In 1996, total superannuation assets were $245 billion. By 2007, they had surpassed $1 trillion and had exceeded GDP. Today, Australia’s superannuation system as a collective is nudging a staggering $4 trillion, underscoring the system’s growth and importance.
Whilst our compulsory employer contribution scheme ensures a steady stream of funds into retirement savings, there are some simple steps you can take to help secure your future financial security for a super retirement.
The younger you start, the easier it is. Superannuation is not just for the distant future; it’s vital to ensuring financial security throughout your life.
Making superannuation contributions may have the potential for you to pay less tax and, therefore, have more funds to invest, while growing your super balance faster thanks to the power of compounding.
You need to keep in mind that there are limits to the amount you can contribute, whether concessional (before tax) or non-concessional (after tax) to super each year. Always keep an eye on the contribution caps for both concessional and non-concessional contributions to avoid extra tax. If you’re ever uncertain, it’s wise to seek expert advice before making any super contributions.
Key factors in selecting a superannuation fund
Choosing the right superannuation fund is crucial for securing a comfortable retirement, with three essential factors.
- When choosing a super fund it is always important to consider fees, performance and whether you have any existing insurance in place.
- While past performance is not an indicator of future returns, it can indicate a fund’s investment capabilities and is, therefore an important consideration when choosing a fund.
- It is important to understand how your money is invested and whether your investment mix is appropriate for you as you age.
In addition, you need to know whether you already have existing insurance within your super fund, as you will lose this insurance if you switch to another fund.
Making the most of your investments
It’s important to understand your time horizon when determining your investment strategy.
Often people underestimate their time horizon for investments. If you’re 55 and thinking you will retire at 65, you might think you have a 10-year time horizon. However, depending on your financial situation and health, you might have a longer time horizon. This longer time frame allows for a higher risk tolerance, leading to potentially greater returns.
Investment markets can be complicated. If you’re going to try and manage your super fund yourself via a Self-Managed Super Fund (SMSF), you need to make sure that you’re putting in a lot of time and effort to understand how markets and investments work, and the ins and outs of operating an SMSF. This also includes ensuring you are sufficiently diversified so you are not overexposed to certain asset classes.
Proactive measures for boosting your retirement savings
Proactively contributing to your superannuation can significantly enhance retirement savings. Even small additional contributions can make a big difference over time due to the power of compounding. Super contributions can also offer tax benefits, potentially allowing for more funds to be invested and grow.
Contributing to your spouse’s super may be a beneficial strategy, particularly in a couple where one of them isn’t working, or if one person earns considerably more than the other. The person who contributes may be able to claim a tax offset of up to $540 for the contribution.
It may be useful to assess what level of concessional (before tax) contributions you’ve made. If your super balance is under $500,000 and you haven’t made a tax-deductible contribution, the concessional cap may be a great way to top your super up.
Another potential strategy, depending on your age and eligibility is the downsizer contribution, which allows individuals over 55 to contribute up to $300,000 from the sale of their home.
As you can see there are several strategies you may wish to take advantage of to help grow your superannuation. Give us a call to help get you on track to a super retirement.