Have you thought about the sort of lifestyle you want in retirement and how much you may need to fund it?
Finding the right balance between funding todays needs and saving for tomorrow is a very personal decision and is valued differently depending on your personal situation, family needs, and your expectations in retirement.
To assist you with achieving your goals it is important to be SMART.
S – Specific
M – Measurable
A – Achievable
R – Realistic
T – Time related
Adopting SMART goals which can be tracked against targets over time and reviewed regularly will greatly assist you with achieving what is important to you.
How much super do I need as a single or couple?
Australia’s super industry body, the Association of Superannuation Funds of Australia (ASFA), calculated in 2016 that the average superannuation balance required to achieve a comfortable retirement would be $640,000 for couples and $545,000 for singles. The calculation covers expenses such as private health insurance, home repairs and renovations, food and leisure activities.
Once you have set your values and financial goals or a retirement target capital value to fund your retirement income, then you will be able to measure the gap between, where you are today and what you will need to do to achieve your retirement income goal.
As we all know, a lack of money in your latter years can seriously challenge your dreams of enjoying a long, happy and active retirement.
Closing the gap
There are a number of smart strategies that can accelerate the growth in your retirement savings though contributions and the benefit of compounding earnings. These strategies are highlighted below.
|Key Strategies||How much can I contribute?||What is the benefit?||Benefit of continuing strategy over 5 years with earnings compounded at 6%p.a. (net of tax and fees)|
Cap $25,000 p.a.
|Personal contribution claimed as a tax deduction (concessional contribution)||
Cap $25,000 p.a.
|Contribution splitting of concessional savings to spouse’s account||85% of concessional contributions (less 15% super contributions tax)||
Early access to spend, to save more, or reduce debts
|Personal contribution – NO tax deduction claimed (non-concessional contribution)||
Cap $100,000 p.a.
Earnings on contribution taxed at 15% V. top MTR 47%
Spouse contribution (non- concessional contribution)
Make an after-tax contribution up to $3,000 to your spouse’s super fund (spouse’s income under $40,000 p.a.)
|18% tax rebate to contributing spouse (max $540)||$3,116|
|Government co-contribution (non-concessional contribution)||
If you make a personal after tax contribution of $1,000 p.a. (and your income is below $52,698) your super may receive up to $500 p.a.
|Up to $500 p.a.||$2,842|
Want to know more about superannuation?
Superannuation is a tax effective structure for building wealth for your retirement.
The tax rates imposed on superannuation funds include:
- contributions tax at up to 15% for individuals. This increases to 30% for those earning $250,000 or above in 2018/19. Investment income is taxed at a maximum of 15%
- capital gains are taxed at a maximum of 15%. If the asset has been owned by the superannuation fund for more than 12 months, the maximum rate of capital gains tax is 10%
- where a retirement income stream is commenced, the tax rate on income and capital gains in the pension account reduce to zero (this will arise in cases including where you are 65 or if you have met the superannuation definition of retirement). A lifetime cap, called the transfer balance cap, applies to the total amount that you can transfer to commence a retirement phase pension. This limit is currently $1.6 million and may be indexed in the future
Types of superannuation contributions
Contributions to the superannuation system are generally split into two broad groups;
- concessional contributions
- non-concessional contributions
- Concessional contributions will be taxed at 15% (or at 30% for individuals with income from certain sources of $250,000 or above)
- Concessional contributions in excess of the concessional limits will be added to the individual’s assessable income and taxed at the individual’s marginal tax rate). An additional contributions charge will also be payable
- Eligibility for concessional contributions over age 65 is based on a work test which requires you to be gainfully employed for 40 hours over a period of 30 consecutive days during the financial year in which the contributions are made
- Any contributions in excess of the concessional limit will be counted towards the person’s non-concessional cap unless the person elects to have the excess concessional contributions refunded, rather than retaining them in superannuation
- From age 75, only employer contributions can be accepted which are required to be made under legislation (e.g. Superannuation Guarantee)
- The rules that relate to ‘catchup contributions’ are complex, and you should seek advice before making any concessional contributions that we haven’t addressed in our advice
Non-concessional contributions include contributions to the fund such as personal after-tax contributions and spouse contributions.
These contributions are not taxed (provided they are within the annual limit) and form part of the tax-free component of your superannuation benefit.
Non-concessional contributions made in excess of the annual limit may be charged significant penalty taxes and so for most people should be avoided.
Individuals under age 65 (at the commencement of the relevant financial year) may be able to bring forward up to an additional two years of non-concessional contributions, enabling them to contribute up to three years of contributions in one year with no further contributions in the next two years. The year in which the bring forward rule is initially triggered determines the value that can be contributed during the three year period. Since 1 July 2017, your total superannuation balance must be less than $1.6 million (subject to indexation) on the prior 30 June to be eligible to make non-concessional contributions.
- Contributions in excess of the non-concessional limits which are retained in superannuation will be taxed at the highest marginal tax rate plus Medicare levy. This tax will be applied to the individual, not the superannuation fund
- You can elect to withdraw an excess non-concessional contribution and the associated earnings instead of retaining the amount in superannuation
- Eligibility to make non-concessional contributions from age 65 – 74 is based on a work test which requires you to be gainfully employed for 40 hours over a period of 30 consecutive days during the financial year in which the contributions are made. This is in addition to the requirement that your total superannuation balance is below $1.6 million on the prior 30 June
- Individuals aged 65 to 74 (on 1 July of a financial year) are unable to bring forward non-concessional contributions
- Individuals aged 75 and over are not able to make non-concessional contributions. Additional limitations will apply when determining the total amount of nonconcessional contributions that you can make if your total superannuation balance is between $1.4 million and $1.6 million on the prior 30 June
If you have not started planning for retirement yet, speak to a Partners Wealth Group advisor today on 1800 333 143 and find out which strategies you qualify for and how to get started on your journey.