Superannuation is one of the most crucial aspects of your retirement planning in Australia. It’s the way you save for your future, and making the most of your superannuation contributions can have a significant impact on your retirement lifestyle.
Superannuation is designed to ensure that Australians have enough funds to retire comfortably, but many people are not aware of the different strategies available to maximise their superannuation.
Understanding Superannuation
Superannuation, commonly known as “super,” is money set aside by your employer, which is then invested on your behalf to grow over time. In most cases, employers are required to contribute 10.5% of your ordinary earnings to your super.
However, this is just the minimum, and many people choose to contribute more to take advantage of the potential growth and the tax benefits associated with superannuation.
While the employer contributions are mandatory, the government has also created several incentives for individuals to contribute more to their super. With the help of expert retirement planners in Melbourne, you can take advantage of these incentives and contributions to build a more substantial retirement nest egg.
Strategies to Maximise Your Superannuation Contributions
1. Contribute More to Your Super
The most straightforward way to increase your super is by contributing more money. There are two main ways to do this: voluntary contributions from your pre-tax (salary sacrifice) or after-tax income.
Salary sacrifice is a powerful strategy for building your super. By arranging with your employer to contribute a portion of your pre-tax income to your super, you can reduce your taxable income, which may lower the amount of tax you pay. This strategy is especially beneficial for higher-income earners who want to reduce their tax liability.
After-tax contributions, on the other hand, are made from your take-home pay. Although you don’t receive the same immediate tax benefits as with salary sacrifice, the money you contribute will still grow in your super account and will benefit from compounding returns. Additionally, after-tax contributions may be eligible for the government’s co-contribution scheme, which we’ll explore next.
2. Take Advantage of Government Co-Contributions
If you’re a low to middle-income earner, the government offers a co-contribution to help boost your super. The co-contribution is available to individuals who earn less than a certain threshold and make after-tax contributions to their super.
For example, if you earn under $56,112 (for the 2022–23 financial year) and contribute $1,000 of your after-tax income to your super, the government will match that contribution up to $500. This is essentially free money, making it an excellent way to maximise your super contributions without having to do much extra
Keep in mind that the co-contribution decreases as your income increases, so the best time to take advantage of this scheme is when you’re earning a lower income.
3. Contribute to Your Spouse’s Super
Another strategy to supercharge your super is to contribute to your spouse’s super account. If your spouse has a lower income or isn’t working, you can make contributions to their super and potentially receive a tax offset. This can help your spouse build their retirement savings and can also provide you with a tax benefit.
There are eligibility requirements for this strategy, including income thresholds for both you and your spouse. A tax offset may apply to eligible contributions, further boosting your superannuation.
4. Maximise Your Contributions Before You Reach Retirement
The closer you are to retirement, the more important it is to maximise your super contributions. Catch-up contributions allow individuals aged 50 and above to contribute more to their super in the final years before retirement. If you haven’t used your full concessional contributions cap in previous years, you can make catch-up contributions, which allow you to contribute additional amounts without incurring extra tax.
In addition, the bring-forward rule allows individuals under the age of 65 to make larger non-concessional contributions in one year, which can supercharge your super. If you’re looking to boost your super quickly in the final years before retirement, this rule can provide a great opportunity to put more into your super fund.
5. Review Your Super Fund’s Performance
Maximising your super isn’t just about contributing more money – it’s also about ensuring that your super is working for you. Different super funds offer different investment options, and some are likely to perform better than others.
Consider reviewing your super fund’s performance regularly and, if needed, switching to a fund that offers better returns. Many funds also offer the option to choose your own investments, allowing you to align your super with your financial goals and risk tolerance.
6. Avoid Early Withdrawals
One of the quickest ways to derail your retirement savings is by making early withdrawals from your super. While there are certain circumstances where accessing your super early is allowed, it should generally be avoided unless absolutely necessary. Early withdrawals can significantly reduce the amount of money you have invested, which means less compounding growth in the long run.
If you’re tempted to dip into your super early, it’s worth speaking with a financial advisor who can help you understand the long-term impact and advise on alternative options.
Supercharging your superannuation is one of the most effective ways to ensure financial security in retirement. By making voluntary contributions, taking advantage of government co-contributions, contributing to your spouse’s super, and reviewing your super’s performance regularly, you can significantly boost your super balance over time.