7 tips to help you build a better super nest egg
With all the uncertainty that currently surrounds us, last blog we started our 2023 ‘building better’ series – with building better business through budgeting for business owners. This post, however, regardless of whether you’re a business owner, in the lead up to retirement or only a few years into your working life, we take a look at how you can build a better super nest egg for yourself.
Super’s one of those things Australians have in common, with most, if not all, of us having a super account. The key difference between those whose super nest egg is great for their stage in life (you can check out how much you ‘should’ have at your age here) and those whose balance is less than they’d like is engagement. So many Aussies, just don’t even think about it – until they get anywhere near retirement.
The thing is, your super nest egg is real money and, even better, it’s your money. Just because you can’t spend it yet, doesn’t mean it’s not valuable. In fact, as you age, your super often becomes a key asset that you hold (and yes, banks look at your balance when they’re assessing your suitability for a loan).
Sure, the government likes to change the rules a bit every election just to keep everyone on their toes. But superannuation is one of the best legal tax minimisation strategies out there.
How’s that work? Well, if you’re earning anything over $45,001, you’re paying at least 32.5cents for each dollar you earn above that. But if you shift some of what you earn (aside from the superannuation guarantee, paid by your employer on your salary which is currently 10.5% moving to 11% in July 2023) into super, even if it’s only a few thousand a year, you’ll only pay 15% tax on those earnings.
And when you withdraw from your super nest egg that you’ve squirrelled away (after retirement), it’s tax-free. Hence you’ve likely saved at least 17.5 cents of tax on every extra dollar you put in over time.
Of course if you’re on a higher tax rate, the savings are even higher. If you’re earning over $120K/yr, you’ll save 22 cents on tax for each dollar you put into super. And if you’re earning over 180K/yr, you’ll save 30 cents on tax for each dollar you put into super.
Yes, there’s a limit to what you can put in (you can read about thresholds and carry forwards here), but a little saved often over your working life (especially if it’s earlier in your career), can make a huge difference to your retirement comfort.
So if you’re now convinced caring a little more about your super nest egg is something you might want to entertain this and every year from here on out, you’ll want to double check on the following things.
1.Make sure your super fund has your tax file number. If they don’t, you will be taxed 46.5% instead of the usual 15% and you won’t be eligible for the super tax refund (yep, this is a real thing. Don’t let the ATO take money that’s otherwise your’s).
2. Don’t hold multiple funds*. For people who still have multiple funds, the average number of super funds per person is around three. If you have more than one super fund, make sure you roll your funds into one, especially if you’re young-ish. Although the government has put things in place to stop this happening moving forward, there are still folks with multiple funds – don’t be one of them. There’s no point in paying more than one set of fees. *The caveat to this might be if you’re using an old fund for life insurance (that you’ve held forever and don’t want to lapse). Best to seek advice prior to cancelling your funds.
3. Quarterly checks on balances. When each quarter comes around, check that your employer has made your compulsory super contribution which is 10.5% of your current wage. We still hear stories in the news of employers who’ve done the wrong thing and not paid staff their super entitlements appropriately.
4. Set yourself a super contribution target, because at the end of the day, your extra superannuation contributions will make all the difference when you’re thinking of retiring.
5. Don’t panic. Yes, funds go up and down with the market and economy, but think of it this way, if you own the shares – which is essentially what super is – you still own the shares, regardless of where the value is at in a down market. And as we’ve seen time and again, markets rebound over time. Superannuation is a long game.
6. Regularly review your super fund. If you think that you’re getting charged unnecessary fees, it might be worth comparing your fund with other super funds. Check out SuperGuide’s monthly comparison of the industry.
7. Make sure you’ve set up your beneficiaries just in case something happens to you (i.e. you pass away). FYI – it’s considered separately from the rest of the assets in your will. Most super funds will hold your funds until they’re appropriately claimed by a beneficiary. In the event the funds are not claimed appropriately, they’ll be given to the ATO. By ensuring you’ve signed a valid binding nomination form in advance, you’re making a difficult time that much easier for your loved ones.
Doing those seven things will likely have you far more engaged with your super nest egg.
Of course, superannuation can be a hard topic to get your head around – especially for those entering the workforce, thinking of using super for property purchase (through the First Home Super Saver scheme) or in the preparatory stages of/thinking about transition to retirement. If you have any questions or need advice on superannuation or if a self managed super fund is right for you, we’d love to hear from you. Give us a call on 6023 1700.
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