Action plan for the ages

Planning for a comfortable retirement is a decades-long mission. While that allows plenty of time for your savings to benefit from the magic compounding returns, it’s not just a case of setting and forgetting – important decisions need to be made along the way.

Saving or investing in your super is a highly tax-effective way of building your wealth. But to take advantage of it you need to understand how its rules apply. Once you do, you can adopt strategies that may benefit and reward you at different stages of your life.

Here are several strategies worth considering – for those aged 20s to 60s and beyond – that will motivate you to learn more about your super and give it the attention it deserves.

The Early Years

Time is on your side, so make the most of it.

• Check that your compulsory contributions are being paid at the correct rate. Unpaid super can lead to lower balances and less to live on in retirement.

• Make extra contributions – The earlier you start, no matter how small the amount, the bigger the difference it will make. As there are different ways to contribute, depending on how much you earn, your fund can give you advice to make sure you get the biggest bang for your buck.

The Middle Years

Get serious: check that you’re on the right track.

By the time people are in his age group, they’ve moved into more senior roles with higher pay and extra cash to spare. It is a good time to review whether you selected the right fund and the right investment option when you first started contributing to super. Below are some strategies to consider but, as always, check with your accountant to see how they apply to your situation.

• Super splitting is an agreement between spouses (married or defacto) to split the contributions of one person between both accounts. This can be done for SG contributions that you can claim a tax deduction for.

• This is also the age when inheritances may be received. If you come into a windfall, consider making a non-concessional contribution to super, which is $110,000 per annum. This can also be done using the ’bring forward rule,’ making up to three years of contributions at once, or $330,000. Your total super balance must be under $1.7 million.  

• Have a look at the fees you’re paying. A lower-cost super fund could save you thousands of dollars in fees over time and mean you retire with more money in super. The ATO’s MySuper comparison website is a helpful resource.

• If you have multiple super accounts, it may be advisable to consolidate to one, to avoid doubling up on fees and additional insurances that you may not be able to claim on.

The Later Years

Take advantage of the tax perks.

This is when your earlier efforts pay off, but there’s still plenty of scope to boost your savings. It comes with more rules, particularly age-based ones, so check them first before you act.

• You may be able to make further after-tax, non-concessional contributions up until your 75^th birthday even if you are not working, but this depends on your total superannuation balance.

• In the retirement phase, super fund earnings, including capital gains, are tax free; in the accumulation phase they are taxed at a maximum of 15%.

• The amount you can transfer into an account-based pension is currently capped at $1.7 million. The transfer balance cap (TBC) is reviewed annually and indexed in line with the consumer price indexing in $100,000 increments.

• Once you hit 60 and leave your job, you can access your super tax free. It doesn’t stop you from working again. At 65, you can access your super tax free, even if you continue to work.

Recommendations to consider and discuss with your accountant:

• Make a budget for your retirement. The Association of Superannuation Funds of Australia, June quarter, 2022, retirement standard figures indicate a couple aged 65 need to spend $66,725 a year for a comfortable retirement and singles $47,383.

• It’s not a bad idea to direct all available surplus cashflow to super in the lead up to retirement, taking advantage of all available tax concessions, if you’re eligible. But not all retirement saving needs to be in super to have a tax-free retirement. The effective tax-free thresholds for people eligible for the seniors’ and pensioners’ tax offset (SAPTO) are $33,088 for singles and $29,783 for each member of a couple, so you can still have a reasonable amount invested outside super and not pay tax in retirement.

Credit: Excerpts taken from ‘Action plan for the ages’ by Vita Palestrant, Money Magazine November 2022 edition.