- By Delta Smith
How would you like to pay no tax, that’s right, no tax on income you receive and no tax on investment earnings?! Now that I’ve got your attention, read on.
In Australia we have a compulsory super savings system for employees to ultimately provide for our own retirement and reduce reliance on Australian government coffers. With an ageing population and increased reliance on social security this is a growing budget concern for the government.
The good news is that we have an established system in place.
The facts, for employees our employer is now legislated to pay super at a rate of 11% (from 1 July 2023) on top of our wages into a super fund of our choice on at least, a quarterly basis. This is a compulsory retirement savings system with the sole purpose of funding our retirement.
These contributions are invested on our behalf, if you don’t select where to have these invested the super fund will have your contributions invested in a default investment which is based on your age. Here’s the opportunity for you to take control of your future by understanding where your super is invested and by choosing a product that’s right for you. Some people are surprised to find that they do in fact have shares within their super fund and lots of other asset classes like property, infrastructure, term deposits and so on when in their mind they want to be low risk or in fact are comfortable taking risk. This is no different to any other type of investment that you make with a level of risk involved.
There are two main types of contributions that can be made:
- Concessional contributions – capped at $27,500 per annum this FY. These include the SGC that our Employer must make on our behalf, salary sacrifice contributions we might make and any lump sum or regular personal contributions we chose to add.
- Non-concessional contributions – capped at $110,000 per annum (or you can use 3 years worth in one year and that covers a 3-year period).
(There are other types that you may have heard of, catch up concessional contributions, government co-contributions, spouse contributions, downsizer contributions and a few specific to those operating small businesses – the key here is to speak to a professional to guide you).
What about if you’re self-employed?
Are you making tax-effective super contributions to fund your retirement? Yes, we know it’s hard when other expenses or investments might seem to be more of a priority but making small regular payments will allow your super to reap the benefits of compounding returns and you wont suddenly reach retirement and have no nest egg.
Men v Women
Women are still retiring with less in super than men by an average of 23% as per ASFA data (https://www.superannuation.asn.au/media/media-releases/2022/media-release-28-february-2022) but the good news is there are ways to equalize balances and eliminate this gap and in fact it can present strategic opportunities. Key is starting early to reduce this inequality.
When can I access my super?
There are various circumstances when super is accessible but generally access to super comes at age 60 if you finish working. At this point in time your super can start paying a tax-free income stream to you to replace the income you would have received from working. The earnings of the investments are also tax-free, which presents an ideal option for retirement funding.
Super can also be a very effective Estate Planning tool in transferring wealth between generations in a tax-effective fashion (again speak to a professional).
Now imagine yourself retired, with your time free to spend as you chose as you are receiving a regular payment which is tax-free to your bank account to ensure a comfortable lifestyle. It’s the ultimate deferred reward.
This blog contains information that is general in nature. It does not take into account the objectives,
financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
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