Superannuation is one of the most important aspects of financial planning for retirement in Australia. While it may seem like a complex and daunting topic, it’s worth taking the time to learn about retirement planning and superannuation, and how you can make the most of it.
Superannuation is essential for futureproofing your finances, ensuring that you have enough wealth to live on well into your retirement. It also gives you access to different types of cover, insurance and government schemes that reward fiscal responsibility.
In this post, we’ll explore some of the reasons why superannuation should be considered for future planning in Australia.
Table of Contents
What Is Superannuation?
Superannuation is a long-term savings plan that helps Australians save for their retirement. Contributions to super are made by both employees and employers, and the money is then invested to grow over time. When you retire, you can use your super to provide an income stream or lump sum payment.
Superannuation funds are invested, which means that they can earn compound interest. This means that the money in your super fund will grow over time, providing you with a larger retirement nest egg.
After retirement, you may be eligible for a number of government benefits, such as the Age Pension. However, you shouldn’t rely on government welfare for your retirement planning. While it can help supplement your income in retirement, it isn’t enough to provide a great quality of life through your golden years. If you have a good level of superannuation, you may be able to reduce your reliance on government benefits and get the most out of your retirement.
There are many different types of superannuation funds available, so it’s important to do your research and choose the right one for your needs.
Some common types of super funds include:
- Retail Funds – These are run by banks, insurance companies or other financial institutions. They typically have higher fees than other types of funds.
- Industry Funds – These are run by unions or employer groups. They often have lower fees than retail funds.
- Self-Managed Super Funds (SMSFs) – These are run by individuals or groups of up to four people. You have complete control over your SMSF, but there are higher compliance costs associated with running one.
10 Reasons Superannuation is Important for Future Planning
There are a number of reasons why superannuation should be considered for future planning in Australia. Here are some of the most important factors to consider:
1. Helps Prepare for Living Longer
One of the biggest reasons to consider superannuation is that it can help you prepare for living longer. Australians are living longer than ever before, with an average life expectancy of 83 years, and this trend is only expected to continue. This means that you will likely need to support yourself financially for a longer period of time in retirement.
Super can provide you with an income stream during your retirement years, which can help you maintain your standard of living.
2. Better Standard of Living Than Age Pension
Superannuation can provide you with a much better standard of living in retirement than the age pension. The age pension is the primary source of income for many retirees, but it’s only designed to cover basic living expenses. Superannuation can provide you with an income that’s more than double the age pension, which can make a big difference in your quality of life.
3. Secure Way of Saving For Retirement
Another reason to consider super is that it’s a secure way of saving for retirement. Unlike many other assets, superannuation has more protection from creditors. This means that if you encounter financial difficulties, superannuation isn’t included in your assets, and super funds received after bankruptcy aren’t seizable by the trustee (in most funds). This security can give you peace of mind knowing that your retirement savings are safe.
Another reason to consider superannuation is that it can help inflation-proof your savings. Over time, the cost of living tends to increase due to inflation. This means that your savings will be worth less in the future if they’re not invested properly. Superannuation funds are typically invested in a mix of assets, which can help protect your savings from inflation.
4. Offers Tax Benefits
Superannuation also offers a number of tax benefits that can help boost your retirement savings. For example, the money you contribute to super is taxed at a lower rate than your personal income. This can help you save money on taxes and grow your retirement nest egg more quickly. Additionally, the earnings on your super are taxed at a lower rate than other investments. This makes super an attractive option for long-term saving and investment.
5. Access to Government Co-Contribution Scheme
The Australian government provides a number of benefits to encourage Australians to save for retirement. For example, low-income earners may be eligible for the government co-contribution, which makes contributions to their super fund.
If you’re a low or middle-income earner, you may be eligible for the government’s superannuation co-contribution scheme. Under this scheme, the government will make a contribution to your super fund if you make eligible contributions. Co-contributions are calculated based on the year and your income, up to a maximum of $500. This can help boost your retirement savings significantly over time.
6. Access to Spouse Contribution Scheme
If you’re married or in a de facto relationship, you may be able to take advantage of the spouse contribution scheme. Under this scheme, you can make after-tax contributions to your partner’s super account. This can help boost their retirement savings and reduce the overall tax burden on your family.
7. Death and Disability Cover
Most superannuation funds offer death and disability cover as part of their benefits package. This cover can provide a financial safety net for your family in the event of your death or disablement. Death cover pays a lump sum benefit to your beneficiaries, which can help them maintain their standard of living. Disability cover provides an income stream if you’re unable to work due to injury or illness.
8. Access to Transition-to-Retirement Pensions
If you’re over the age of 55, you may be able to access your super through a transition-to-retirement pension. This pension allows you to draw down on your super while you’re still working, which can help boost your retirement income. It also allows you to continue making contributions to your super, which can help you grow your nest egg. Consider whether a TTR or market linked pension works for you when planning your retirement.
9. Access Retirement Funds Sooner
Superannuation benefits can also be accessed earlier than age pension benefits. You can start withdrawing from your super at age 60 if you retire, and you can access your transition-to-retirement pension between age 55 and 60. This flexibility can be helpful if you need to retire early due to ill health or other reasons.
10. Professional Investment Management
When you invest in superannuation, you benefit from professional investment management. Super funds are required to have a qualified investment team that manages the fund’s assets. This team is responsible for making sure the fund is invested properly and performing well. This can provide peace of mind knowing that your retirement savings are in good hands.
What Age Do I Need to Start Worrying About Superannuation?
You should start thinking about superannuation as soon as possible. The earlier you start saving, the more time your money has to grow. You can still benefit from maximising your superannuation strategy later in life. If you start saving more at age 50, you’ll still have 10 years of tax-advantaged growth on your side.
The most important thing is to start saving early and make regular contributions. This will help ensure that you have enough saved to maintain your standard of living in retirement.
How Much Superannuation Do I Need for Retirement?
A general rule of thumb is that you’ll need enough super to replace 70 to 80% of your pre-retirement income. However, this is just a starting point. How much you need will depend on a number of factors, such as your age, lifestyle, and retirement goals.
The best way to find out how much you’ll need is to speak with a financial advisor. They can help you create a retirement plan that takes into account your unique needs and goals.
How to Use Superannuation to Secure Your Future
Superannuation is a powerful tool that can help you secure your financial future. When used properly, it can provide you with a retirement income that is tax-advantaged and can last for your lifetime.
However, superannuation is not a “set and forget” investment. You need to actively manage your account and make sure that your investments are on track. You also need to make regular contributions to ensure that your account grows.
Here are 10 things you can to effectively manage your superannuation:
1. Track Your Super Balance
You can’t manage what you don’t measure. That’s why it’s important to keep track of your super balance. This will help you see how your investments are performing and whether you’re on track to reach your retirement goals.
2. Have Superannuation Goals Set
It’s important to have specific goals in mind for your superannuation. This will help you stay focused and on track. Without goals, it’s easy to let your super balance dwindle away.
Some things to consider when setting superannuation goals include:
- When do you want to retire?
- How much income do you need in retirement?
- What lifestyle do you want in retirement?
3. Choose Your Super Fund Wisely
Not all super funds are created equal. It’s important to choose a fund that aligns with your goals and risk tolerance.
Some things to look for in a super fund include:
- Low fees – Look for a fund with low fees. This will help you keep more of your hard-earned money.
- Flexibility – Make sure the fund offers the flexibility you need. For example, some funds allow you to make lump sum contributions or withdrawals.
- Investment Options – Choose a fund with investment options that align with your goals.
4. Review Your Investment Mix
Your super fund offers a wide range of investment options. It’s important to review these options on a regular basis to make sure they align with your goals. You may also want to rebalance your portfolio from time to time to keep your investments on track.
Your investment mix is the combination of assets that you hold in your superannuation account. The right mix will depend on your age, risk tolerance, and financial goals. As you get closer to retirement, you may want to shift your investments to more conservative assets. This will help protect your account value from market volatility.
5. Make Regular Contributions When You Can
Making regular contributions to your super is essential for long-term growth. The earlier you start, the more time your money has to grow. Even small contributions can add up over time.
You can make extra contributions to your superannuation account at any time. This can be helpful if you get a bonus at work or receive a tax refund. Making extra contributions will help boost your account balance and get you closer to your retirement goals.
6. Consolidate Your Accounts
If you have multiple superannuation accounts, it may be beneficial to consolidate them into one account. This will help you keep track of your investments and save on fees. It may also earn you a higher interest rate.
7. Consider Salary Sacrificing or After-Tax Contributions
Salary sacrificing super is a great way to boost your superannuation balance. When you salary sacrifice, you agree to have a portion of your salary paid into your super account instead of taking it as cash. This money is then invested and can grow over time.
In addition to salary sacrificing, you can also make after-tax contributions to your super. These are voluntary contributions that you make with your own money. After-tax contributions are a great way to top up your super if you’re self-employed or have a low income.
8. Check for Lost or Underpaid Super
If you’ve changed jobs, there’s a chance that some of your super has been lost or underpaid. It’s important to keep track of your super and make sure that all of your contributions are being paid into your account.
You can check for lost or underpaid super by logging into your MyGov account. You can also contact the ATO to see if they have any record of your super.
9. Review Your Insurance Cover
Most super funds offer some form of insurance cover. This cover can help protect you and your family in case of death or disability. It’s important to review your cover on a regular basis to make sure it meets your needs.
You may also want to consider additional insurance cover outside of your superannuation. This can provide extra protection for you and your family.
10. Stay Informed About Changes to Superannuation
Superannuation is a complex area and the rules are constantly changing. It’s important to stay up-to-date with the latest changes so that you can make the most of your super.
You can stay informed about changes to superannuation by signing up for newsletters or RSS feeds. You can also follow the ATO on social media.
Superannuation is an important part of retirement planning in Australia. By following these tips, you can make the most of your super and get closer to your retirement goals.
If you’re not sure how to get started, speak with a financial advisor. They can help you create a superannuation strategy that meets your unique needs.
What Is the Difference Between Superannuation and Retirement Planning?
Superannuation is a type of retirement saving. It’s a long-term investment that you make while you’re working. Retirement planning is a broader term that includes superannuation but can also include other types of savings, such as investments and home ownership.
What Are the Risks of Superannuation?
Superannuation is a long-term investment, this means that there are some risks involved such as the value of your investments can go up or down, and you may not have access to your money until you retire.
However, superannuation can be a great way to save for retirement. It’s important to speak with a financial advisor to understand the risks involved and make sure that your superannuation arrangement is right for you.
Can Super Funds Lose Your Money?
Super funds are required by law to invest your money in a way that meets certain standards so they can’t just put your money into a savings account or use it to pay for their own expenses. However, there is still some risk involved with superannuation, which is why it’s important to get professional advice.
How Does Superannuation Grow?
Superannuation grows through a combination of investment returns and contributions. Investment returns are the money that your investments earn over time. Contributions are the money that you and your employer add to your account.
This article is provided as general information only and does not consider your specific situation, objectives or needs. WealthVisory Private Clients makes no warranties about the ongoing completeness or accuracy of this information. It does not represent financial advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.
Matthew has a wide ranging background in business, finance, taxation and accounting with over 25
years’ experience, firstly as an Accountant before becoming a Financial Planner. Matthew has been in
the Financial Planning Industry since March 1998 and has been the principal of his own financial
planning practice since 2003.
Matthew has studied a Bachelor of Commerce degree from Newcastle University majoring in Financial
Accounting and the Diploma of Financial Planning from Deakin University. Matthew is a Registered Tax
Agent and is a member of the National Tax & Accountants Association (NTAA).
Matthew has particular expertise in the areas of retirement planning, superannuation, investments and
insurance. His emphasis is on building a professional, integral and lasting relationship with clients with
the objective of assisting them to achieve their financial and lifestyle goals.