Many of us turn a bit of a blind eye to super. We hope it’ll be enough when the time comes and believe the government’s age pension is available if we fall short.
Not everyone is eligible for the age pension, and we may live a less than modest lifestyle if we rely on it in our later yearsi.
How much super do you need?
According to the Association of Superannuation Funds of Australia’s (ASFA) December 2022 figures, individuals and couples, around age 67, looking to retire today would need an annual budget of around $46,462 or $69,691 respectively to fund a comfortable lifestyle, assuming they own their own homeii.
To live a modest lifestyle, individuals and couples would need an annual budget of around $31,323 or $45,106 respectivelyiii.
Super contributions with benefits
1. Tax-deductible contributions
These are voluntary contributions you may make on top of what your employer might pay you under the super guarantee, if you’re eligible.
You make these contributions using after-tax dollars and then claim a tax deduction when doing your tax return.
If you receive extra income or sold an asset you have to pay capital gains tax on, you may decide to contribute some or all of that money into super and claim it as a tax deduction. This could help reduce or even eliminate the capital gains tax that’s owing. 2. Co-contributions from the government
If you’re a low to middle-income earner and made an after-tax contribution to your super fund, which you don’t claim a tax deduction for, you might be eligible for a government co-contribution of up to $500.
If you earn less than $57,016 per year in the 2022/23 financial year and make at least one voluntary, after-tax contribution to your super fund, you’ll receive the maximum co-contribution of $500.
If your total income is between $42,016 and $57,016 in the 2022/23 financial year, your maximum entitlement will reduce progressively as your income rises.
If your income is equal to or greater than the higher income threshold $57,016 in the 2022/23 financial year, you will not receive any co-contribution.
3. Spouse contributions
If you earn more than your partner and would like to top up their retirement savings, or vice versa, you may consider making spouse contributions.
If eligible, you can generally contribute to your spouse’s super and claim an 18% tax offset of up to $3,000 through your tax return.
To be eligible for the maximum $540 tax offset, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less.
If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’re not eligible for any offset, but can still make contributions on their behalf.
4. Salary sacrifice contributions
This is where you choose to have some of your before-tax income paid into your super by your employer, on top of what they might pay you under the super guarantee.
It does mean a reduction in your take-home pay; however, you’ll only be taxed 15% on the money you salary sacrifice (or 30% if your total income exceeds $250,000).
5. Downsizer contributions
People aged 55 and over can make a voluntary contribution to their super of up to $300,000 using the proceeds from the sale of their home (if it’s their main residence) – regardless of their work status, super balance, or contributions history.
Couples can take advantage of this and contribute up to $600,000 per couple. There are things to consider first.
Additional pointers
6. Find your lost super
If you’ve changed jobs, your name or address over the years, there’s a chance you may have lost track of some of your super and you may be paying multiple fees.
The ATO may also be holding some unclaimed super on your behalf. This happens when super funds transfer the balance of small, inactive accounts directly to the ATO.
7. Consolidating your super
When rolling multiple accounts into one, some funds may charge exit or withdrawal fees, or have possible tax implications and changes to benefits such as Insurance.
8. Are you eligible for the low-income super tax offset?
If you earn $37,000 or less annually, and your employer makes super contributions on your behalf, the government may refund the tax that was paid on those contributions back into your super account, up to a $500 per year.
If you’re eligible for the low-income super tax offset, it will be automatically calculated by the ATO and deposited in your super account after you lodge your tax return.
9. Other important aspects to consider
Your super should be working for you, so it’s important to review it at least once a year and check:
- Fund performance (noting, past performance isn’t an indicator of future performance)
- Fees you might be paying
- Insurance inside super and whether it suits your current needs.
- Limits on how much you can contribute. If you exceed super contribution caps, additional tax and penalties may apply.
- The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risk you might be taking on.
- The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age and meet a condition of release, such as retirement.
Contact us today to find out more.
©AWM Services Pty Ltd. First published Apr 2023
i, ii, iii Association of Superannuation Funds of Australia’s Retirement Standard December 2022 figures