s), when considering superannuation strategies are:
- How much super is enough? (see SuperGuide article How much super do you need to retire comfortably?)
- Will I remain in my existing super fund? If not, what super fund do I choose? (see SuperGuide article Fund choice: Comparing super funds in 8 steps)
- Will I make super contributions and how much? (see SuperGuide articles Super concessional (before-tax) contributions: 2016/2017 survival guide and Your 2016/2017 guide to non-concessional (after-tax) contributions)
- How will my super savings be invested? (see SuperGuide articles Investment performance: Benchmarking super fund returns and Investment performance: We’re the best super fund. No, we’re the best…
- When can I retire, and when will I retire? (see SuperGuide articles Accessing super: What is my preservation age? and Life expectancy: Will you outlive your retirement savings? and Age Pension age increasing to 67 years (not 70 years).
In your early 50s
If you’re in your early 50s, how much you shift into super may depend on how much wealth you have already accumulated, and whether you have outstanding debts (such as a mortgage) or child-rearing and education commitments. Remember, you won’t be able to access your super money until you retire on or after your preservation age, although you can choose to take a transition-to-retirement pension (TRIP) on or after your preservation age without retiring.
Your preservation age depends on your date of birth. If you were born before July 1960 (that is, you turned 55 before July 2015), your preservation age is 55 years. If you were born after June 1964, your preservation age is 60. If you were born before July 1964 but after June 1960, then your preservation age is 56, 57, 58 or 59 years, depending on your date of birth. For more information on your preservation age see SuperGuide article Accessing super: What is my preservation age?
In your 50s, you are also old enough to take advantage of the more generous tax-deductible contribution limits available for over-50s (if were aged 49 years or over on 30 June 2015, this means a $35,000 concessional contributions cap for the 2015/2016 year). For more information on making super contributions, see SuperGuide articles Super concessional (before-tax) contributions: 2016/2017 survival guide and Your 2016/2017 guide to non-concessional (after-tax) contributions
Note: The reference articles listed under the ‘In your 30s and 40s’ section, may also be relevant for Australians in their early 50s.
In your late 50s or early 60s
If you’re in your late 50s or early 60s and close to retirement then pouring as much money into super is likely to be the way to go, subject to meeting your current lifestyle commitments. You have reached the age when you can take advantage of the more generous concessional (before-tax) contributions limit available for over-50s (see SuperGuide article Super concessional (before-tax) contributions: 2016/2017 survival guide).
You also have the option of taking a transition-to-retirement pension (TRIP). A TRIP can also give you the opportunity to boost your super savings via salary sacrificing, while taking advantage of the tax concessions associated with a pension from a super fund (see SuperGuide article TRIPs: 10 interesting facts about transition-to-retirement pensions).
For the tax treatment of super benefits before the age of 60, see SuperGuide article Retiring before the age of 60: the tax deal from 1 July 2017.
Note: The reference articles listed under the ‘In your 30s and 40s’ section, may also be relevant for Australians in their late 50s or early 60s.
Retired and over 60
If you are retired and over 60 then super is a no-brainer as an investment vehicle. If you retire, you can withdraw your money and pay no tax (except when you receive a benefit from an ‘untaxed’ source, such as a public sector fund). If you currently own assets outside the super environment, then most Australians in this age group often try to shift as much as possible into super, subject to any capital gains tax that has to be paid on profits from the sale of any personally held assets. For more information on tax-free super from the age of 60 see SuperGuide article Tax-free super for over-60s, except for some (from 1 July 2017).
For those intending to make super contributions, don’t forget that that if you are over the age of 65 you will have to satisfy a work test before you can make super contributions. For more information on making super contributions from the age of 60, and from the age of 65 onwards, see SuperGuide articles Super concessional (before-tax) contributions: 2016/2017 survival guide and For over-65s: Ten tips when making super contributions (for 2016/2017 year).
You cannot contribute to super beyond the age of 75, although your employer can still make Superannuation Guarantee contributions if you’re eligible (see SuperGuide article SG contributions now paid for over-70s (since July 2013)).
When you retire, you can choose to take your super as a lump sum, or convert your super savings into a super pension. By taking a super pension, you retain your retirement savings in a concessionally taxed environment. For more information on the tax implications of lump sums and super pensions, see SuperGuide article Super for beginners, part 16: Tax-free twice when you retire.
Consider tax advice, or other financial advice
Anyone seriously contemplating a pro-active strategy when saving for retirement should consider seeking independent tax advice from their accountant, and if the amount of money is substantial, potentially financial advice from a financial adviser. For more information on financial advice, see the following SuperGuide articles: