There comes a point in life when a person begins to actively engage more with their retirement savings.
This moment is different for everyone – a career change or promotion, a baby, a marriage or divorce, a milestone birthday, and sometimes only at the start of retirement.
For many younger people, superannuation is generally a low priority on their list of things to consider. Which is why, with a raft of legislative reforms now in play (Super Reforms – Your Future, Your Super), there are active efforts from Government to engage the younger generation more in their superannuation.
There are several small things a person can do to start their journey to become more future-centric:
- Look at what insurance coverage you have in your superannuation fund – how much coverage do you have, and how much are you paying?
- Complete a death benefit nomination form – this tells your superannuation fund where your superannuation goes in the event of your death.
- Read more news! Become more socially aware of what is happening in the superannuation space – so much is changing.
A common question that arises is, ‘can I contribute more to my superannuation?’
If you are employed, your superannuation fund is most likely receiving deposits from your employer.
For the 2022-23 financial year, an employer must pay at least 10.5% of your ‘ordinary time earnings’ into your superannuation account. This minimum amount is called the ‘superannuation guarantee’ contribution.
In order to answer whether you can contribute more, you will want to consider a number of questions:
1. How much are you already contributing?
There are limits on how much you can contribute to superannuation each year. The current financial year’s limit is $27,500 of concessional contributions. ‘Concessional contributions’ is a term that refers to contributions made from ‘pre-tax’ money; the limit includes the contribution that your employer makes on your behalf.
So, for instance, if you earn $90,000 pre-tax, your superannuation guarantee contribution would be $9,450 per year, which leaves $18,050 of available ‘space’ for extra contributions.
There can be additional tax to pay if contributions exceed the $27,500 limit, so you will want to consider all employers if you work multiple jobs.
2. Do you have enough cash flow to allow for extra contributions?
If you continue earning $90,000 pre-tax, then your ‘take home’ pay after tax is just under $70,000. If you have a student loan, this amount is likely lower.
From this, most people pay rent or a mortgage alongside other household expenses, such as groceries, school or daycare fees, and lifestyle expenses. Avocado on toast and Netflix, anyone?
Making additional contributions toward your superannuation depends on whether your lifestyle allows for it. There are strict terms for when a person can access their superannuation, so if you are contributing additional funds, it will likely be many years before you can access those funds.
3. Will you be making extra contributions yourself, or will your employer?
These options both result in a reduction of your taxable income and more allocated to your superannuation. However, if you are contributing yourself, there are specific forms you need to complete by certain deadlines, so please contact your superannuation fund for more information.
If you would like to contribute more through your employer, this arrangement is called a ‘salary sacrifice’, and your employer may have their own forms for you to complete.
If you have a HECS-HELP debt, contributing more to superannuation means you will likely have to pay more toward your HECS-HELP debt. It is important to factor this in when considering making additional superannuation contributions.
It may seem daunting, but a wealth of knowledge is now available that can aide Australians in making smarter choices younger.
It really is possible to eat your avocado and retire too, with the right planning and a few adjustments.
If you would like to have a chat about your situation, please contact us on (07) 3391 5055 or via email at firstname.lastname@example.org. Alternatively, for more content, click here to visit our library page.
Any advice included in this communication is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Any tax information refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.