With life expectancy now well into the late eighties, those retiring now are faced with the prospect of how to fund the next 25 years.
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| Superannuation is merely a mechanism for building up funds which in retirement will provide an income source |
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Most people will not have enough superannuation or funds to support their own retirement and will be forced to have at least some reliance on a Centrelink age pension.
How far will this age pension go to meeting your needs?
Faced with an ageing population, in 1993, the government introduced the Superannuation Guarantee.
This made it compulsory for employers to contribute a percentage of an employee’s gross wages into super.
However it wasn’t until 02/03 that the percentage became the current 9%, and in addition not everyone is covered.
For example, there is no onus on those who are self-employed to contribute at all, and those earning less than $450 per month are not covered by the legislation.
In a nutshell, many people will not have enough superannuation to fund their retirement or supplement the age pension. Have you checked your superannuation balance?
Superannuation is merely a mechanism for building up funds which in retirement will provide an income source.
As with any financial product, there will be some peaks and troughs and your balance will grow at varying rates depending upon the underlying investment strategy of your chosen fund and fees charged.
Our financial planners can help choose the right product for you at the right stage of your life. Have you checked your fund’s investment strategy and fee structure?
If you are not currently contributing to superannuation or would like to contribute more, you should consider the tax advantages that superannuation brings.
If you are substantially self-employed you can make contributions into super which are tax deductible.
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| Have you checked your superannuation balance? |
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If you are employed you may be able to enter into a ‘salary sacrifice’ arrangement and elect to have some of your pay go directly into super as a ‘before-tax’ contribution.
Both these types of contributions are taxed at 15% and naturally because of the tax advantages there are limits to how much you can invest and still receive concessional tax treatment.
If you make after tax contributions then you may be eligible to receive a government co-contribution. This is ‘free money’ – the government will match $1 for $1 up to $1000 of for those making non-concessional contributions and have an assessable income of up to $31,920.
After that point there is a sliding scale of co-contributions and the benefit cuts out completely at $61,920.
If you have a low income or non-working spouse there are generous tax concessions if you contribute to your spouse’s super. The contributing spouse is currently entitled to an 18% tax offset on amounts contributed up to $3000.
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| Once in pension phase then any earnings are tax free. |
Once your money is in super, then any earnings are favourably taxed at 15%.
Once in pension phase then any earnings are tax free. To withdraw your super you will need to meet ‘a condition of release’.
If you are over 60 and retire then any withdrawals whether by lump sum or via a pension are completely tax-free.
Increasing in popularity are Self-Managed Superannuation Funds and our next issue directly looks at some of the advantages of managing your own superannuation.
This article is presented in summary form as a guide only for our clients. It should not be relied on as a substitute for detailed advice or solely as the basis for making business or investment decisions.
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