Super: the rules you need to play & win
If we look at life as a big “game”, there are a set of rules we live by. On the top tier, these might be legalities and laws, but there are also social rules and unspoken rules we live by every day. There are rules for your workplace, your family life, your finances — everything has rules. Including your super.
Knowing the rules of superannuation can be the difference between budget senior living and the luxurious lifestyle you’ve long dreamed of. So, how can you know the rules for super inside-out, and use them to your advantage to “win” at retirement time?
Know what you’re playing for.
First, let’s think of super as a “game”. To end up on top, you need to know how to play — and what you’re playing for. The “prize”, as it were, is tax-free income to help you thrive in your golden years. When you eventually transition to a pension, the income you draw from super is tax-free (generally after the age of 60). This is the case even if you're earning income from other assets, such as shares or property.
New to the game? Here are the basic rules.
As an employee, your employer puts 10.5% of your annual salary to super. This is standard and done for you — it’s not something you opt-in for. However, you do have choices when it comes to how it's invested. If you’ve never made a decision as to where your super goes, you’ll be sitting in a default “balanced” fund. For some people, this is a great arrangement. Others might be thinking, “perhaps I can afford to take more of a risk here in hopes for more reward” — the old “go big or go home” adage.
If you’re not sure, completing a Risk Profile will help you make a wise and calculated choice — changing up your super is never something to do on a whim. However, as a good rule of thumb, you can take more risks the further you are from retirement. If something goes wrong, you’ve got plenty of time to make amends. On the upper hand, if it goes right, you can exponentially increase that retirement fund!
Rules for advanced players.
Maybe not advanced, but certainly familiar. If you’ve been working for some time, you might have heard rumblings about “salary sacrificing”. Perhaps you have friends or family that boast about how great it’s been for them, or maybe you’ve heard your colleagues chatting about it.
Say you earn $100,000 a year. On the last $10,000 of salary you earn, you’ll pay $3,450 in tax and keep $6,550. However, if you salary sacrifice that money to super, it’ll only be taxed $1,500 and $8,500 will go to your super. Instead of giving almost $2,000 to the government, it’s now working for your retirement!
Another one to watch is "personal deductible contributions". Personal deductible contributions work similarly, but instead of going through your employer, you contribute the money directly to super and get a tax deduction for it.
These rules are increasingly important for those over 50, or approaching retirement. Both rules center on the government giving tax incentives for people to contribute extra to super for their retirement.
Teamwork makes the dream work.
Sometimes, a team-based strategy is very advantageous — after all, two heads are better than one. You and your significant other can couple-up to do a little (legal) accounting magic and make one plus one equal three. For instance, if you and your partner are in different income tax brackets, salary sacrifice could yield more for you together, as opposed to two individuals salary scarifying independently.
There’s also “spouse contribution splitting”, which allows one spouse to move the previous year’s contributions from their account to their spouse’s account. This helps maximise the $1.7 million limit for each of you and prevents one partner retiring with $2.4 million in super, while the other is sitting on $1 million. If this happens, combined, $700,000 of your joint super would still be taxed. If there is an age difference between you, spouse splitting can also help you maximise the government age pension.
A play-by-play of the rules with Ascent.
If you’ve never thought to learn the rules of super, we don’t blame you. The Australian super system is very efficient and designed to automate a lot of different areas, so for many people, there’s no reason to explore it. However, if you’d like to have more control of your super, there are heaps of benefits you can unlock that maximise your retirement fund.
However, that manual control comes with significant knowledge and management time, and that’s where we come in. Whatever stage of your working life you’re in, we can help you understand the rules of the game, and work with you on the perfect game plan.
Let’s start maximising your super.
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