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Making the Most of Your Superannuation

Superannuation is simply an investment structure that is specifically designed for your retirement savings. Through superannuation you can invest in a wide range of asset classes including shares, property, managed funds and cash. In fact, you can access almost all of the same investments that are available outside super – however, super has two key advantages over other types of investments:

  1. Tax advantages: Super is one of the most tax advantaged investment vehicles, as income earned in your super fund is taxed at a maximum rate of 15%. Whereas the income you earn from other (non-super) investments is taxed at your marginal tax rate (up to 47%, including Medicare Levy).
  2. Compounding interest: Because access to your super is restricted until later in life, it gains the powerful effect of compounding interest. Your contributions and overall nest egg will keep earning interest over time, which will then be reinvested.

 Making the most of your super

 

Assumptions: $10,000 initially invested into a managed fund in a super and non-super environment. Both earning 7% pa (3% income and 4% growth) with returns reinvested. Assumes a Marginal Tax Rate (MTR) of 47% including Medicare Levy.

How can I build up my super?
Think you might fall short of funding for retirement? Then it’s essential to start building up your super now so that it has time to compound. Here we outline a few options available to you:

1. Salary sacrifice: Employers are required by law to contribute 9.5% of your salary into your super fund (called Super Guarantee), however you may be able to contribute a greater amount of your salary to build up your nest egg faster. When you enter into a salary sacrifice arrangement, you forgo some of your take-home pay (which would be taxed at your marginal tax rate) and divert it into super where it is taxed at a maximum of 15%. Salary sacrificing can also reduce your overall taxable income, pushing you into a lower income tax bracket.

2. Super splitting: If your spouse has minimal super, splitting your own super contributions with them can help build up their own account. More importantly, it may assist you to increase the amount of tax-free super you can receive as a couple once you retire. Upon retirement, each individual can withdraw a portion of his or her super tax-free (depending on their age and actual super components). For 2015/16, the maximum tax-free threshold is $195,000 in lump sum withdrawals.

3. Make non-concessional contributions: Contributions which are made from your after-tax salary are non-concessional. This money has already been taxed, so it does not incur the 15% contributions tax that deductible contributions (such as salary sacrifice) incur. If you make a non-concessional contribution, you may be eligible to receive a co-contribution from the Government, whereby the Government will match your non-concessional contributions by up to 50%, with a maximum co-contribution of $500.

4. Self Managed Funds: A self managed fund can give you greater control of your superannuation. Some of the benefits include:

More Information

Superannuation can be complex and planning your retirement is not always straightforward. We can recommend a suitable strategy, which will take into account your personal circumstances but also ensures you maximise your retirement income and enjoy the lifestyle you deserve. If you want more information or simply want to take advantage of the options available please contact us.

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