Superannuation | Super Depending on Your Age
Superannuation In Your 20’s
Many individuals feel that something such as superannuation is more for older people, which is actually true in a few ways. Although, even if you are in your 20s, there are other good reasons to take more interest in this kind of thing. Understanding these Supers depending on your age can be a huge boost to your lifestyle later in life.
For instance, an average 25-year-old person has approximately $25,000 in super, and the decisions that you make could potentially earn you extra money. Hundreds of thousands of dollars, to be exact.
Choosing Your Super Fund
Are you someone who is earning more than $450 per month?
If so, then this means that every three months, your employer should be paying approximately 9.5% of that amount into your super fund.
Generally, you are allowed to choose your fund. However, if you don’t choose it, then your employer will take advantage of that option and pay the 9.5% into the fund of their choice.
This doesn’t mean, however, that you absolutely do not get any kind of a say regarding how any of that money is actually invested.
If you are not fully aware of whether or not your super is actually being paid, or even what particular fund your super is being paid into, speak to your employer about it.
If you suspect that you may be missing out on anything, go to the tax office website and search for “unpaid super” to find out exactly what you can do.
Consolidating Your Super
Do you have more than one job that you’re currently working?
If you have more than one small super account, the money can essentially disappear thanks to countless insurance premiums. Not to mention fees.
The best way to fix this issue is to combine your super into one single account.
What Should You Do About Insurance?
If you don’t have any dependents that you have to worry about, you may have another thing to investigate.
This could mean that your super fund could be paying for insurance that you may not need right away.
When you cancel life insurance that isn’t necessary for you to have, the end result is clear. More money in your account! Money that can significantly boost your savings total.
However, if you do need disability or life insurance, then the best option would be to obtain something like this through your super.
Long Term Benefits of Superannuation
Your money is something that can be stuck within a super for a long length of time. Meaning, you will want to do everything within your power to ensure that it’s working hard for you.
There are a variety of funds that offer a wide range of investment options. And, some do better than others.
Take the time to imagine your super and income contributions follow a certain pattern within the span of approximately 42 years[1].
This fund will earn around 5% per year, meaning that it will be worth $1,037,154 when you finally decide to retire.
You will only need to change one thing, which involves selecting an investment option that could earn approximately 8% per year – meaning that your total balance will end up growing to well over $2,000,000 overall!
That’s an amazing increase of one million dollars, and all because you checked off a different box on your super fund application!
However, there is more involved in the total process. When you go with an investment option that offers and provides higher returns, the overall value is likely to fluctuate up, down, and stay stagnant at times.
On the other hand, investment options that are “safer” tend to produce some of the lowest returns which are more long-term.
Super and Financial Planning
There are many exciting things that people want to do with their money besides sticking it into super. Maybe purchasing a new car, going on an exciting vacation, or just plain having fun.
In the end, the choice is ultimately yours, but take a moment to consider the following:
If your parents retired this year, they would actually need a minimum amount of $58,700 per year to be able to enjoy themselves and do the things that they really wanted to do[2].
It may not sound like much right now; however, by the time you actually retire, inflation could cause that amount to increase to around $203,000[3]!
This means that you would actually need to have no less than at least $3,400,000[4] in your savings account, despite the fact that you may still have more than 40 years until you can actually retire.
However, this is something that is entirely possible if you start saving early enough, meaning you won’t have to worry too much about being forced to miss out on enjoying life.
Super in the Long Term
It’s no secret that you will, without a doubt, live much longer than your parents and your grandparents.
Do you think that you could live another 30 years without earning any kind of an income?
Having a solid investment plan that will make your super work hard while you’re gainfully employed will be what prevents you from having to barely squeeze by on some kind of pension.
When you start early and add extra whenever you can, you will be making a big difference in the long run.
For instance, by making an extra pre-tax contribution of 1% of your annual income to your super, an 8% investment return could tack on an extra $149,000 to your retirement fund.
Furthermore, if you decide to wait an additional 20 years before you make that extra contribution, this means that you would only get a boost of around $49,000, which would be a reduction of $100,000.
If you still consider superannuation to be boring, don’t worry because you certainly aren’t alone in that respect.
However, rather than finding the time to figure everything out for yourself, contact your local financial expert who will help you review everything and help you prepare a successful strategy so that you can get back to enjoying your life!
SUPERANNUATION IN YOUR 30’S
When you hit your thirties, life often revolves around two crucial things: kids and bills.
While there is no doubt we love our kids, it’s impossible to deny that raising them is expensive.
To add even more financial stress, your thirties are the period in your life when repayments, such as your mortgage, tend to be at their highest, in relation to your income.
For some families, this stress is compounded when one parent is either not working or only working part-time.
Of course, if you don’t have kids (or even if you do), there is a good chance that you are focused on building your career during this decade.
So, should you really be expected to worry about superannuation during this hectic time?
Actually, yes, there are a few things that you need to focus on. To make things easier for you, here is a look at what you should pay attention to.
Short-Term Plans for Super
It’s not unusual for careers to hit their stride during this decade, which makes it an ideal time for earning a good income.
If you don’t have children, but are planning to have some in the future, this is a great time to hide away and invest any extra cash for a possible decrease in family income after a baby arrives.
Keep in mind that that any savings you may want to access prior to retirement shouldn’t be invested in superannuation.
Long-Term Plans for Super
According to inflation, a 35 year old couple, who plans to retire in 32 years, will need an income of around $150,000 a year if they plan on a comfortable retirement[5].
To support this level of income for as many as 30 years in retirement, they will need to build a combined nest egg of $2.6 million[6]. However, don’t let this information stress you out!
If you are on at least a 30% marginal tax rate, are interested in decreasing your tax bill, and are agreeable to putting away some cash for the future, you may want to make salary sacrifice (pre-tax) contributions to super.
For most individuals, earnings and super contributions are taxed at 15%.
As a result, your savings will grow more quickly in super than it will outside of it.
For example, if your yearly earnings are $100,000 and you choose to contribute $10,000 of your salary to super, you will pay $3,900 less in income taxes for the year, while also increasing your super balance by $8,500.
Building Your Nest Egg
If you aren’t in a position to make additional contributions at this time, you can still work on growing your nest egg.
To do this, make certain your super is invested in an appropriate portfolio. The ideal portfolio will have a higher proportion of shares, property, and other growth assets.
This is because it is more likely to do better than a portfolio that focuses on fixed interest investments and cash. However, be aware that with anything, the higher the potential return, the higher the related risk.
An additional option for anyone unable to make extra contributions is to research co-contribution.
To do this, you must be able to contribute as much as $1,000 to your super. In return, you could potentially receive as much as $500 from the government.
If your goal is to keep growing your spouse’s super while he or she is earning less income, you can make a spouse contribution on their behalf. You will earn a tax offset that is as much as $540.
Your Super Can Pay For Insurance
For any family, financial protection is critical. After all, the disablement or death of a parent can have catastrophic monetary consequences. This is why both parents should have both disability and life insurance.
If you use your superannuation to take out your insurance, you can have the premiums paid out of your accrued balance, which means your current family budget will not be affected. Of course, there is a tradeoff. Your ultimate retirement benefit will be less than if you took out the insurance directly.
Keep in mind that you shouldn’t automatically accept the amount of coverage offered with a policy. You should make certain that it will be able to meet your needs.
When you are in your thirties, there are so many things to do. From building your career and making investments to taking out insurance or a super, it’s definitely the time to take a serious look at your financial plans for the future. To create a plan that allows you to have everything you need now, as well as 30 years from now, speak with a licensed financial adviser.
SUPERANNUATION IN YOUR 40’S
By the time you reach 40 years old, many individuals are established in their career and their lifestyle, whether married or single.
There may be teenagers in the house, or the stress of caring for aging parents, as well as your children, but you will probably have a steady income to help manage it all.
Money Management
Good money management includes preparing for retirement, and establishing a workable superannuation plan starts now.
An effective way to start this process is by starting a payroll deduction (also known as salary sacrifice) superannuation fund. This method of savings is where pre-tax dollars are taken right off the top of your paycheck and deposited into a retirement fund.
The advantages of this are two-fold–not only are you increasing your retirement balance, but your contributions and their earnings are only taxed at 15%.
For someone earning $80,000 to $180,000 per year, that money you contribute to your account that would be normally taxed at 39% will provide significant savings on tax payments.
A 45- year-old working person will reach retirement age in 22 years.
Adjusted for inflation, the amount of money needed for a couple to live well during their retirement years is about $112,500 annually.
As the government’s expectation is that seniors will be self-sufficient, the amount of money needed to fund the average lifestyle is $2 million dollars[7][8].
That means you only have a couple of decades to get your finance in order, as time slips by quicker than you think.
One caveat is that if the combined salary retirement contribution and guaranteed contributions exceed $30,000, any amount over this limit will be added to your regular income and taxed at your marginal tax rate.
Super and Mortgages
Many smart consumers plan for retirement by paying off their mortgage.
With your mortgage paid off, you will have more disposable income to contribute to your super fund.
It is generally best to pay down your mortgage first before investing large amounts into your superannuation.
Contrary to popular belief, you don’t have to be rich to ensure a healthy superannuation fund.
Low income earners can receive a 50% return on their investment from the government by putting part of their paycheck into a superfund[9].
Limits on Super
There are limits, but $500 of the government’s money goes a long way toward substantial savings.
Another way to save if you and your partner split contributions where one partner’s contribution is rolled over into the other’s fund.
There is no way to predict what will happen in the future.
We all hope to live a long, healthy life but planning for the unexpected is part of retirement planning.
Having insurance coverage through superannuation can provide in some cases lower premiums.
Make sure you are insured for what you will need and check how much a default policy pays before automatically assuming it will cover your dependents adequately.
Check into binding nominations that may lessen the time it takes to pay out a death benefit instead of waiting for the long probate process.
Your forties are the perfect time to take control of your financial future. With proper planning, your retirement years can be the best time of your life.
Be sure to seek out expert advice where needed to ensure you have a super retirement.
SUPERANNUATION IN YOUR 50’S
If 50 truly is indeed the brand-new 40, then life will have just begun, and this can be an awesome thing. Your children are gaining their independence.
They may even have left the nest and home too. The mortgage might even be a thing of the past for you. Total Bliss. But what is galloping like a horse towards you is…oh no!…retirement.
The fact is this. By the age of 55, there is a number of men and women who have already retired, and they count for 25% of all men and 55% of all women.
If you don’t have a working retirement plan that is firmly in place, there is no time, better than now to get it going.
Tracking your Super is Key
The inside track, according to the Association of Superannuation Funds of Australia (ASFA) is this, and that is that a comfortable retirement for today is roughly about $58,784 for couples per year.
This is what the projected cost annually for couples should be.
If you and your partner are looking to retire comfortably at age 55, in order to afford this lifestyle for retirement and secure the future of you both into your mid-eighties of age.
You will need to be looking at having at least $1.02 million available in super[10].
As time progresses, inflation can very well, push this projected total far up higher to even more.
If you hold off and do retirement at age 65, a couple will need at least $79,000 each year[11], which would come from a nest egg of $1.07 million in super[12].
Do you find these numbers to be a bit on the daunting side? Here are some valid ways to boost up your overall retirement savings.
Pre-tax Contributions
You can always ask your employer to lessen the pay that you bring home. This means that you can make much bigger contributions to your super fund.
If you are fortunate enough to be self-employed, you can decide to increase the level on your pre-tax contributions as well, in addition. This strategy is known as “salary sacrifice”.
If you are making a yearly salary of anywhere between $80,000 and $180,000, any income that does lie between these two salary figures limit is taxed about 39%, as a rule.
Any salary sacrifice contributions that are made to your superannuation fund are usually only taxed at about 15%.
If you do sacrificing of just $1,000 a month to your super, just over the course of one year, you will be far better off tax-wise on a difference of $2,880 alone.
Also, any earnings on these super contributions will only be taxed 15%, compared to any type of investment earnings that may be made outside of the super being regularly taxed at one’s own marginal rate.
Make sure not to overdo it though. If your salary, in addition to, your superannuation do guarantee any contributions that add up to more than $35,000 yearly.
The excess will become something that will be added into your accessible income. It will also become taxed at your marginal rate too.
Transition into Retirement Slowly
Once you have started to reach your preservation age[13], you can start to do one thing, and this thing is to make a transition to retirement pension (TTR) from your superannuation fund.
What the idea to connected to this is all about is lessening work hours. It doesn’t reduce one’s income though.
You can choose to work full-time and start a TTR pension. What is good about this is the following. You will get to increase the level that does go along with your salary sacrifice contributions.
This is within certain limits though. There is also another very real incentive for starting a TTR pension and that is that once you do get to the age of 60.
Any income that you do receive, and the earnings, which come from the investments backing the pension are all tax-free through June 30, 2017.
Keep the money working for you
A lot of people do decide to go for more security, and because of this reason, he or she may choose to go for secure and lower return investments on the average.
This is, something they do decide on, as they approach retirement. Nonetheless, the truth is this, and that is that even at retirement time.
The investment horizon that one hopes for may still turn out to be decades away for them.
Nevertheless, with both cash and fixed interest producing some of the lowest rates in history, it may be wise to invest a good portion of your portfolio into growth assets.
Insurance along with any death benefits
With your mortgage being paid off or almost paid off, and your growing investment pool, insurance needs will probably change individually.
You may see yourself paying for insurance coverage that you no longer do require in essence. Premiums can get very high with age.
This money being paid on insurance costs can be something that can be better applied to boosting one’s savings.
This becomes a good time to take a cold hard look at your insurance coverage.
You should also check closely into your death benefit nomination too. This is something that goes along with your super fund.
Having a binding nomination of this type will ensure that your death benefit goes to only those that you have made it beneficiary to.
This may mean that they will get the money much quicker in the end.
Make sure to having a plan in place!
What superannuation does is very clear. It presents you with lots of good and solid opportunities that do work in your favour.
They help to boost up your retirement wealth. Nonetheless, it can prove to be a sort of complex area, and the strategies that benefit some may not work well for others.
This is why good advice is an absolute essential here. The sooner you sit down with a licensed financial adviser, the better your chances greatly of having more when you do finally get to the finish line.
Resources
[1] [1] Starting salary $50,000 pa increasing at 4% pa over 42 years. Super contributions fixed at 9.5% of salary and taxed at 15%. Investment returns before inflation but after tax and fees.
[2] Income required to provide a couple with a “comfortable” level of income as calculated by The Association of Superannuation Funds of Australia (ASFA) (August 2015)
[3] Value of $58,700 today in 42 years at 3% inflation
[4] Sum required to fund an annual income of $200,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[5] Value of $58,700 today – the income required to provide a couple with a “comfortable” level of income. As calculated by The Association of Superannuation Funds of Australia (ASFA) (August 2015) – in 32 years at 3% inflation.
[6] Sum required to fund an annual income of $150,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[7] Value of $58,700 today – the income required to provide a couple with a “comfortable” level f income. As calculated by The Association of Superannuation Funds of Australia (ASFA) (August 2015) – in 22 years at 3% inflation.
[8] Sum required to fund an annual income of $112,500 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[9] The super co-contribution high income threshold for 2015-16 is $50,454.
[10] Sum required to fund an annual income of $58,784 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[11] Value of $58,784 today in 10 years at 3% inflation.
[12] Sum required to fund an annual income of $79,000 for 20 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[13] Depending on your date of birth, your preservation age will be between 55 and 60. It is the age at which you can access your superannuation under certain conditions
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