Life is living, not retiring
Superannuation is money that has been put aside by your employer(s) and yourself over your working life for you, so you can live off it when you retire. The more super you have, the more likely you can live a comfortable retirement and do the things you want.
Even with the increase in the Superannuation Guarantee to 10%, you should not rely upon this to fund a comfortable retirement lifestyle. As a rule of thumb, it is suggested that you aim for a retirement income of between 50% and 70% of pre-retirement salary/wages, which would require you to save around 15% of your income for 40 years, well short of the 10% of your income contributed by your employer each year.
How do I build my super balance for retirement?
There are many options, you can:
- start contributing to super earlier in your working life
- raise your combined super contributions to 15% by making personal contributions (keeping under the annual limits of course)
However, you can also consider distinct approaches to managing your super at different life stages – consider the following super tips:
Super Life Stages
I am young, single and independent
- Start small and make regular contributions to lay the foundation for your future retirement choices.
- Where possible, maximise your government co-contributions as these can potentially add thousands to your super fund.
- As appropriate, secure disability insurance through your super fund, as it may be the cheapest and most tax-effective way of providing initial insurance cover. That said, your adviser can recommend your sums to insure and recommend cover to suit your needs.
- Choose an investment strategy that suits your long-term risk profile, which may be different to the default option of your super fund.
I have a family and a mortgage
- You may be focussed on your family, repaying your home loan, getting promoted or building a business but don’t forget your super. Remember the law of compounding investment returns.
- As you have a mortgage with young children, insurance should be a top priority, as the impact of injury, illness, disablement or death can have a significant impact on you and your family. Consult with your adviser for suitable and tailored insurance cover.
- Check eligibility for a tax offset on your spouse superannuation contributions and government co-contributions.
- Review your investment strategy and risk profile, do you need to change tact?
I am in the ‘in between’ years
- You may have a higher income and a smaller mortgage; this may open up the opportunity to grow your wealth and boost your super but take care not to exceed contributions and Total Superannuation Balance limits – this can be costly.
- Understand if you can salary sacrifice or make personal deductible contributions to boost your super savings and reduce your personal tax liability while you are working.
- Review your insurance cover and your investment risk profile, again do you need to change direction?
My retirement is looming (hopefully but not guaranteed)
- With your mortgage nearly paid off and children leaving home (well hopefully), you may have more disposable income to contribute to superannuation. Again keep an eye on your contribution amounts and Total Superannuation Balance, a mistake can cost you thousands.
- Consider combining salary sacrifice with a transition to retirement pension if beneficial.
- Review your insurance cover as you may not need that much cover, and your investment strategy and risk profile.
- Start comprehensive retirement planning, strategies to ease into retirement, or perhaps a new career focus.
I’m downing the tools – I may start a new role, explore a passion or just retire
- If you have been planning ahead, its likely you have achieved your goal of retiring comfortably. For retirees over 60, lump sum withdrawals and pension payments are generally tax free!
- You should review your investment risk, balancing income and growth assets in your portfolio to help ensure your money lasts as long as you do. Nobody wants to run out of money.
- Review your insurance needs.
- Stay active and enjoy life or launch into your next career – do what you want to do!
It’s never too early or late to start planning.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.