“I'm 52 years old and due to past personal circumstances, have only recently made contributions to my superannuation. As such, my super balance is quite low, and I'd like to know how I can look to best set myself up for my eventual retirement."
- Question from Christa in Sawtell, NSW
Top answer provided by:
Sarah Roelofs
Hi Christa,
Well done on taking the next step in planning for your retirement. Don’t worry too much that you have a low balance now - assuming you are intending to retire at a standard retirement age of around 65, you still have a long enough timeframe to make a meaningful difference by starting now.
As you may be aware, super has some great benefits, with earnings being taxed at a maximum of 15%, and tax free in pension phase after age 60. Therefore, it can be faster to build your wealth inside the super environment, rather than investing elsewhere.
There are 3 key ways that you can improve your super balance, which I will detail below. And the good news is that there are things that you can do to improve your balance, which will not require you to make any cash contributions.
1. Have a Super account health check
Get familiar with your super account. If you don’t already have online access, organise for this, so you can keep a check on what you have and what’s happening in your account. Otherwise, your last annual statement is a great place to start and should have all the information you need.
The main things to look at are:
a) How are your funds invested?
You have a choice (within the investment options available in your fund) as to how your money is invested. Most funds will offer a “premix” option, which is a diversified portfolio of a range of different assets. Otherwise, you can select certain asset sectors to make your own mix. If you haven’t made any changes since the account was established, it’s likely that the investment will be a default “My Super”, “Balanced” Fund or “Lifestage” option. This may not be appropriate to your investment timeframe, level of risk you are comfortable taking, or need to take to meet your retirement objectives. To get a gauge as to your risk tolerance, you can complete a “risk profile questionnaire” (there are many available online). The more growth assets (shares and property) you have in your account will see better performance over the long-term, however in the short-term can be more volatile. As you are heading towards retirement, it’s important to ensure that your risk profile matches your investment timeframe (also remembering that once you have retired, your funds will remain invested, albeit in pension phase, rather than accumulation).
b) What fees are you paying?
Common fees that a super fund will charge includes a membership fee, administration, insurance, investment and sometimes investment performance fees. To see how this compares to other funds, you can look at websites such as Canstar, which will show you how your fund rates, compared to others. However, before simply switching funds to reduce your fees, first check that you don’t have any attached insurance that you might need, as you will lose this if you close your account. Depending on your health situation, this may be difficult to replace.
c) Do you have multiple accounts?
You can easily check this through your MyGov. If you have multiple accounts, you will be duplicating a lot of fees. As above, before closing any account, check what insurance you have, and need.
2. Employer contributions
The rules have recently changed, and your employer is required to make contributions on your behalf of at least 11% of your income, irrespective of how much you earn each month. This will increase by 0.5% over the next 2 years, until it reaches 12%, so the more you earn, the more your employer will put in for you. Is increasing your hours an option, or asking for a pay rise?
Also check if your employer offers any additional contributions if you make personal contributions. You should also be checking your transaction history of your super account to check that contributions are actually being made.
3. Personal contributions
Finally, you can increase your balance by making personal contributions. Depending on your income, there are some incentives to do so.
If you are on a low income of less than $58,445 per annum, and make a personal contribution, the government will make a co-contribution of up to $500. There are some eligibility criteria around this, and the maximum co-contribution will be less than $500 if you earn more than $43,445.
If you are paying a marginal tax rate of more than 15%, you may also benefit from making concessional contributions, or salary sacrifice. This means that you can claim your contributions as a personal tax deduction, and the contribution is taxed within your fund at 15%. The contribution amount is capped at $27,500 per year, including your employer contributions. However, if you haven’t made any personal contributions in the last few years, you may have access to unused contributions, meaning you can contribute a higher amount. Whether this is appropriate for you, and how much you should contribute will depend on your personal tax position, however.
Super Guru is a great resource to help you work out how much you need for retirement, how you’re tracking towards this and what the impact of making small changes will have on your overall balance. Otherwise, reach out to a financial adviser for personal advice, to ensure these strategies are right for your situation.
All the best with your plans.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
Article by:
Comments0