Australians are facing an economy where they need to be very conscious about where they put their money.
You may have a family relying on you financially or a business you are working to build. Whatever your current responsibilities, you still need to care for yourself at the end of the road.
Superannuation is a government-mandated retirement savings system in Australia. It is one of the easiest ways to grow wealth for those retirement years.
We have outlined some key ways to optimise your superannuation strategy to secure long-term financial stability.
If you want a more comprehensive understanding of superannuation and how to use it for wealth-building, download our FREE e-book.
A Comprehensive Superannuation Guide will help you prepare for a prosperous retirement.
Step 1: Define Comfortable
A comfortable retirement will look different to each person. When determining how much superannuation you will need, ask the following questions:
- What lifestyle do you want in retirement?
- Do you plan on travelling?
- What about health expectations for later years?
This process paints a picture of what retirement will look like for you. It will help you take steps in the right direction. These ‘comfort’ goals will help you identify financial goals.
Step 2: Calculate The Numbers
Estimate how much money you will need to cover living expenses. Determine your desired retirement age and estimate your post-retirement annual costs.
You can only access your super at 60 since everyone born before 1964 is now past their preservation age.
Consider variables like your current savings, expenses, and how much you want to spend each year in retirement. Be sure to consider how living expenses may increase by that time.
Once you know what your estimated expenses will be, project what your super balance will be at age 60.
If it’s enough, then you’re halfway there. If not, then these optimisation tips may help you get there.
No one can predict life expectancy, but we can make financial decisions based on investment return. The less you spend, the more you can save.
If you own your home and are relatively healthy, the Association of Superannuation Funds of Australia (ASFA) estimates that single Australians will need $44,400 annually. A couple will need a combined $62,800 yearly for a ‘comfortable’ retirement.
However, how much money you’ll need in retirement is a personal question. It largely depends on your current lifestyle and how you want to live when you retire.
How To Optimise Your Superannuation?
1. Contribute More
To retire early, consider contributing more than the mandatory Superannuation Guarantee (SG) contributions, currently set at 11%.
High-income earners can take advantage of concessional super contributions by making additional pre-tax contributions, known as salary sacrificing. This reduces your taxable income and boosts your retirement savings.
These extra contributions are called voluntary contributions. By making voluntary contributions, you’re adding more money to your retirement savings, which can grow over time.
2. Choose the Right Investment Option
You can choose different investment options within your superannuation fund, such as growth-focused or conservative options. These options determine how your money is invested and come with varying levels of risk and potential return.
A growth-oriented investment strategy may be suitable for long-term growth and higher returns.
3. Consolidate Your Super Accounts
Over the years, you may have accumulated multiple superannuation accounts. Consolidating them into one fund can help you save on fees and make it easier to manage your investments.
4. Review and Adjust Your Investment Portfolio
Regularly review your superannuation investments to ensure they match your retirement goals. Adjust your asset allocation as you get closer to retirement to reduce risk and preserve capital.
This may entail reviewing your super fund to see if you could access better financial products for a higher retirement income. Even for a modest retirement, technical analysis can ensure you have what you need.
5. Take Advantage of Tax Benefits
Australia offers tax incentives to encourage retirement savings. Contributions made to superannuation are generally taxed at a lower rate than regular income.
High-income earners can benefit from this tax advantage by contributing more to their superannuation.
Concessional contributions include employer contributions (such as super guarantee and salary sacrifice contributions) and personal tax-deductible contributions.
You can contribute non-concessional contributions to your superannuation fund from your after-tax income.
Suppose you are under the age of 67. In that case, you may be eligible to bring forward three years’ worth of non-concessional contributions, allowing you to contribute up to $330,000 in a single financial year.
Also, if you convert your superannuation to an income stream, all investment earnings within super will be received tax-free.
6. Maximise Government Co-contributions
If your income falls within certain limits, you may be eligible for government co-contributions when you make after-tax contributions to your superannuation. The government may match a portion of your contributions up to a maximum of $500. This can provide a significant boost to your retirement savings.
7. Consider Transition to Retirement
Explore a Transition to Retirement (TTR) strategy. This allows you to access a portion of your superannuation while still working, which can supplement your income in the lead-up to early retirement.
Many retirees don’t realise they’ll have to replace their 40-hour workweeks with other activities.
Some options include hobbies, travelling, and volunteer work. It’s essential to figure out your retirement goals.
8. Review and Update Your Insurance
Superannuation funds often include insurance coverage. Review your insurance policies to ensure they align with your needs, especially as you approach retirement. Make adjustments if necessary.
Consider how your family could benefit from the accumulation of your investment decisions after you are gone.
Get Yourself A Tailored Superannuation Strategy
Consult a financial advisor or retirement planner to create a tailored superannuation strategy.
AFP can help you navigate the complexities of superannuation laws and ensure your plan is optimised for your goals.
Optimising your superannuation brings you one step closer to securing long-term financial stability.
You can build a substantial superannuation nest egg and enjoy the benefits when the time comes.
With the help of a financial advisor, you can ensure you are on track to meet your goals while fulfilling all your current financial responsibilities.
Contact us today for more information.