The Gillard government has finally revealed its grand plan for superannuation with income from retirement accounts earning more than $100,000 a year set to cop a 15% tax on the excess earnings, instead of zero at the moment.
It’s a rough gouge that I strongly oppose for 2 reasons; those Australians with big super balances have worked hard to secure their financial retirement; changing rules undermines confidence in the superannuation system and legitimately prompts the question “what’s next?”
Whilst the latest change won’t impact the vast majority of the population, it serves as good reminder to revisit your super strategy so maybe one day you can join that upper echelon of savers.
So what are the keys to getting your super savings back on track today?
It all starts with education because you’ll never have control over your money if you don’t understand how super works. And don’t blame financial companies for speaking in jargon and not informing investors, it’s up to you to take an interest in your money.
Many super funds run seminars to explain what their funds are doing, how they are performing and current market conditions. Go along and listen. Read the business section of the paper to follow market moves and look at weekly “wealth” or “money” lift outs for expert opinion and information on how different superannuation options are performing.
People constantly complain to me that our superannuation system is too confusing and that puts them off contributing more to their retirement account. They are going to miss out in the long run. So don’t put superannuation in the too hard basket, take an interest in the thousands of dollars you have in retirement savings and get your money working for you.
For many people it’s the largest investment they’ll ever be involved in, so it’s vital that you understand what variables there are and how to avoid being taken for a ride. Then it’s time to get proactive about saving for your financial future.
Consolidate and find the right fund
This starts with consolidating any stray accounts and finding the right fund for you. [www.superratings.com.au|SuperRatings] is a terrific independent resource that rates each funds’ approach, performance and fee structure to indentify the best ones, so start there.
Remember, the right fund (or wrong fund) can make a massive difference to your final balance.
Make extra contributions
One of the biggest mistakes people make when it comes to their superannuation is assuming that 9% employer contributions will be enough for a comfortable retirement.
However if you settle for 9% you’ll end up with around half of what you’ll need in order to maintain the same level of lifestyle in retirement, maybe not even that much. That’s why extra contributions are essential.
When making extra contributions, it’s a good idea to set up a salary sacrifice plan where a portion of your pre-tax salary goes straight into your super fund. Not only are you growing your nest egg, but you’ll reduce your taxable income and therefore the amount of tax paid.
To this end, super contributions should be a part of your weekly or monthly budget. Put in as much as you can afford, but even throwing in as little as $20 each week will make a huge difference to the amount you end up with when you stop working.
However, be conscious that there are government limits on the amount of your salary that can be sacrificed to super.
Reassess Your Risk Profile
With limited time to save for retirement, you may need to step up your investment strategy and take on a little more risk in order to reach your goal. Get some good advice from a financial planner, but you may need to invest more in the higher growth option offered by your super fund.
This will expose your portfolio to more volatility, but if your money is invested too conservatively, your account may not be able to keep up with inflation.
There are a raft of online calculators that allow you to see how different funds, fees, contributions, and investment returns will impact on your final super balance so do some research and see for yourself what a huge impact these changes can have.
Instead of letting the new tax changes act as a deterrent for super savings, let’s make that upper tax bracket the goal.
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