For many Australians there is a huge gap between how much money they think they need to save in comparison to much they really need to save in order to safely retire. Australia’s average life expectancy in 82 and a half years of age. If someone was hoping to retire at age 65 it would be unwise to do so unless than had an excess of 17 and a half years’ worth of savings.
Research gathered by AMP indicated that if an Australian was to retire at age 65 their savings would on average only last 5 years. This would create a super shortage of 12 and a half years when aligned with the country’s life expectancy.
Australians who are currently aged between 35 and 44 on average had a super shortfall of 13.6 years. Generation Y would have an average shortfall of 12.1 years.
These figures indicate that Australians are saving much less than what they need to save if they aspire to live a fulfilling lifestyle in retire. Here are some tips for boosting your superannuation and retirement savings.
Salary sacrifice contributions
A salary sacrifice is when you decide to have a percentage of your before-tax income paid into your superannuation account by your employer. This sum of money is an addition to what your employer already pays you under the Superannuation Guarantee. The Superannuation Guarantee is no less than 9.5% of your before-tax-salary.
Although salary sacrificing is voluntary, it will result in a reduction in your take-home pay. You will also be taxed 15% on the money you salary sacrifice, this may turn out to be a tax-effective way to save if you pay a higher rate of tax on your income, which the majority of people do.
Personal contributions (and co-contributions)
You can also make a voluntary contribution to your superannuation account by using after-tax dollars, which you don’t claim a tax deduction on.
If your total income is either equal to or below $37,697, and you make personal after-tax contributions of $1,000, you could be eligible to receive a maximum co-contribution of $500 from the government too.
When a persons total income sits between $37,697 and $52,697 your maximum entitlement will decrease as your income increases. It is also to be mindful of the fact that figures are indexed each year and will probably change in the future.
Another voluntary contribution that can be made is a tax-deductible personal contribution. This contribution is made by using after-tax dollars. For example; when you transfer money from your bank account into your super account and then claim a tax deduction when completing your tax return.
Since personal contributions transferred into your super account are taxed at 15%, this creates approximately the same tax benefit offered through a salary sacrifice arrangement. This is beneficial if your employer doesn’t offer you an option for you to make a salary sacrifice, or if you receive a sum of money that you would otherwise pay tax on your full income tax rate.
People over the age of 65 can make a voluntary contribution to their super account of up to a maximum of $300,000 using the money to make from selling their house. This is regardless of their employment status, current superannuation balance or their contributions history. This means that couples, both people are eligible to take advantage of this opportunities and means they can contribute of up to $600,000 per couple into their super account.
Downsizer contributions are not tax deductable and they can be made regardless of super caps and restrictions that otherwise apply when making a superannuation contribution.
It is important to keep in mind that if you are planning to add money to you or your partners super account, it is important to note that limits apply when making this contribution. If you put in more money that what you are capable of, you may face penalties.
More ways to increase your superannuation account
The low-income super tax offset
For Australians who earn $37,000 or less annually, and you (or your employer on your behalf) make a super contribution (under the Superannuation Guarantee, a salary sacrifice arrangement or that you claim a tax deduction on), the federal government might refund the tax you paid on those contributions back into your superannuation account, for potentially up to a maximum of $500 every year.
The Australian Tax Office will automatically determine if you are eligible for the low-income tax offset. If you are eligible than it will be deposited into your super account after you lodge your annual tax return.
The spouse contributions tax offset
Australian workers are also able to make after-tax contributions to their spouses super account. If you meet the required eligibility criteria you can claim an 18% tax offset. To be eligible for the maximum tax offset, which is $540, you will be required to contribute a minimum of $3,000 and your partners annual income must be $37,000 or under.
If your partners income exceeds $37,000, you might still be eligible for a partial tax offset. However, if your partners income exceeds $40,000, you will no longer be eligible, but you will still be able to make contributions for them.
To be eligible to make a spouse contribution, the spouse who is receiving the contribution must be under the age of 67. If they are aged between 67 and 74 they must have worked for at least 40 hours within a 30-day period under work test requirements.
Consolidating your super
If you have a super account with more than one provider, there might be benefits to rolling all your accounts into one. These potential benefits include paying one set of account fees which would over time save you hundreds of dollars every year and possibly thousands of dollars over several years. Before deciding on whether it is a good idea to roll all of your accounts into one it is important to ask yourself; will I be charged any exit or withdrawal fees? And are there any features or benefits attached to the account I am closing which I might lose, such as insurance?
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