If retirement is on your horizon, you’re probably already thinking about how much superannuation you’ll need to fund the income you want and whether you’ll have enough.
If you’ve been working full-time since the super guarantee was introduced in the early 1990s, which made employer super contributions compulsory, it’s likely you’ve been able to build a decent balance.
Those employer contributions really add up over the years, and with the benefit of compound interest, the longer you’ve been working, the higher your balance is likely to be.
But if you haven’t got a big super balance – perhaps you’ve been self-employed or taken a break from the paid workforce to care for family members – don’t panic, because you’ve still got options.
Small contributions can have a big impact on your final balance, even if you’re planning to retire in a few years.
It’s a time when you might actually find it easier to make extra contributions, because the kids may be off your hands, the family home paid off and, having climbed to the top of your career, you might even be enjoying a better income than you’ve had before.
Super’s still the best way to put money aside for your retirement because there’s a range of tax incentives available to encourage you to do just that. Before we look at how those incentives work, though, let’s check whether you’re on track to retire in comfort.
Gemma Pinnell, director of strategic engagement at Industry Super Australia, says a great place to start is with a quick estimate of your likely super balance at retirement.
“It’s important to figure out what your super balance could be at retirement, especially as you get closer to the time,” she says. “A retirement balance calculator can help you do this.”
All you need to get your estimate is your current super balance, plus details of your income and super contributions.
“If you want to boost your balance once you’ve done this, looking at putting personal contributions into your super, either before or after tax, is a great idea” Pinnell adds.
Personal contributions are simply super contributions you make from your after-tax income (as distinct from employer or salary-sacrifice contributions).
You can even claim a tax deduction for your personal contributions, although a 15 percent contributions tax will apply if you do (the same tax rate that’s applied to employer contributions). If you choose not to claim a deduction, the full amount of your contribution goes into super and will be working for you straight away.
Pinnell says there are some restrictions on how much you can contribute but the rules still provide plenty of scope for topping up your super. “With after-tax contributions, there is the ‘bring it forward’ rule, which can see you contribute $300,000 over three years,” she notes.
As well as personal and employer contributions, there are other ways you can add to your super balance.
If you’re a low-to-middle income earner and make a personal contribution to super, you might be eligible for a $500 top-up in the form of the government’s offer of a super co-contribution. The Australian Taxation Office explains more about how that works.
There’s also a tax offset of up to $540 available for people who make a contribution to their low to middle income-earning spouse. And if your adjusted taxable income is up to $37,000 and you (or your employer) make deductible contributions to your fund, there’s another tax offset equal to 15% of contributions made to your super account and capped at $500 paid directly into your fund, the ATO explains.
The government also recently introduced the opportunity to downsize your home and put $300,000 straight into your super fund to boost the retirement income you’ll be able to create. Again, the ATO has more details on how to take advantage of the downsizing rule.
As always, to take advantage of these benefits you’ll need to meet a number of eligibility criteria, but you’ve got access to a range of resources to work that out.
If you’re after the finer detail on how the various tax benefits work, then you’ll find all the information on the ATO website.
As you change employers, especially if your employment is short term, it can be easy to forget that each employer likely made compulsory super contributions on your behalf. Those contributions could be among the billions of dollars currently unclaimed by Australian workers, which are held by the ATO until their owner claims them.
Rounding up any small amounts held in super funds you may’ve forgotten about will add to your overall balance. Your super fund can help you consolidate your forgotten super. Otherwise, you can enquire with AUSfund, which holds the lost and inactive accounts from more than 35 individual super funds, or with the ATO by using your myGov account.
While you’re making enquiries into your super, take the time to check your fund’s performance because, again, even a small improvement in the investment return on your fund, and a reduction in the fees and charges you may be paying on the fund, can make a considerable difference to your overall balance in a relatively short space of time.
If you find that your current fund doesn’t measure up well against others in the market, changing to a better-performing fund or one with lower fees and charges is simple and can be done online. This, combined with any additional money a search for lost super may uncover, has the potential to make a difference to your retirement income.
With the superannuation and Age Pension rules changing all the time, it’s important to stay up-to-date to make sure your retirement plans are on track and you’re taking advantage of every opportunity to boost your balance.
That’s why it’s a good idea to get professional help in the years leading up to retirement. Before making any big financial decisions, talk to your fund; all Industry SuperFunds have qualified advisors who can help you, free of charge, to maximise your retirement benefit.
When’s the best time to start? Right now, because every dollar extra you can contribute to super will make a difference, even if you have only a couple of years left until you retire.