The beginner’s guide to superannuation.
Retirement may not be something we think about every day, but it’s definitely one of the most important stages of our lives.
After all, who doesn’t want to retire with dignity? Post-work years can be some of our most fulfilling, allowing us to travel, see loved ones or pursue long-awaited goals.
This is why superannuation is so important. Building a strong super fund is the most tax-effective way of saving for a retirement that will allow you to do the things you love.
Many Australians don’t know a lot about superannuation. That’s what this guide is for, learning about superannuation and how you can maximise your savings.
Remember, it’s never too early to start saving for retirement.
What is super for?
Superannuation is a government initiative designed to give all Australians access to a source of finance when they reach a certain age.
You get access to super when you’re 65 or when you reach your “preservation age” and retire, which is usually between 55 and 60 (depending on when you were born).
The age pension doesn’t provide for a lot more than the basics, so your super fund gives you an additional and potentially much larger source of income for retirement.
How does super work?
Your employer is legally obliged to contribute part of your wage to super: at least 9.5% of your ordinary earnings.
When you start working, you can choose your own fund or accept one nominated by your employer.
The super fund will invest money on your behalf in assets such as shares, property and managed funds. Most funds will give you a choice of investment options. At the very least, gaining a basic understanding of how your super grows is sensible.
Many super accounts invest in the following areas:
- Savings, investment accounts and term deposits are all forms of cash investments. These represent relatively stable forms of investment, but generally deliver much lower returns than others.
- Property. When you buy property, you are also entering into a form of investment. Property is a good long-term investment that attracts tax benefits and profit in the form of capital gains.
- Equities. Equities refer to investments in the form of shares and stocks. Developing a strong share portfolio can be achieved over the long term and if you get it right you may very well receive high returns.
Most people choose a “balanced” super fund which invests in a variety of these areas on your behalf. However, some super funds allow you to control where your funds are invested.
How can you grow your super even more?
Getting 9.5% from your employer is great, but many people find putting more in their super can make bigger payoffs later on when they retire.
A strong superannuation account begins with making additional payments. For an effective means of growing your super, have your employer make pre-tax salary sacrifices into your fund. Making voluntary contributions towards your super whenever you can will reward you down the line.
If you are earning below a certain income you may also be eligible for Federal Superannuation Co-contributions, which means the government will make deposits into your super.
Because it’s difficult to access before retirement, super presents a secure long-term investment. If you’re working it’s likely to grow even without your active involvement. Making regular contributions and taking an extra interest in your fund’s investments can help even more.