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Archives for January 2019

Superannuation Through Your Life

Superannuation is not something that you should ignore. It’s important that you engage with it throughout your working life.

First job

When you begin your first job, your employer is likely to direct your compulsory superannuation guarantee contributions into the fund that they use as a default. If you are a casual employee, over 18 and earning more than $450 per month before tax is taken out, it is compulsory for the employer to pay 9.5% of your ordinary salary into super.  The same applies if you are under 18 and work more than 30 hours in a week.

It’s a good idea to make sure that the employer is actually paying super for you when you meet these criteria – over 18, earning more than $450/month before tax or under 18 and working more than 30 hours in a week.

In your 20s, 30’s and 40’s

It’s still a long time before you can access this money, but remember that it is accumulating for your retirement and you should monitor what is happening.

Make sure that you have all your contributions going into the one fund – when you commence a new job you need to advise your employer of the details of your fund so that contributions continue to go into that one.  In most cases you will have a choice as to where your contributions are paid, but possibly not if you are a government or university employee.

Check your statement each year:

  • How much have you paid in administration and other fees?
  • What has the performance been and can you compare it to another fund to see if it is keeping up?
  • Is the chosen investment option still the right one for you?
  • Are you paying premiums for insurance?
  • Is the insurance sufficient or should you be adding other insurance possibly outside superannuation?

This period in your life is likely to be the most financially challenging – marriage, children, mortgages and your career. For women, there is often a lengthy period out of the workforce while raising children.

These things mean that you may not be able to add to your superannuation from your own resources and paying down your mortgage will be the highest priority, but you should attempt to allocate an extra amount to super from your salary each pay period.  Settle on a small amount that you really won’t miss to begin with, even if it is $10 each week.  As you age, try to increase this amount for example if you get a pay rise, add extra to your super contributions.  The most tax-effective way to contribute is via salary sacrifice – pre-tax salary, but you can also add from your own resources.

You might consider seeing a qualified professional to review your financial situation and to help you to reach your future goals.

In your 50’s and 60’s

By now, your financial situation should be a little easier. Perhaps the kids have finished uni and left home, your mortgage is well under control. Your super balance too will be looking healthy, and guess what, retirement isn’t so far away any more.

If you haven’t already consulted a qualified professional now is a good time to set some financial strategies in place so that your future needs can be met.

You might be thinking of some things you would like to do when you have more time and travel may be on top of the list.

Now is the time where you need to be contributing as much as you can spare and that you won’t be needing before you reach ‘preservation age’ – the age at which you can begin to draw from super. For most people that is age 60.

Using salary sacrifice now will be a strategy that will work well for you – part of your pre-tax salary is contributed to super, and your take-home pay and the tax you pay personally will be reduced. There are other strategies for higher income earners, perhaps with a non-working spouse.  These include spouse contributions and contribution splitting.

In retirement

Now you have retired and you are living off a pension drawn from superannuation. Once commenced, you must draw a minimum percentage from super each year – at 65 this is 5% of your balance, but you may need to draw a greater amount.

It is vital that you manage your super, or have it managed by a qualified professional, so that what you have will last you for at least your life expectancy.  A male at age 65 can expect another 18.5 years so, you will need to watch and plan your spending.  At the time of writing, a couple wanting to live a comfortable lifestyle will need about $60K per year. This means that you will need to have accumulated nearly $700K to meet this need – and that takes you to your life expectancy.

What happens if you live longer than your life expectancy? What happens if you need aged care?

These things mean that you will need to accumulate a greater amount of savings through your working life so that these needs in later life can be met comfortably and without placing stress on yourself or your family. Taking care of your superannuation through your working life will benefit you at the time that it is most needed.

Please note, this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

Read more articles in our Financial Literacy series. 

Read more

All About Superannuation

Superannuation is simply money paid into a long-term savings and investment account to provide for your retirement in the future.  It was introduced in Australia in 1991 and it is compulsory for employers to pay 9.5% of your salary into your chosen superannuation account.

Your superannuation is referred to as being in ‘accumulation’ phase during your working lifetime – accumulating retirement benefits.  It is locked until you reach ‘preservation age’ – at the moment that is age 60, and you can begin drawing from it then under certain circumstances.

Employees mostly have a choice as to which fund their contributions are paid. Some government employees don’t have this choice as their contributions will be paid to the government fund.

When starting a new job, it is important that you provide your accumulation account details to your employer with a request to have contributions paid into that fund. If you do not nominate a fund, the employer will pay it to the fund that they use as default and over time and job changes, you will end up with multiple accounts.

This is not a good idea as you will be paying extra fees and you will likely also be paying insurance premiums in each of the funds.

When you join a fund, you have the option of selecting life, total and permanent disablement and/or income protection insurance as part of your membership. The fund will disclose the premiums that you will pay from the balance of your account. If you have multiple funds, you may be paying for more insurance than is needed, on top of the extra administration fees – these things all reduce the amount that is available when you retire.

Selecting some insurance is important, depending on your age and stage of life and you should seek some advice from a qualified person in this regard.

While your benefits are accumulating, your chosen fund manages the investment of your benefit, which is pooled with the benefits of many others.  You should select an investment option that you are comfortable with – your money is invested in shares, property and fixed interest and is therefore subject to stock market, interest rate and property market fluctuations. You need to be comfortable with the profile that you choose throughout any period of weakness in these markets.  If your profile is too aggressive or risky, you won’t sleep at night.  If you choose a profile that is too conservative, your benefit may experience much less growth over time and could fall short of what is needed.

It is a good idea to contribute a little extra to your accumulation account when you are in a position to do so. This can be part of your salary after you have paid tax on it, or it could be pre-tax salary.  Contributing pre-tax salary to superannuation is called ‘salary sacrifice’ or ‘personal deductible contributions’ and can assist with reducing how much tax you pay.  These pre-tax contributions will help higher income earners and are not really effective for those on lower rates.

After tax contributions don’t lower your personal tax and they need to be made from money that you don’t really need because you can’t touch it before age 60, but if you add $10 from every weekly pay from when you begin working, you will accumulate quite a large amount over your working life.

Even though superannuation money is not available to you for many years, you should always take an interest in it.  It is real money and it will really matter in later life when you have finished work. When you do stop working, you can commence drawing a pension – convert your accumulation account into ‘pension phase’. Once you get to here, you will be pleased that you have nurtured your account throughout your working life for this will be funding your retirement dreams.

Please note, this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

Read more articles in our Financial Literacy series. 

Read more