Superannuation is simply an investment structure that is specifically designed for your retirement savings. Through superannuation you can invest in a wide range of asset classes including shares, property, managed funds and cash. In fact, you can access almost all of the same investments that are available outside super – however, super has two key advantages over other types of investments:
Super is one of the most tax advantaged investment vehicles, as income earned in your super fund is taxed at a maximum rate of 15%, whereas the income you earn from other (non-super) investments is taxed at your marginal tax rate (up to 46.5%, including Medicare Levy).
Because access to your super is generally restricted until later in life, your super savings will be preserved for their intended purpose, plus they will gain the powerful effect of compounding interest. Your contributions and overall nest egg will keep earning interest over time, which will then be reinvested.
A good rule of thumb in determining your retirement needs is 60-70% of your pre-retirement income.
The table below shows the level of capital required for certain income levels, assuming retirement at age 65 years and that an account based pension will be paid for an average life expectancy (17.7 years for a male).
|
Desired annual income*
|
Capital required if earning 6% per annum
|
Capital required if earning 8% per annum
|
|
$60,000
|
$860,000
|
$740,000
|
|
$50,000
|
$720,000
|
$610,000
|
|
$40,000
|
$580,000
|
$490,000
|
|
$30,000
|
$430,000
|
$370,000
|
|
*Figures are indexed at 3% pa to reflect the effects of inflation. Centrelink entitlements are excluded from the calculations.
|
Think you might fall short of funding for retirement? Then it’s essential to start building up your super now so that it has time to compound. Here we outline a few options available to you:
Employers are required by law to contribute 9% of your salary into your super fund (called Super Guarantee); however, you may be able to swap some of your salary for increased employer super contributions to build up your nest egg faster. This is called a salary sacrifice agreement.
When you enter into a salary sacrifice arrangement, you forgo some of your take-home pay (which would be taxed at your marginal tax rate) and divert it into super where it is taxed at a maximum of 15%. Salary sacrificing can also reduce your overall taxable income, pushing you into a lower income tax bracket.
This type of super contribution is known as a concessional contribution, as it is made with pre-tax dollars.
Because this money has already been taxed, it does not incur the 15% contributions tax that concessional contributions (such as salary sacrifice) incur.
If you make a non-concessional contribution, you may be eligible to receive a co-contribution from the Government, whereby the Government will match your non-concessional contributions by up to 100%, with a maximum co-contribution of $1,000.
