Most Australians treat retirement planning like the elephant in the room. They know they should be doing something about it, but there’s always something else to do, so they keep putting it off.
Having a comfortable standard of living in your retirement is becoming more dependent on how well you prepare for retirement, and in particular how well you take advantage of the most tax-effective form of retirement savings, superannuation.
Superannuation funds are considered tax-effective because contributions and fund earnings are taxed at up to just 15% rather than your marginal tax rate which can be up to 47% including the Medicare levy. Not only that, but when you turn 60 you will be able to access your super entirely tax-free.
The compulsory superannuation contributions made by your employer on your behalf will not provide more than a basic lifestyle. You need to contribute more to gain a level of comfort in retirement.
There are several strategies that can help you maximise your super. One of the most beneficial is salary sacrificing some of your salary. A salary sacrifice strategy allows you to make additional contributions to your super fund directly from your pre-tax salary. The benefit of this is that it is not only forced savings but you will only pay a maximum of 15% tax instead of your higher marginal tax rate. Remember however, there is a cap on the amount of concessional contributions you can make to your super each year, so this also needs to be taken into consideration.
Remember also to examine and review where your super is invested. Despite the continued sharemarket volatility, it’s important to remember the fundamentals of investing, markets are cyclical and eventually shares will regain value, but in the meantime, opportunities may arise. A difference of just 2% per annum can make a vast difference to the sum you have at retirement.
For many, getting started is the hardest part, but the good news is that it is never too late, or too early to start planning for a comfortable retirement. At Pinnacle Advice we can assist you with tax effective superannuation and determine if you’re on track for a comfortable retirement.
This article does not take into account your personal circumstances and should be considered as general advice only.