By Anthony Keane
This article originally appeared in MoneySaverHQ in partnership with Newscorp
SUPERANNUATION, the second-largest asset behind the family home for most people, doesn’t get the recognition it deserves for being able to create a comfortable retirement.
It’s too complex, the government keeps changing the rules, and fund fees eat into our life savings, the critics say.
But super remains the best savings vehicle to build wealth because of its powerful tax benefits — a maximum of 15 per cent while it’s accumulating and zero per cent in retirement. Compare that with tax rates of up to 47 per cent on non-super income and it’s clear why super’s popular among people with financial know-how.
National Australia Bank’s head of advice and professionalism, Keiran McIlwain, said it was tempting to push retirement thoughts aside during your working life, but the closer you got to retiring the less time you had to take action.
“MLC research shows that only one in four of Australians aged 50-65 — about 26 per cent — think they will have enough wealth to live their desired standards of living in retirement,” he said.
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Every dollar counts, so always think of ways to boost your balance.
“Whether you have received an inheritance, are downsizing your home or have surplus cash flow, there are potential superannuation opportunities,” Mr McIlwain said.
“It is important to seek quality financial advice to determine the right strategy for you.”
“It may be worth considering the benefits of asking your employer to contribute some of you pre-tax salary to super each pay period,” Mr McIlwain said.
“This is a great way to help provide that discipline you’re looking for.”
Salary sacrificing super contributions, known as concessional contributions, lowers income tax payable for workers because the money comes out of their pre-tax salary. So instead of paying up to 47 per cent on their gross wage they only pay the 15 per cent super contributions tax.
While salary sacrifice has long been the main way workers could boost their super and claim tax benefits, recent rule changes have added extra flexibility.
Concessional contributions can now be made at any time, and from next month people with less than $500,000 in super can make catch-up concessional contributions for unused amounts up to their annual $25,000 contributions cap.
Wealth for Life Financial Planning principal Rex Whitford said this was “very handy” for super savers.
“That’s going to stay now — it was under risk from a Labor government,” he said.
“Previously individuals hadn’t been able to make personal contributions unless they were self employed, but now you can do that outside the salary sacrifice regime.”
People earning less than $37,697 who make a $1000 personal after-tax contribution to super qualify for a $500 co-contribution from the government.
It’s an effective 50 per cent return on the investment. People earning $37,697 to $52,697 receive a reduced co-contribution.
A handy benefit for super savers with low-income spouses, this incentive pays a $540 tax offset to someone who contributes $3000 into the super fund of a spouse earning less than $37,000. That’s also a pretty decent return on their money.
Disclaimer: The information contained in this communication is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for your personal circumstances prior to making any investment decision.