Superannuation, or just ‘super’, is a great way to maintain a good standard of living in retirement.
What exactly is super and how can you make the most of it?
Your super fund is basically a managed investment fund that your employer makes mandatory contributions to, and to which you can contribute as well if you choose. Superannuation is basically a very low tax savings account, but because the money is invested on your behalf, it earns higher returns than a regular savings account.
Choosing a Super Fund
Check with your employer to find out how much choice you have in regards to your super. Generally, you can choose your own super fund, but some industries specify a particular fund or sub-set of funds you need to use. Once you know what your options are, you can use a superannuation comparison website or sit down with financial advisers to choose the best one for your needs.
How Do Super Contributions Work?
There are three types of super contributions: employer contributions, personal contributions, and government contributions.
Employer Super Contributions
Employers are generally required to pay an amount equal to 9.5% of your ordinary hourly wages – not including overtime – into your super fund account. For instance, if you earn $80 000 in a year, your employer will pay $7 600 into your super fund on top of that.
If you are your own employer, you are responsible for paying yourself super, but doing so is not mandatory. Any super payments you do make will be tax deductible.
Personal Super Contributions
There are a few ways to make additional payments into your super fund:
- You can salary sacrifice by asking your employer to put an additional percentage of your wages into super along with their regular contributions.
- You can directly transfer some of your savings into your super account using BPay or direct deposit.
- If you have multiple super accounts, you can consolidate them by transferring all funds to the highest earning account to minimise fees and maximise return.
If you’re a low-income earner, you may be eligible for additional government contributions up to $500 if you pay your own after-tax earnings into your super. If you earn less than $37 000, you might also receive a low-income super tax offset to the tune of $500.
Super: Behind the Scenes
As mentioned above, the money that goes into your super doesn’t just sit there, or earn a standard interest rate like your savings account. Your super money is invested by your super fund into a range of assets so you can benefit from the returns. Depending on the type of super you choose, these investments can be very low risk or trade more serious fluctuations for higher returns. Choose your super carefully, depending on your current and likely future financial situation.
Reaping the Benefits
Once you have reached your ‘preservation age’, you can access your super tax-free. Super can be taken as a lump sum, a regular income stream, or a combination of both. Any money that you haven’t accessed yet continues to work for you and earn interest.
To access your super you need to have retired and passed a certain age, which will differ depending on when you were born:
- Before 1 July 1960 – aged 55
- 1 July 1960 – 30 June 1961 – aged 56
- 1 July 1961 – 30 June 1962 – aged 57
- 1 July 1962 – 30 June 1963 – aged 58
- 1 July 1963 – 30 June 1964 – aged 59
- After 1 July 1964 – aged 60
Speak to Kaboodle Finance
The team at Kaboodle Finance can refer you to a financial advisor to assist you with your super so give us a call on 1800 KABOODLE today.