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 some, most or all 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.
The tax incentives that make superannuation attractive as a savings and investment vehicle, are also the same features that make super so complex.
Essentially, a superannuation account is an investment account that you cannot access until a certain age (and/or you satisfy certain conditions), which is generally taxed at a lower rate than most Australians pay in income tax. For lower-income earners however, superannuation also offers some incentives, such as the Low Income Superannuation Tax Offset (more a tax compensation measure than an incentive) and the Co-contribution Scheme.
Due to the many tax incentives associated with superannuation, there are special age-based rules in relation to accessing super, when contributing to super, retiring age, and claiming the Age Pension (see SuperGuide article Superannuation rules: What applies at different ages?). Due to superannuation being a lifelong investment vehicle, the opportunities to take advantage of the different incentives associated with super may vary over a working life, and also into retirement.
Some of the key questions all Australians need to ask (regardless of age), when considering superannuation strategies are:
- Is my employer contributing the correct amount of super? (see SuperGuide article Superannuation and employees: 10 facts about your super entitlements
- How much super is enough? (see SuperGuide articles How much super do you need to retire comfortably? and Retirement income: Living on more than $60,000 a year)
- Will I remain in my existing super fund? If not, what super fund do I choose? (see SuperGuide articles Fund choice: Comparing super funds in 8 steps and Comparing super funds: Who’s who in the super zoo?)
- Will I make super contributions and how much? (see SuperGuide articles Super concessional (before-tax) contributions: 2017/2018 survival guide and Your 2017/2018 guide to non-concessional (after-tax) contributions)
- How will my super savings be invested? (see SuperGuide articles Super control: How to switch your super account’s investment option, Investment performance: Benchmarking super fund returns, Super stars! Top 30 super funds over 5 years, Investment performance: We’re the best super fund. No, we’re the best… and SMSF investment: What assets do DIY super trustees prefer?
- When can I retire, and when will I retire? (see SuperGuide articles Accessing super: What is my preservation age?, What is the retirement age in Australia?, Life expectancy: Will you outlive your retirement savings? and Age Pension age increasing to 67 years.
For anyone considering superannuation strategies for a comfortable retirement, reading the following SuperGuide articles is a useful starting point:
- SuperGuide checklist: 10 ways to save your super
- SuperGuide checklist: 10 more ways to boost your super
- Superannuation checklist: What rules apply for the 2017/2018 year?
- Boost your super: 10 planning tips for 2017/2018 year
- Total Superannuation Balance: 7 reasons why your TSB matters
Continue scrolling down the article for potential age-based superannuation strategies, or click on the age group below that interests you:
Note: Unless there is an age-based restriction applicable to the specific strategy, all superannuation strategies mentioned in this article are applicable to all age groups. Due to competing life priorities (youth, education, children, mortgage etc) some superannuation strategies are more relevant at different life stages.
Congratulations if you are under the age of 20 and thinking about super. Starting early makes checking on your super entitlements (and planning for retirement) a lot easier. And if you’re parent of a teenager starting work, then the 5 no-cost strategies set out below can help set up your children’s super future.
1. Check that your employer is paying super on your behalf, and is paying the right amount
Starting your first full-time job, or part-time job means dealing with the superannuation system for the first time, even if you don’t take much interest. Your employer is required to contribute in cash the equivalent of 9.5% of your ordinary time earnings to a superannuation account, on your behalf, provided you earn at least $450 a month. The employer super contribution is known as Superannuation Guarantee (SG) contributions. If you work casually, and your income fluctuates, then for each month where your income exceeds $450, your employer is required to pay Superannuation Guarantee for those months.
Note: If you’re under the age of 18, you must be working at least 30 hours a week AND earning at least $450 a month, to receive SG contributions. For more information about your SG entitlements, see SuperGuide articles Super for beginners, part 2: Casual work or starting first job and Do I need to pay super for my 16-year-old employee?
2. Consolidate multiple super accounts
If you have, or have had, more than one casual or part-time job, you may discover that you have two or more super accounts, each account costing you a separate set of administration fees and regular insurance premiums.
For information on how to find those super accounts, and how to consolidate the accounts to reduce annual fees, see SuperGuide articles How to find your lost super in 4 steps and Super in 3 steps: You’re probably richer than you think.
3. Check how much life insurance you currently pay, and whether you need life insurance at this stage of your life
Some super funds are reviewing the premiums charged for younger people, and some funds are looking at providing insurance opt-out for under-25s.
For more information about life insurance and other types of insurance available within your super fund, see SuperGuide article Life insurance and super: 10 things you should know.
4. Consider co-contribution scheme
If your income is below a certain threshold, and you make a non-concessional (after-tax) contribution to your super account, you may be entitled to a tax-free contribution of up to $500 from the government.
For more information about the co-contribution scheme, see SuperGuide article Cashing in on the co-contribution rules (2017/2018 year).
5. Low Income Superannuation Tax Offset (LISTO) may apply to you
Although not a strategy you can actively apply, if you earn $37,000 or less, the government will automatically refund the contributions tax deducted from your employer’s SG contributions (and from any before-tax contributions you choose to voluntarily make) up to a maximum of $500 each year.
For more information on LISTO, see SuperGuide article LISTO: Super tax refund for lower-income earners.
If you’re in your 20s, 30s or 40s, you have the advantage of a long planning and investment timeframe. 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.
1. Super considerations when starting your career
With many younger Australians studying longer, your 20s may be the first time you experience employer super contributions, and the prospect of choosing a super fund. You may start out with a portfolio of part-time positions, or move from one job to the next in a short period of time. Refer to the ‘Under 20’ discussion in the paragraphs above for information about:
- your SG entitlements
- how to consolidate super funds
- checking on your insurance cover
- considering the co-contributions scheme
- understanding your entitlement to the Low Income Superannuation Tax Offset
2. Choose a super fund
When you first start work you may not take much notice of where your employer’s super contributions are ending up. As your super balance grows however, how your super fund performs, and what your super fund charges to look after your retirement savings probably becomes more important. Is your super fund up to the job?
For more information on comparing your super fund against alternatives, choosing the right super fund and making the decision to change funds, see the following SuperGuide articles:
- Comparing super funds: Who’s who in the super zoo?
- MySuper: Now at a super fund near you
- Fund choice: Comparing super funds in 8 steps
- Super for beginners, part 11: Is my super fund good enough?
- Comparing super funds: 10 fees and charges you need to know about
3. Consider making extra super contributions
As your career progresses, you may consider making extra super contributions. If you make concessional (before-tax) contributions to your super account you may reduce your income tax bill, depending on your level of income. For lower-income earners, you may be interested in the co-contributions scheme.
For a summary of the rules applicable to making super contributions, see the following SuperGuide articles (for more detailed articles on specific strategies, see the list of articles in the ‘early 50s’ section below):
- Super concessional (before-tax) contributions: 2017/2018 survival guide
- Your 2017/2018 guide to non-concessional (after-tax) contributions
- Cashing in on the co-contribution rules (2017/2018 year)
4. Consider knowledge and time commitments before setting up a SMSF
Some Australians consider setting up a self-managed super fund in their 40s or 50s, especially if they have a substantial super balance. Running your own super fund is an option if greater control is important to you, and if the cost comparison works in favour of running a SMSF. Note however that running a SMSF is a serious responsibility and you must report to the ATO every year.
If you’re in your early 50s, how much money 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 generally won’t be able to access your super money until you retire on or after your preservation age.
For more information about your preservation age, see the next section ‘In your late 50s or early 60s’.
1. Work out how much super is enough, and how you are going to reach that target
Reaching the age of 50 or older is a major life milestone, and in terms of retirement planning is a typical trigger for starting to think about the second half of your life, including retirement.
For some helpful tips on what you can expect financially in retirement, see the following SuperGuide articles:
- How much super do you need to retire comfortably?
- Retirement income: Living on more than $60,000 a year
- Retirement income: Want to live on $100,000 a year?
- Crunching the numbers: a $1 million retirement (7% and 5% returns)
- Crunching the numbers: a $1.6 million retirement
- Low yields: A $1 million retirement on 3% or 2% returns
- SuperGuide $1 million Retirement Reckoner: How does it work?
2. Make extra super contributions
The opportunity to make voluntary super contributions, in addition to your employer’s contributions (if you have an employer) is available at any age, but the capacity to make extra contributions usually exists later in life when the children have finished secondary education and the mortgage is (nearly) paid off.
For information about making concessional (salary sacrifice or tax-deductible) contributions or non-concessional (after-tax) contributions see the following SuperGuide articles:
- Concessional contributions cap: A quick guide (10 Q&As)
- Salary sacrifice and super: A guide for employees and employers
- Employees can now make tax-deductible super contributions (since July 2017)
- Non-concessional contributions: 10 facts about new $100,000 cap
- Bring-forward rule: A definitive super guide
- Total Superannuation Balance: 7 reasons why your TSB matters
3. Review your super account’s investment option
Generally speaking, the closer you get to retirement, the more interested you become in your super account, especially the investment returns delivered by your super fund. Is your super fund’s investment option a long-term performer?
For information on how to review your super account’s investment option/s, see the following SuperGuide articles:
- Superannuation investment: What is the difference between a balanced and growth option?
- Super control: How to switch your super account’s investment option
- Investment performance: Assess your super fund in 4 steps
- Super for beginners, part 20: Comparing your super fund’s performance
- Investment performance: Benchmarking super fund returns
- Superannuation Investment Performance Reckoner: Discover annual returns for 5 investment options
4. Review life insurance cover, and check whether premiums are competitive
Most members of super funds receive automatic death and disability cover, with premiums deducted from super accounts each month. When a super fund member enters their 50s, insurance premiums usually increase significantly. If insurance cover is important for you and your family, the cost increase may be justified if the coverage meets your needs. Comparing what you currently pay with what other super funds charge for insurance costs you nothing, and may provide peace of mind or a trigger to change super funds. Although carefully consider any change to your insurance cover if you have underlying health problems because you may not secure the same level of premium if you switch polices.
For more information on insurance and super, see the following SuperGuide articles:
- Life insurance and super: 10 things you should know
- Comparing super funds: Top 20 cheapest funds for life insurance
- Four reasons to buy insurance inside your super fund
5. Consider your retirement options, including whether a SMSF is an option
What is your retirement going to look like? Are you going to cash out your super and independently invest your savings, or are you going to choose a pension product from one of the major financial organisations or major super funds? Or have you thought you might set up a self-managed super fund for your retirement? Your superannuation account does not usually end when you retire? Who is going to look after your retirement savings when you are retired? For information about SMSFs, see the ‘In your 20s,30s and 40s section’ earlier in the article.
For information about the retirement phase, see the following SuperGuide articles:
- Retirement: 3 ways of taking super benefits before the age of 60
- Tax-free super for over-60s, except for some
- Retirement phase: A super guide to the $1.6 million transfer balance cap
- TRIPs: 10 important facts about transition-to-retirement pensions
Note: The articles listed under the ‘In your 20s, 30s and 40s’ section, are also relevant for Australians in their early 50s.
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 a popular way to go, subject to meeting your current lifestyle commitments, considering the annual contributions caps, and keeping in mind the new retirement cap of $1.6 million.
Note: The strategies listed in the ‘In your early 50s’ section above (including working out how much super is enough, making extra super contributions and considering your retirement options), also apply to Australians in their late 50s or early 60s, but other considerations come into play when you reach your late 50s or early 60s. You will be reaching the age when you can access super benefits, and the timing of your retirement will be significant, especially if you want your savings to last as long as you do.
1. Review your retirement plans under the post-July 2017 super rules
Three new restrictions have arisen since July 2017, that may affect your superannuation strategies:
- Is the new $1.6 million total superannuation balance limit on making non-concessional (after-tax) contributions going to affect your plans (see SuperGuide articles Non-concessional contributions: 10 facts about new $100,000 cap)?
- Is the new $500,000 cap (from July 2018) on making catch-up concessional (before-tax) contributions going to be an issue (see SuperGuide article Super opportunity: Catch-up concessional contributions from July 2018)?
- Will the new $1.6 million transfer balance cap affect your retirement plans (see SuperGuide article Retirement phase: A super guide to the $1.6 million transfer balance cap)?
Note: For a detailed explanation of the new concept ‘total superannuation balance’, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters.
2. Identify your proposed retirement age
Under the super rules, you can access your super benefits when you reach your preservation age AND retire. 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? and Accessing super: Preservation age moves to 58 years. Or try out SuperGuide’s Retirement Age Reckoner Retirement Age Reckoner: Discover your preservation age and Age Pension age.
Note: Although the general rule is that you must reach your preservation age AND retire to access your super benefits, you can choose to take a transition-to-retirement pension (TRIP) on or after your preservation age without retiring (for more information about TRIPs, see SuperGuide article TRIPs: 10 important facts about transition-to-retirement pensions).
For some helpful articles to help you consider WHEN to retire, see the following SuperGuide articles:
- The super challenge: At what age should I retire?
- What is the retirement age in Australia?
- Age Pension age increasing to 67 years
- Life expectancy: Will you outlive your retirement savings?
3. Review the implications of retiring before the age of 60
The earlier you retire, the longer your retirement savings have to last. If you choose to retire before the age of 60 (assuming your preservation age is younger than 60), then your super savings may be taxed.
For information on the tax treatment of super benefits, see the following SuperGuide articles:
- Retiring before the age of 60: the tax deal
- Retirement: 3 ways of taking super benefits before the age of 60
- I’m 58 and I have $250,000 in super. Will my super be taxed?
If you are retired and over 60 then super is generally a no-brainer as an investment vehicle, noting there is a new $1.6 million cap on the amount of super you can transfer to the retirement phase.
1. Consider lump sum or super pension
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.
2. Consider the tax treatment of super benefits on or after the age of 60
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, and subject to the contributions caps and the new $1.6 million transfer balance cap.
For more information on tax-free super from the age of 60 see SuperGuide article Tax-free super for over-60s, except for some.
3. Make extra super contributions
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: 2017/2018 survival guide and For over-65s: Ten tips when making super contributions.
Note: You cannot contribute to super beyond the age of 75, although your employer must still make Superannuation Guarantee contributions if you’re eligible (see SuperGuide article Employer super (SG) contributions paid for over-70s).
4. Check whether you’re entitled to the Age Pension
The majority of Australians claim a part or full Age Pension in retirement, assuming they have reached Age Pension age. For more information about the Age Pension, see the following SuperGuide articles:
- Age Pension age increasing to 67 years
- Australian Age Pension: Am I eligible and how do I apply?
- Age Pension changes: More Australians entitled to payments from March 2018
- Latest Age Pension rates (since March 2018)
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:
- Financial advice for super: Is it worth the money?
- Seeking financial advice? A 5-step guide to obtaining expert help
- Financial advice guide: What to expect when you talk to an adviser
- Seeking advice? Financial Advisers Register is a starting point
- Financial advice: Only 97 independent financial advisers in Australia
- Can you provide a list of financial adviser associations?