Superannuation Advice Brisbane
What is super?
Super is a way of saving for retirement. Your employer must pay a percentage of your earnings into your super account, and your super fund invests the money until you retire. There are lots of different super funds out there, and different types of accounts.
A lifetime of super - and it's not just about retirement!
The key to life is living, not retiring, but there may come a time in your life when you want to change what you’ve been doing and either stop working completely, or take a long holiday and work out what’s next.
To be able to have this choice though, it’s imperative that you plan ahead, even if you think retirement is for everyone else.
As a rule of thumb, it is suggested people should aim for a retirement income of between 50% and 70% of pre-retirement salary/wages. Based on this premise, it is estimated you will need to save around 15% of your income for 40 years. The problem here is that your employer is only compelled to provide superannuation contributions for you at the current rate of 9.5% of your income per annum. So, how might this be done? You can start contributing to super earlier in your working life, raise the combined rate of your super contributions to 15% by making personal contributions (keeping under the annual limits of course).
Calculate what you need
Here is a link to a superannuation calculator that will help you work out when you can access your super and when you can apply for the Age Pension. Want to take it even further? This Retirement Planner calculator will help you work out what income you're likely to get from super and the age pension when you retire, how contributions, investment options, fees and retirement age affect your retirement income and how working part-time or taking a break from work affects your super balance. Both calculators are courtesy of ASIC's MoneySmart website.
The government regularly reminds us that each Australian must take responsibility for funding their future. Regardless of when you will be able to access your super, or when you choose to stop working, you need to be aware of how your superannuation is being managed and if the final balance will be sufficient when you’re ready to retire… and for the years beyond.
As a super fund member it is your responsibility to manage your contributions (over and above your employer’s SG), regardless of whether they are being invested into a retail fund, corporate fund or your own self-managed super fund.
Superannuation is a tax structure but it should be treated like a valuable financial asset. The fundamental principles of financial planning prescribe that individual tailoring, based on your needs, objectives and personal circumstances, is paramount to ensuring you have enough money to enjoy your retirement years.
It’s a recipe for disaster to think that once you have established a superannuation account and your employer’s contributions are flowing in, you can forget about it for the rest of your working life. Financial markets will change, your own financial position will change, and your objectives and retirement plans may change, so it’s crucial that you review your super regularly.
Super needs are different
Additionally, it’s foolish to believe that a “one size fits all” approach with no personal advice on contribution levels or transfer issues will help you achieve your goals.
The amount of money in your super fund when you retire will determine what type of retirement you will enjoy. So, it is you, nobody else, who must take responsibility for determining what your needs are and work towards meeting them. That could mean making increased contributions after a certain age to bolster your savings or deciding who your beneficiaries will be if you don’t make it that far.
Why do you need Advice for your Super?
If you are an employee, there are two ways in which you can optimise the tax-effectiveness of your additional super contributions:
opt for a salary sacrifice arrangement, whereby your employer makes additional superannuation contributions beyond the compulsory superannuation guarantee (SG) amount from your pre-tax earnings and reduces your salary accordingly; or
make a personal contribution and claim a tax deduction when you submit your tax return.
Generally, higher income earners gain the greatest benefit from either of these strategies. Lower income earners may be better off not claiming the tax deduction and receiving a government co-contribution if eligible.
For starters, employers don’t have to offer salary sacrifice. If they don’t, claiming a tax deduction is the only option.
Another thing to look out for: if salary sacrifice is available, will your employer still make SG payments on your pre-sacrifice salary? Legally, employers only need to pay SG on the actual salary amount, so for every $1,000 of salary sacrifice you would lose $95 in SG contributions. In this situation, you will most likely be better off claiming a tax deduction.
Fortunately most employers do the right thing and don’t reduce their SG contributions. The federal government has also announced plans to ensure salary sacrifice does not result in a reduction in SG payments. If this happens, it will pretty much level out the playing field between salary sacrifice and tax-deductible personal contributions, but some subtle distinctions remain.
Beware the rules
While the greatest benefit of extending tax deductibility on personal contributions goes to employees who are unable to access the salary sacrifice option, it’s still a positive move that provides everyone with flexibility and choice. However, whether you opt for salary sacrifice or claiming a tax deduction, there are rules to be followed. Talk to your financial planner about the best superannuation contribution strategy for you.
How can you boost your Super?
Often overlooked in your super account are the different insurance options on offer.
We go into greater detail on our insurance page but in a nutshell - you need to ensure your insurance is set up for your circumstances and needs. Three insurance products that are commonly part of your super are:
Life insurance which can help provide for your loved ones if you die. Life insurance is sometimes referred to as death cover.
Total and permanent disability insurance (TPD) which can provide a lump sum if you’re permanently injured and can’t ever work again.
Income protection insurance which can pay up to 75% of your income if an injury or illness results in you not working for a period of time.
Having these insurances inside your super can sometimes be cheaper, due to the saving in premiums that you pay due to the super funds buying power to negotiate group or wholesale rates. In addition, another added bonus is that the premiums are automatically deducted from your super which doesn't affect your hip pocket.
Are there any added benefits of Super?
Control and flexibility are two reasons why people consider setting up a SMSF, but many are unaware of how they work and what’s involved.
What is a self managed super fund (SMSF)?
Self-Managed Super Funds (SMSFs) have become a popular way for Australians to control their superannuation. The basic requirements are that the fund must have between one and four members and these people are normally family or business related. All members need to be trustees (guardians of the money) and even if the fund is only for one person you still require two trustees, although a corporate trustee with only one director can be used.
SMSFs give members unique control of their retirement investments, which can mean greater comfort with superannuation as a retirement vehicle. Generally, for investors with at least $250,000 in superannuation (or likely to have that much fairly quickly) SMSFs are generally cost-effective to manage.
This style of super fund will suit more experienced investors who may fall into the following categories:
Investors capable of and interested in managing their own assets;
Executives and professionals who wish to take advantage of super choice offered by their employer or business structure;
Retirees who want to pay themselves a pension from a low-tax environment;
Family groups who want to take advantage of estate planning initiatives available via the SMSF structure;
Business owners who may own or are thinking of purchasing their premises.
Is it difficult to manage a self managed super fund?
Self-managed funds are regulated by law and there are strict guidelines to ensure that fund investments are made with a view to providing for the members’ retirement. Administration requirements include preparing tax returns, annual audits, minuting trustee meetings and development of an appropriate investment strategy. There can be dire consequences for non-compliance of the rules, including loss of tax deductions on contributions and heavy tax penalties on the fund and its members. Depending on the severity of non-compliance, a jail sentence can be a real possibility.
The establishment of your own fund is relatively simple with professional assistance. Once you take the time to understand the rules and opportunities it may be one of the best investments you make.
To explore managing your own super and determine if it would suit you, please contact us.
What about Self Managed Super Funds?
Of course, there’s more to investing than can be conveyed on this page, but that’s no reason to delay putting the various markets to work. Your licensed financial adviser can help you understand your risk comfort level, and design an investment strategy that’s right for you.
Make an appointment with Investment Zone to have a conversation about the best strategy to grow and protect your super.