Superannuation, or Super. Most of us have it, or have heard of it, but how does it work and what is it really all about? We asked Rod Lingard to shed some light on the matter.
Super is all about saving for retirement. The quality of life we have in retirement is linked directly to the money we have saved or invested. It’s fair to say the more we have saved, the more things we can do in retirement. So why should we consider using superannuation to boost our retirement savings?
One of the key reasons is the ability to make ‘concessional contributions’. In layperson’s terms this means you get a ‘tax deduction’ for your contribution.
So how do the numbers stack up?
Let’s say you had a goal of saving $100 per week, and you earn somewhere between $37,001 and $90,000 per annum.
If you want to save in a bank account, it’s pretty simple. You deposit $100 into a savings account and have $100 less per week to spend!
By using a tax deductible contribution into Super, you can effectively boost the amount being saved.
Using the example above, if you are happy to have $100 less to spend each week, you could be better off putting it into Super. If you contribute the money into Super rather than the bank, you would end up with $127.82 in Super for the same cost.
That’s right, using Super means you can save or invest $127.82 for an out of pocket cost of $100.00. And if you earn more than $90,000 per annum, Super is even more favourable.
So what is the downside?
Potentially the biggest downside is the fact that, for the most part, once a Super contribution is made the money is becomes subject to what are known as the preservation rules. This means that the money has to stay in superannuation until you retire or reach a certain age. In most circumstances it can’t be accessed for a rainy day.
The other issue to be aware of is that there are strict caps on how much can be contributed to super. Concessional (tax deductible) contributions are capped or limited to $25,000 per annum. If you are a wage or salary earner, your employer should be contributing a minimum of 9.5% of your income to Super. The amount your employer contributes is counted under the cap.
So whether retirement is on the horizon, or you just want to start boosting your retirement savings, it might be time to check out Super.
If you have any questions relating to your Superannuation or require Financial Planning advice please call our office on 1300 888 299 or contact Rod Lingard to set up an appointment to discuss your current financial situation.
Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to whether Superannuation is appropriate for you.