For many, the end of financial year or tax time is a time to take stock of our finances, but don’t forget your superannuation.
Rather than let this opportunity pass you by, use this time to strengthen your super and positively impact your future.
Why should you take notice of and add to your super?
As has been recently reported, there is still a gaping chasm when it comes to the superannuation gap between men and women at retirement – around 47 per cent.
This equates to about a $90,000 difference at that time.
Here are five things to consider this tax time to help you build your superannuation savings and get ahead financially:
1. Be across the July 1 changes to super
Last year’s Federal Budget announced several changes to superannuation that come into effect from July 1 this year.
Concessional contributions are made pre-tax and attract contribution tax at a lower rate than most members pay on their income.
From July 1 the cap for concessional contributions is reduced to $25,000 per annum for everyone.
Non-concessional contributions are paid out of after-tax income and the limit on this type of contribution will also be reduced, from $180,000 to $100,000 per year.
Other changes include:
Removal of the tax-exempt status of earnings from assets that support a transition-to-retirement income stream.
Extending eligibility to claim a tax deduction for additional personal super contributions to everyone.
A $1.6 million transfer balance cap for retirement phase accounts.
The Australian Taxation Office (ATO) has a full breakdown of all the changes to superannuation.
Ultimately, these changes mean that you should be thinking about starting to make concessional contributions as early as possible – allowing the power of compound investment earnings to then take effect over time.
2. Take advantage of co-contributions
If you earn less than $51,021 per year, you can make voluntary contributions to your super and the government will also contribute up to $500 on your behalf.
The amount you receive is dependent on your income and how much you personally contribute.
Use the ASIC MoneySmart calculator to find out how much you could receive.
3. Consolidate your super into one account
Figures from the ATO revealed 45 per cent of working Australians in 2015 had more than one super account.
By consolidating your super into a single account, you could avoid unnecessary fees and add thousands to your super balance.
4. Act your age
It’s likely you have a different relationship with your super depending on your life stage.
For under-30s, you may be able to comfortably contribute more to your super if you don’t have other obligations like a mortgage or a family to support.
Again, the beauty of compound investment earnings means even a small contribution when you’re young can make a big difference in retirement.
$100 invested today will double to $200 in ten years, assuming a compounding rate of return of 7.2 per cent annually.
For under-50s, take the opportunity to review your investment strategy and also review your insurance cover to ensure the cover is right for you.
5. Plan for the future
How much super do you need to retire comfortably?
The answer is different for everyone.
The Association of Superannuation Funds of Australia (ASFA) estimates singles will need $545,000 in retirement savings and couples will need $640,000 to live ‘comfortably’ if retiring now.