Superannuation is an integral part of retirement planning for every working Australian. While the basics of super are widely understood, delving deeper into more advanced strategies can help you significantly boost your retirement funds. This guide will explore sophisticated techniques, including contribution splitting, catch-up contributions, and downsizer contributions, to help you make the most of your super.
How Superannuation Works
Superannuation revolves around accumulating funds through employer contributions, personal contributions, and government co-contributions. The money is then invested on your behalf, aiming to grow these funds over your working life. Contributions are subject to concessional tax rates, making super a tax-efficient investment vehicle.
Benefits of Superannuation
The key benefits of superannuation include:
Tax Efficiency
Concessional contributions are taxed at just 15%, significantly lower than most personal income tax rates. Similarly, investment earnings in super are taxed at a maximum of 15%, and the tax treatment of withdrawals can be tax-free after age 60.
Compound Growth
Thanks to the compound growth of investments over many years, even small additional contributions can grow substantially by the time you retire.
Insurance Options
Personal insurance can be funded through super allowing you to have the right cover in place should something go wrong without having to pay for it with after tax funds.
Optimising Your Superannuation
To truly maximise your super, consider employing these more advanced strategies:
Contribution Splitting
This involves transferring part of your concessional (pre-tax) super contributions to your spouse’s super account. This can be particularly useful if one partner is significantly older or if one is likely to retire earlier. Contribution splitting can help balance super balances between partners, potentially reducing the tax payable on withdrawals.
Salary Sacrificing
Beyond the Superannuation Guarantee, you can arrange with your employer to sacrifice part of your pre-tax salary as an additional contribution to your super. This strategy reduces your taxable income and increases your super balance, leveraging the concessional tax treatment of super.
Catch-Up Contributions
If you have not reached your concessional contributions cap in previous years, and your total super balance is under $500,000 (as at 1 July each year), you can carry forward unused cap amounts for up to five years. This is particularly advantageous if you anticipate higher income years or receive a windfall you wish to contribute towards your super, allowing for substantial tax-efficient contributions in a single year.
After-Tax Contributions
Making non-concessional (after-tax) contributions can also be a powerful way to boost your super, especially if you’ve already maximised your concessional contributions. These are subject to caps but do not attract additional tax upon entering the super fund.
Downsizer Contributions
For those over age 55 who are selling their family home (owned for a minimum of 10 years), downsizer contributions allow for up to $300,000 per person ($600,000 for couples) to be contributed towards super. This does not count towards your non-concessional contributions cap and can be a significant boost to your super balance, especially useful for those who may have lower super balances due to entering the super system later in life or having interrupted work patterns.
Regular Reviews and Rebalancing
The super landscape, along with personal circumstances, can change frequently. Regularly reviewing and rebalancing your super investments ensures alignment with your retirement goals and risk preferences.
Remember, not all of these strategies are appropriate for everyone. Reach out to the team at Hunter FP who can guide you through these strategies in more detail and help action the ones that will put you on the path to better outcomes.
By taking a proactive approach to your super, you can maximise your retirement benefits, ensuring a secure and comfortable retirement. Consider seeking advice from a financial planner to tailor these strategies to your specific needs.
Here at Hunter FP, we help clients see past the noise and just start the journey. Get in touch with us to start your own journey.