When you’re young, retirement might feel like it’s forever away. However, the power of compounding interest means that it’s never too early to start growing it. So, what is superannuation, and why should you already be thinking about it? This blog looks at our most significant aspect outside of the family home and how we can best manage it.
Regardless of where you’re at in your financial journey, read on for more important information and tips on your superannuation.
What is superannuation?
Aside from your family home, superannuation is one of the most significant investments you’ll make in your lifetime. Your superannuation – or ‘super’ – is money set aside for you by your employer throughout your working life to fund your retirement. Your super is invested in various assets to help grow your balance and set you up for success when you retire.
Believe it or not, superannuation is a fairly recent initiative. Due to an increasing life expectancy, the government had to do something to stop the aged pension from overwhelming the economy. Superannuation was developed to combat this, meaning there were mandatory savings for the future.
The super guarantee requires employers to contribute a minimum percentage of an eligible employee’s earnings to a super fund, which acts as a retirement savings account that you can’t access until you reach the retirement age set by the government. Currently, the age at which you can access your super is 65.
While the superannuation guarantee rate (the minimum percentage amount your employer must contribute) can change, it currently sits at 10.5 per cent.
Understanding your super is vital at any stage of your financial journey. This includes things like:
- How your super is invested
- The investment options available
- The fees you are paying
- How your super’s performance is tracking compared to alternative funds
- The various contribution limits and strategies you can take advantage of
- The potential tax benefits available
- Do you have unclaimed super?
- What happens to your super when you die?
Why is superannuation so important, and what are the benefits?
Superannuation is vital as it sets you up for your future. Without actively considering your future, it’s likely you may not have the type of retirement you’d like. Putting a little aside each month (if you can) can go a long way – your future self will also thank you for it!
Aside from setting you up for your ideal retirement, other benefits of super include:
- Setting you up for the type of retirement you want
- Forcing you to contribute to your savings for retirement
- It lets you draw tax-free income in retirement
- Paying less income tax
- Allows for tax-effective capital growth
- The ability for additional employer contributions
- The option for salary sacrifice
- Investment opportunities within your fund
While superannuation is something every Australian should have, everyone’s financial situation is unique. The team at Inovayt have worked with clients – all with different needs – to develop a goals-based financial approach for building wealth and achieving your financial goals sooner. This includes managing your super fund and getting it to a level where you can achieve your dream retirement.
To read more about the benefits of superannuation, check out our blog.
How can I grow my superannuation?
The 10.5 per cent mandatory contribution from your employer isn’t the only way you can grow your super balance. Some other ways you can increase your wealth for retirement include:
You can make voluntary contributions to your super fund to grow your balance. When it comes to personal contributions, the ATO states:
If you claim a tax deduction for them, they’re concessional contributions and are effectively from your pre-tax income. They are taxed in the fund at a rate of 15%.
If you don’t claim a tax deduction for them, they’re non-concessional contributions and are from your after-tax income or savings. They are not further taxed.
It’s important to note that personal contributions are in addition to any compulsory contributions from your employer and don’t include contributions made through salary sacrifice.
Depending on your industry, salary sacrifice may be something you can set up with your employer. Also known as salary packaging, salary sacrifice is where you and your employer agree you’ll receive less income before tax. In return, your employer pays for specific benefits of similar value for you. This means you pay less tax on your income. Superannuation is a great option to consider if you’d like to look into salary sacrificing, and as the money is taken out before you get paid, you won’t even know what you’re missing!
Our financial advisors are here to talk you through the benefits of salary sacrifice, including answering any questions you might have.
What are the types of superannuation?
There are several types of superannuation funds in Australia, broadly grouped into three categories:
- Industry Super Funds: These funds are tailored to specific industries and governed by boards representing employers and employees equally. They are known for their cost-effectiveness and competitive investment returns.
- Retail Super Funds: Financial institutions such as banks and investment companies offer these funds to the public. They vary in fees and investment choices, making them accessible to many investors.
- Self-Managed Super Funds (SMSFs): SMSFs provide individuals or small groups of trustees with greater control over investment decisions. However, they come with increased responsibilities and compliance requirements.
Furthermore, there are public sector super funds catering to government employees and corporate super funds established by employers for their staff. Superannuation contributions are compulsory for most Australian workers, with both employees and employers typically contributing. These funds play a vital role in securing financial well-being for retirees, making them an integral part of Australia’s retirement landscape.
Should I get a self-managed super fund?
Self managed superannuation funds (SMSF) are much more complex than regular superfunds and should only be done after consulting a professional. Although it’s complicated, there are some great benefits, including:
- Gaining access to a wider range of opportunity investments.
- Getting the chance to use more suitable tax strategies before increasing your savings.
- More room to move around both accumulation accounts and pension accounts.
- Transparency with investments.
It’s important to note that these benefits are only achieved when you work with a team of professionals who can help you set up and manage your super. Setting up a successful SMSF doesn’t happen overnight, but our team of expert finance professionals are here to guide you through the process and help you understand if it’s right for you.
Read our blog to learn more about why a self-managed super fund might be right for you.
Speak with an Inovayt financial advisor about managing and growing your superannuation.
Now you have a better understanding of what superannuation is, it’s time to team up with an Inovayt financial advisor to grow your super. With a finance professional working with you, they can tailor a financial plan to match your unique situation. If you’re ready to invest in your future, get in touch with our team today.