Many of us turn a bit of a blind eye to super. We know it’s there and we know it’s ours. We just hope, or think, it’ll be enough when the time comes. If it isn’t, we’re probably somewhat familiar with the government’s age pension and might figure that could be a back-up plan should we fall short.
Little do some of us know that not everyone is eligible for the age pension and if we are and plan to rely solely on it, we may have to live a less than a modest lifestyle in our later years1.
So, approximately how much super do we need and how might we boost our super savings, while also making the most of the tax benefits generally available inside the super system?
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, who are looking to retire today would need an annual budget of around $46,462 or $69,691 respectively to fund a comfortable lifestyle2. That’s assuming they own their own home.
To live a modest lifestyle, which is considered better than living on the age pension alone, individuals and couples would need an annual budget of around $31,323 or $45,106 respectively3.
Super contributions with benefits
- Tax-deductible contributions
Tax deductible contributions are voluntary contributions you may choose to 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 (such as when you transfer funds from your bank account into your super) and then claim a tax deduction for them when you’re doing your tax return.
Putting money into super and claiming it as a tax deduction may be of benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this may often be higher).
Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction. This could help reduce or even eliminate the capital gains tax that’s owing altogether.
- Co-contributions from the government
If you’re a low to middle income earner and have 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 $42,016 per year in the 2022/23 financial year and you make at least one voluntary, after-tax contribution to your super fund, you will receive up to 50c for every dollar you pay into your super account, up to a maximum 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.
- Spouse contributions
If you’re earning more than your partner and would like to top up their retirement savings, or vice versa, you may want to think about making spouse contributions.
If eligible, you can generally make a contribution to your spouse’s super fund and claim an 18% tax offset on up to $3,000 through your tax return.
To be eligible for the maximum tax offset, which works out to be $540, 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’ll no longer be eligible for any offset but can still make contributions on their behalf.
- Salary sacrifice contributions
Salary sacrifice 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, as you’ll only be taxed 15% on the money you salary sacrifice (or 30% if your total income exceeds $250,000), for most Aussies that means you’ll generally pay less tax on your salary sacrifice super contributions than you do on your income.
- 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.
For couples, both people can take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super. There are however, potential advantages, rules and other things you’ll want to be across.
- Find your lost super
If you’ve changed jobs, your name or address over the years, or worked part time or casual jobs, there’s a chance you may have lost track of some of your super.
If so, you may be paying multiple sets of fees for different super accounts. It’s worth checking if the ATO may be holding some unclaimed super on your behalf as well. This happens when super funds transfer the balance of small, inactive accounts directly to the ATO.
- Consider whether consolidating your super could be worthwhile
There may be advantages to rolling multiple super accounts into one, but there are things to consider.
- One set of fees
- Less paperwork and admin
- It may be easier to manage an investment strategy that meets your specific needs.
- Some funds may charge withdrawal fees
- There could be tax implications
- You may lose some features and benefits you currently have, such as insurance cover.
- 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 maximum of $500 per year.
If you’re eligible for the low-income super tax offset, the good news is it will be automatically calculated by the ATO and deposited in your super account after you lodge your tax return.
- Review your investment options
Most super funds allow you to choose from a range or mix of investment options and asset classes, and choosing the most suitable option will typically come down to your attitude to risk and the time you have available to invest.
If you’re young, you may have more time to ride out market highs and lows, and therefore be willing to take on more risk in the hope of achieving higher returns. Whereas if you’re closer to being able to access your super, you may prefer a conservative approach, as a share market crash could be harder to recover from.
- Look into other important aspects of your super
Your super should be working for you, so it’s important to review it at least once a year and check things like:
- Fund performance (noting, past performance isn’t an indicator of future performance)
- Any fees you might be paying
- Any insurance you might have inside your super and whether it suits your current needs.
1, 2, 3 Association of Superannuation Funds of Australia’s Retirement Standard December 2022 figures