Top 5 Super Growth Strategies for Approaching Retirement


Top 5 Super Growth Strategies for Approaching Retirement

As you near retirement, it’s important to have a solid financial plan in place to ensure a comfortable and stress-free retirement. One key element of that plan is growing your superannuation, and there are several strategies that can help you do just that. In this blog post, we’ll explore five of the best strategies for growing your super if you’re getting close to retirement. From salary sacrificing to choosing the right super fund, these strategies are designed to help you make the most of your superannuation and set you up for a financially secure future. So, let’s dive in and explore these five strategies in more detail.

1. How to Salary Sacrifice to Superannuation

I want to show you the explanation of the salary sacrifice arrangement, in the way you most likely have never seen before – real-life examples. I really hope it will open your eyes to the incredible benefit of it and how to grow your super for your retirement fast.

What is salary sacrifice and how does it work?

Salary sacrifice is your agreement with your employer for some extra voluntary contributions you want to make to super rather than receive that portion of income in your bank account after paying income tax.

The normal income arrangement and payment between employer and employee is simple:

  • You earn your gross taxable income
  • Employer first deducts the tax payable to the ATO
  • Net income after tax is paid to your bank account.
  • Under salary sacrifice arrangement:
  • You earn your gross income
  • First employer deducts your salary sacrifice amount and pays it to your super fund
  • The remaining balance of income becomes your new taxable income
  • Employer deducts tax payable to the ATO
  • Net income after salary sacrifice super contribution and after tax is paid to your bank account.

So your saving benefit comes from the difference of tax rate you pay between your MTR and superannuation contributions tax of 15%

  • There is additional 2% Medicare to pay in addition to tax rate
  • You can actually earn up to $20,0542 before paying any tax – after applying the low-income tax offset.

Salary sacrifice is a type of concessional contribution to the super. If you are unsure what concessional contributions are, have a look at this article explaining types of contributions to super:  What is superannuation? How does super work? 

  1. So let’s now see the real-life examples.

The average income in Australia is almost $85,000, but to be on conservative side, for the purpose of this exercise I picked the income of $70,000 to show you this comparison.

We have two friends –Mary and Susan – both nurses, both on $70,000p.a, and both wanting to save $10,000pa for their future.

To read the full comparison between Mary’s and Susan’s savings outcome and how salary sacrifice helps, see the full video: How to Salary Sacrifice to Superannuation

2. How to choose super fund

Let’s be honest, what we all really want from our superannuation/pension fund is:

  • lowest charges,
  • best returns with minimum risk,
  • super fund that looks after your interest as members,
  • and provides you with a free advice.

Sorry to disappoint you, but none of the super funds will do that for you.

So, unfortunately as with anything else in life, to make a good choice, you need to do a bit of work and research. But I am here to help you and give you some suggestions how to make this process easier.

But first, let’s start with the most important information about superannuation in Australia, which I can see is still a confusion:

From 1st January 2021 the super choice law was extended giving more Australians ability to choose their own superannuation fund – so you are no longer locked into your employer’s super fund.

So every employer needs to offer their employees a choice of fund, Here is the link to the Tax Office page where you can find more information.

There are lots of videos and articles you can find that give information about “the best super fund”, but mainly what I see is the advice to choose your fund based on level of fees or as the government advertises – based on performance.

As important as those are, there is no such thing as the best super fund.
There are over 500 superannuation funds in Australia and thousands of different investment choices. Choosing one can feel like a daunting task.

Choosing the super fund that will best suit your needs, as I said is complex, and requires a bit of work on your part.
So, I will go over the steps that I take when choosing and recommending a fund for my clients.

What types of super funds can you choose from and how they differ?
  • Retail funds – These are funds run by financial institutions. They are generally open to anyone. They are regarded as more expensive type, but due to ongoing market competition, their pricing have come down considerably and they tend to provide very good investment choices.
  • Industry Super Funds – These funds are generally designed for people who work in a particular industry, but some industry funds will allow anyone to join, but just because your employer provides you with this option, does not mean you have to accept it, you can choose your own fund. There is an inherent believe that they are “cheep” funds, but the truth is that as the market matured, and with great deal of corporate competition, Industry Funds had to include many investment options to stay in competition, with pricing now being similar to those of retail funds in a lot of cases.
  • Public sector funds – These funds are generally only open to government employees.
  • Corporate funds – These funds are usually only available to employees working for a specific employer. If your employer provides you this option, you can either take it or request your own. They tend to be more expensive than other funds, but they do provide a great deal of investment choices and often an incredible insurance package available to employees with no medical check requirement.
  • Self-managed super funds (SMSFs) – These are funds where you have more responsibility in terms of administration, compliance and investment decisions. SMSF is very complex and outside of the scope of our discussion here, but if you decide to have your own SMSF you can request your employer to make all Superannuation Guarantee Contributions (SGC) as well as your Salary Sacrifice Contributions to your fund. It is a super fund like any other and it is your choice.

Your employer will likely provide you with a Superannuation Standard Choice Form when you commence your employment with them. Alternatively, you can download this form from the Australian Taxation Office’s website.

For the full explanation of super or pension fund investment choices as well as fees and charges please read the full article: How to choose super fund 

3. Catch-up Concessional Super Contributions

Often, when we reach the age of 50 or 60 we start to worry about our retirement.

Do I have enough for my retirement?

Is it too late to save sufficient balance to have safe retirement?

And you might have a reason to worry, because superannuation in Australia, which is our best form of retirement savings, is filled with rules, regulations, and super contribution limit.

However, I might have some great news for you, and today I would like to explain a little-known contribution opportunity that might help you to:

  • catch up on those lost years of not contributing enough,
  • grow your super and ultimately retire better,
  • get tax benefits in the form of tax-deduction for your contributions,

This little-known contribution is: – carry forward super contributions, otherwise known as Superannuation Catch-up Concessional Contributions

But first, let’s review very quickly what concessional superannuation contributions actually are.

Those are your deductible contributions, so contributions for which someone claims tax deductions which includes:

  • Superannuation Guarantee Contributions (SGC) which are your employer’s contributions, and that’s your employer who is eligible for tax deduction.
  • Your salary sacrifice contributions,
  • if you are self-employed and you want to claim tax deduction for your personal contributions
  • or even you are a private person, you can still claim tax deduction for your personal contributions,

But we all need to play by the rules.

The annual limit on this type of contribution is $25,000per annum.

I am assuming that you checked if you are actually eligible to contribute to super in the first place. If unsure – view this article. If you prefer, watch my video instead.

If you need to get familiar with superannuation contributions rules, including SG contributions – here is another article for you or alternatively watch that video.

If you would like to understand the benefits of Salary Sacrifice – here is another video for you.

What are carry-forward contributions?

Carry-forward contributions (so-called catch-up contributions) or as the proper industry naming is: Carry-Forward Unused Concessional Contributions, are not any special type of super contribution, but often overlooked contribution opportunity, allowing you to contribute to your superannuation fund the amount of concessional contribution that you have not used in previous years, up to each year contribution limit, and up to 5 years.

After five years, any unused amounts expire.

4. Superannuation Fees & Charges

Most people in Australia these days have majority of their savings within the superannuation, whether in an accumulation stage or in a pension stage. And the size of the superannuation investing will only be growing over time.  

Here is the list of the 20 biggest super funds in Australia: Is your super fund listed here? 

As you can see some super funds are public, some are industry funds, others are so-called retail funds. If you don’t really know the difference between them or what they can provide as a point of difference, read the article: Best Super Funds – Really? How to choose a super fund.  

So now, let’s check who made the most money out of the total fees paid by members in 2020

Is you super fund listed in the second table?  

So why am I showing you those numbers? 

I really want you to remember that superannuation is a big business, with the amount of money and profits that are beyond comprehension of a normal person.  

Total assets invested in the superannuation system is already over 3 trillion dollars, and growing, so no wonder every super fund and investment house wants a piece of their pie. What I would like for you to take out of this video is to make sure that you can get your pie and eat it too and not to be a casualty of this superannuation business of fees grabbing. 

Fees are inevitable, but pay those that bring you the benefit, that assist you with smart planning and smart investing, that improve your investment returns, minimise volatility if this worries you, and try to reduce fees that are of no befit to you.  

And please, do not get emotionally attached to your super fund, it is a business for your fund and this is how you should treat it as well.  

For full listing of the types of fees you are actually paying in your super fund, please read the full article: Superannuation Fees & Charges

5. how to get an immediate 50% return on your investment – guaranteed?

If you are a low or a middle-income earner and you make and after-tax contribution to your super fund, and you do not claim a tax deduction for that part of your contributions, you might be eligible for a government co-contribution of up to $500.

So, if you total income is equal or less than $39,837 om 2020/21 and you make a non-concessional contribution of $1,000, you will also receive a government co-contribution of $500.

So basically, with zero risk, no investment has even been made, you’ve just contributed $1,000 to your super, government will add extra $500 – as far as I can count, that is a guaranteed, zero risk return on your $1,000 contribution of 50%.

If your income is slightly higher, between $39,837 and %54,837 in 2020/21 financial year, your co-contribution will reduce progressively, but it is still worth doing, as co-contribution is your free money.

But one thing is contribution, the other is what to do with my money and how to invest it. I have created an eBook: 12 Principles of Investing”, with many investment suggestions and recommendations, so feel free to download it and apply to your investing decisions.

Some extra important information you need to consider:

  • There are limits on how much you can contribute to super. Please do not go over those limits as penalties may apply,
  • Contributions need to be received prior to 30th June for you to be able to claim tax deduction, tax concession or apply any of your strategies to your current tax return.
  • Be careful with a total super balance cap of $1.6mil of non-concessional contributions. That cap limit will increase to $1.7 in the next financial year. If you exceed the cap, you will not be able to make any non-concessional contributions and you may not qualify for other government concessions.
  • If you are over the age of 67, a work test applies to you if you wish to make voluntary contributions.
  • There is a limit on how much super you can transfer into a pension and upcoming changes could impact whether you move super balance now or later.
  • In order to have access to your super savings you have to meet conditions of release, such a retirement for example, so be aware that until you do, your savings are “stuck” within a super environment.

If in doubt, always feel free to reach out and ask me a question. 

Please readthe full article: How to get an immediate 50% return on your investment – guaranteed? For further explanation and some extra important information you need to consider.

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement

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