Super is one of the most tax-effective ways to build your retirement savings, and there are a number of strategies available to you which can really make a difference to your long-term savings.
But given the regular changes to the super rules, it can be difficult to know what you can and can’t do and, more importantly, what you should do.
Our top five tips can help you make the most of your super.
In this article we share five key strategies which you should consider if you want to boost your savings as well as outline the basic rules associated with super.
Strategies to build your super:
Strategy #1: Consider which super structure is right for you
There are a range of structures available for managing your super savings including Industry funds, Retail funds, and Self-Managed Super Funds (SMSFs). Each structure has advantages and disadvantages, and your personal situation, stage in life and retirement goals will influence which structure is most appropriate for you. We have outlined considerations for three popular structure choices.
Industry Funds: While Industry funds are likely to have lower fees, and profits are often returned to members, they may offer fewer investment choices, potentially limiting your ability to use a range of investment options to grow your super savings.
Retail Funds: As a rule, Retail funds offer a greater range of investment options, allowing superannuation portfolios to be aligned with different levels of risk and asset classes. Your chosen investment strategy can have a significant impact on the performance of your super savings in the long run. Retail funds may also offer comprehensive insurance options which may represent savings for some members.
Self-Managed Super Funds (SMSFs): SMSFs can offer members greater control over their investment choices and options, including investments not available through other super structures, such as property. SMSFs are subject to strict compliance rules and obligations and can be costly to manage.
Strategy #2: Choose your investments wisely
Different investment strategies can also have a significant impact on the performance of your super savings in the long run. If you want to take advantage of options to boost your super savings, consider moving on from a ‘default’ investment option and choose an investment strategy which is aligned with your overall financial goals and stage of life. Look at the difference between choosing a Conservative vs High Growth Investment Strategy.
Strategy #3: Plan ahead to create tax efficiencies
Reductions to contributions caps introduced in 2017 make it harder to get money into super. Salary sacrificing (making pre-tax contributions to super) is a tax-effective way to boost your super balance, but you need to start early. Pre-tax contributions are taxed by your super fund at 15%*, which is very likely lower than your marginal tax rate, making this a tax-effective way to build your retirement savings. In some cases, your pre-tax contributions can also move you into a lower tax bracket, helping to achieve greater tax advantages. Implementing a salary sacrifice strategy early can make a significant difference to your savings at retirement.
* If you earn more than $250,000 per annum, your pre-tax super contributions are taxed at 30%.
Strategy #4: Fees and charges – know what you are paying for
Super funds charge different fees including administration fees, contribution fees, investment fees, fees for the provision of financial advice, and sometimes ongoing management fees. You may also be paying for insurance premiums within your super fund (for Life, Income Protection and Total and Permanent Disability (TPD) Insurance). While there can be cost savings in paying for insurance premiums inside of super, it’s important to understand the level of cover you actually have.
In most circumstances, the insurance cover offered through your super fund will not be tailored to your individual circumstances with the consequence that you may not have appropriate cover. Further, if you have not provided personal health information, you could also face delays or issues with your claim if you have pre-existing medical conditions. Your insurance cover may also be affected if you change super fund. As you get older, your insurance premiums may increase significantly which can reduce how much you have available for investments.
Strategy #5: Super should be an important part of your Estate Plan
If you want to make the most of your super and consider your loved ones after you have gone, you need to plan ahead. The benefits of your super account are determined by the Trustees of your super fund, so you need to specifically outline your wishes via your fund’s Trust Deed or a Binding Death Benefits Nomination form. There are tax consequences for benefits paid to beneficiaries who are not considered a ‘tax dependant’ so it’s important to seek advice for your specific circumstances if you want to avoid unfavourable tax consequences for your beneficiaries.
It’s always important to seek professional advice when considering your superannuation options, as different structures and strategies will have varied tax implications and may be more appropriate at different stages of your life. Your superannuation strategies should always consider your overall financial goals and objectives.
If you would like advice on how to make the most of the strategies available to you for superannuation and retirement planning, I encourage you to contact our office on 07 3720 1299 or email admin@wealthfundamentals.com.au
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances.
You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.