It’s important to keep in mind that you can’t access your super until you reach a certain age and when considering investing in your superannuation, your current age and stage in life are necessary factors to take into account. For example, with super generally accessed at the age of 65, financial experts are likely to offer different advice for those in their 30s or 40s than to those for whom retirement is not far off.
People years or even decades away from retirement could look at greater share exposure. Given that these investments typically outperform over the long-term, it makes good sense, as time is on their side. Conversely, for those much closer to retirement, less share exposure is often the preferred option. Extra funds in cash and fixed interest that could be comfortably drawn from over a period of time would be advisable. This approach also alleviates concerns about share market fluctuations.
Superannuation and Term Deposits
Did you know that most superannuation funds offer term deposits? People are often unaware that many of the regular investment options available outside of super are also available within a super fund. For example, in addition to potentially creating a share portfolio, investing some of your super into a term deposit account is another worthwhile consideration.
Generally, the longer the term of the investment or the more money you invest, the higher the interest rate paid. Rates are likely to be higher than most transactions and savings accounts. We can help you determine if this is a good option with your superannuation fund.
The Bottom Line and Taking Charge
Keep in mind that over a working life of say 40 years, the balance of your superannuation may be as high if not higher than the value of your home! So, if you’re unaware of how your superannuation is invested or performing, now is a good time to check. Why not take charge of your own investment?
According to Morningstar research data, a typical superannuation fund that has approximately 70% invested in shares and property and 30% invested in cash and fixed interest will generate a return of around 7% per annum over rolling ten-year time frames.
Tax Savings, Contributions and Schemes
One of the things to be mindful of with super is that the government has changed the rules a fair bit over the years, and this may continue to happen. For example, there is a limit to how much money can go into a super fund each financial year with a cap of $27,500 on concessional contributions (such as employer contributions, salary sacrifice tax- and tax-deductible contributions) and a further cap of $110,000 (non-concessional contributions) for after-tax money contributed to super.
Without super – let’s say you’re saving money in your own name for the retirement years – you would be paying more tax on those savings with an individual tax rate of anywhere between 19% and 47%. Super enables us to invest those same earnings with a tax rate of only 15%.
In addition to tax savings, there are other advantages in investing your superannuation. For example, first home buyers can save for a deposit under the First Home Superannuation Saver Scheme. And for those over the age of 60 who are selling their home, the downsizing contribution enables individuals to put $300,000 into their super fund.
Plus, for couples where one person in the partnership is receiving the pension (current pension age is 66 years and 6 months) and the other is younger and therefore not yet entitled to it, there are ways of maximising Centrelink benefits by transferring funds into the younger person’s superannuation.
Superannuation and Insurance
Did you know that you can hold insurance such as life insurance, total permanent disability cover and income protection cover in super? This is beneficial for people who want/need the cover but can’t afford to pay the premiums out of their pocket.
People can also have insurance cover in their super and have other insurance policies outside of super. So, it’s best to check what insurance cover you hold and determine whether it best suits your needs.
Lower Income Earners
For lower-income earners, the Government encourages people to save into super by offering a co-contribution of up to $500 per financial year.
Withdrawing your Super
When you retire you can choose the regularity with which you access your super based on your lifestyle and regular expenses (i.e., fortnightly or monthly withdrawals etc.). Some people also opt to withdraw a lump sum for those bigger expenses such as travel, buying a car or even paying off their mortgage. One advantage of the lump sum withdrawal is that these amounts are generally tax-free.
Getting Super Savvy!
All in all, I believe that taking a careful look at your superannuation is a wise move for everyone. In my view, it’s worth having that conversation about how your super is currently being invested and determining if there are smarter moves to make such as looking at longer-term investments in shares or putting more of your hard-earned savings into your fund.
To talk with us about investing in your superannuation or for guidance on any financial matters, please contact us for a complimentary consultation. At Strategic Invest Blue, we’re passionate about helping our clients live their best possible lives. We look forward to the opportunity to discuss what matters most to you and more importantly, to help you achieve those goals.
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Tony Daly is a Financial Planner and has been part of Hobart’s Strategic Invest Blue expert team since 2004. He particularly enjoys helping his clients understand what might be possible with their financial objectives. Away from work, his three sons keep him busy, and he’ll also be found regularly helping out on the junior cricket scene. Having played cricket competitively in both England and Australia, it’s a joy for Tony to stay involved in a sport he loves. Here, Tony shares his thoughts on whether superannuation is a worthwhile investment.
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