A lot can happen between the time you start working and the time you retire. Maybe you will marry, start a family, buy a property? Maybe you will change jobs (more than once) or even careers?
All major life events will have an impact on your finances and each is a great time to review your super: its performance, the fees and how your retirement money is tracking. Your super is a part of the bigger ‘financial picture’ and the decisions you make now to do with your super can make a difference to your retirement.
Take a look at some life events where it can be a good idea to take a closer look at your super…
Changes in family structure
Finding that special someone is pretty exciting and while super is unlikely to be on the top of your list of conversation points it’s one topic that shouldn’t be missed.
As a couple, consider ways to make the superannuation journey a partnership. While you can’t combine your superannuation with your partner’s, you may be able to maximise one another’s super balances thanks to spousal contributions. Perhaps you wish to boost the super balance of your significant other while they are on a parental break or simply access the Tax Offset of up to $540 if your partner earns no or low income. Exploring these types of strategies to see if they are right for you, can make a difference when it comes time to retire.
When it comes to providing security for your partner or dependents, in the event of serious illness, disability or death, a simple review of your insurance now, can save you a lot of pain, later. Super funds, such as AustralianSuper, generally offer basic cover when you sign up to the fund but it’s important to understand the flexibility on offer. Have a look at the insurance cover you have through your super and increase, reduce or cancel your cover as your needs change. i
Reviewing your insurance is also a good time to ensure you have nominated a beneficiary for your super. Nominating a beneficiary will mean you can be confident that we have the information to direct your super and any insurance entitlements to the right person, if you pass away.
Buying a house
Purchasing a house can be an exciting time but it can also be stressful, and since taking on new debt is a big commitment, it should always be carefully considered. A house is likely your biggest investment, and it’s important to review your insurances to ensure that in the event of disability or death, your family does not lose the home.
Have a look at whether insurances through your super will cover your new financial obligations. What does your life insurance cover? Think about whether the amount of cover you have meets your debts for a period of time that you believe could help your partner get back in control of things. If you were never able to work again, would your TPD cover be enough to cover these expenses but also the costs associated with your disability such as health care and/or home modifications? These are just some of the things to take in to consideration when assessing your cover.
Changing jobs or even careers can heavily impact your lifestyle, thanks to changes in income and of course the impact this can have on your super. Earning more in a new job with the same expenses? This could be a great time to consider contributing more to your super without noticing a change in your take home pay. Salary sacrifice arrangement that may be offered by your employer, is a voluntary super contribution straight from your pre-tax salary. It can help you save more for retirement but we always recommend considering your debt levels before adding to your super.
Importantly, losing a job is also a great time to check in with your super. Are you paying unnecessary fees by managing multiple super accounts? By consolidating your super into one account, you would be paying a single set of fees, plus have the advantage of easier account management. You could even have up to $5,500ii more in savings for each unnecessary account. If you are considering combining accounts, you should ask your existing super providers for information about any fees or charges that may apply, or any other information about the effect the transfer may have on your benefits, such as insurance cover, before making a decision on which fund or whether consolidating is the right choice for you.
Sudden wealth from inheritance, work bonuses or even a lottery win, can present an opportunity to improve your financial situation. Choosing to invest it in your super fund gives your money potential to compound over the years, leaving you better off at retirement.iii Of course, be aware of contribution caps that apply to your super account so you’re not stung by additional tax.
A few numbers to bear in mind:
- The pre-tax contributions cap is $25,000 and includes the 9.5% contributions from your employer.
- The post tax contribution limit is $100,000 per year.
The amount you contribute and the manner in which you received the lump sum directly impacts the tax applied. Most likely, you will have received a windfall from after-tax income, which would make it part of the $100,000 p.a post-tax contributions cap. If you have not yet paid tax on the income before you contribute it to super (for example, it’s part of your pre tax salary) this would make it part of your pre tax contributions cap of $25,000 p.a. It is important to consider your debt levels and tax position before deciding if these strategies are right for you.
The bottom line
Just because super is a long-term investment, it doesn’t mean it should be filed away in a drawer until you retire. Reviewing your insurance, nominating your beneficiaries and checking in with how your super is performing are great simple things you can do to make sure your super is working as hard as you.