People often tell me that they find super too complicated. It’s true, there are finer points to check up on but this basic list will give you over 80% of what you need to know.
1. You can’t access it until at least age 55
There’s no escaping it – super is money that once you’ve put it in there, it’s locked away for quite some time, and can be withdrawn only in very dire circumstances. Examples of this are when you need to pay for medical expenses or a lender is going to foreclose on your house.
Now if you’re over 50 at the moment that might not be so far away. If you’re just starting work and in your mid-20s it’s a much longer period of time.
There are some real specifics around this one, so if after more detail be sure to consult a Certified Financial Planner.
So the money is locked away until retirement age, why would you put money there?
Because the highest rate of tax paid on your superannuation fund’s earnings is 15 per cent, and can actually be 0 per cent (that’s right, no tax).
There are even tax breaks available for taking income as a super contribution, rather than paid to you. For most people earning a full-time wage the tax break is more than 20 per cent.
So if you can give up the access – you are well rewarded in the form of tax savings.
3. You choose the investments
Plenty of people say they have lost money in super. The truth is that they probably lost money in a balanced investment portfolio, that just happened to be held within their super fund.
Most super funds will invest your money around two-thirds in shares and commercial property, if you haven’t given them any other instruction. Nearly all funds though will have a range of investment options and will let you chance your investment with a simple form or by logging in to their website.
You can even have all your money in cash and term deposits if you just want to get the tax breaks (whether you should is an article for another day).
4. Consolidating is good
You probably think that consolidating your super is good because it will save you a packet in administration fees.
It might save you a little, but it’s not that much.
Consolidating is good because it means you have less funds to look after, which leaves a fighting chance that you’ll open that annual statement and keep track of your super. The more in control you feel, the better chance you’re going to make smart choices about your money.
5. You will regret not learning about your super earlier
Super is already playing a big part in the lives of people who are retiring today, but it’s only going to get bigger.
You might not have realised it yet but since 1 July this year, the compulsory employer contribution rate has increased to 9.50 per cent. It’s going to stay at that rate for the next four financial years, but by 1 July 2022 the compulsory contribution rate will be up to 12.00 per cent.
So no matter what you do, a superannuation fund is going to end up holding a large part of your wealth and retirement savings. It’s going to be just as important as the house you choose to buy, the size of your mortgage and the work you do to earn an income. When people get to retirement they always wish they had started earlier.
So start today! Make a $5 contribution to your super account and you’re one step closer to retiring.
If you’d like to discuss your superannuation you can call me on 02 6247 1233 or drop me a line at @firstname.lastname@example.org
Please read more of my musings here at my website.