INVESTING

How to make 2020 the year you take control of your super

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You can't just hope for the best when it comes to having enough money for retirement. You need a plan to boost your superannuation to fund your retirement. There's no better time to start. Here is what you can do in 2020:

Start small

If you don't have much extra money, give up some regular expenses and put the savings into your superannuation fund. If you are young and have time on your side, then topping up your super with small amounts can turn into huge rewards for your future. Think of it as paying yourself forward. If you cooked an extra meal for you and your partner at home each week, you could save $20 a week and over 45 years you would have over $175,000 extra for your retirement.

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Superannuation funds offer apps that allow fund members to make flexible contributions to their superannuation funds.

Start early

The earlier you start putting extra money aside through salary sacrificing, the more you will have in super because the power of compounding means that the more often your interest is compounded the more money you make. If you start contributing when you are 28, you pay one third of what you have to put in when you are 45.

Understand the tax benefits

Superannuation is the most tax effective way to save for retirement with a low 15% tax on superannuation contributions. Investment earnings are taxed at 15% and there is no tax on the pension income if you are aged over 60.

Look for lost super 

When you change jobs, your address or name, sometimes the correspondence from your superannuation fund gets lost. There is around $17.5 billion in lost super and some of it could be yours. ASFA says that every dollar you find and put into your superannuation before age 35 could mean up to seven extra dollars of super savings in retirement.

Check your super fund has your tax file number

If the super fund doesn't have your tax file number, you could be charged too much tax. Most income-earners are taxed at low rates of 15% than other forms of income.

Check your payslip 

Make sure that employer is contributing the right amount of superannuation. Once you have found the section for SG contributions, you should check that the amount you have been paid equates to 9.5% of your gross (pre-tax) ordinary time earnings for the period of time covered by the payslip.

Follow up with your employer 

If you can't find your SG contribution on your super fund statement, ask your employer if they have been making SG contributions for you and, if so, how much they have been paying and what account details they are using. Employers must make contributions at least quarterly and many make them frequently. If your SG has been going into an old fund that you no longer use or check, you may wish to consolidate your super.

Contact your super fund

If you do not have your most recent member statement, you can contact your super fund to find out the timing and amount of your last super payment. You can also create an account on the ATO's MyGov service to view details of all of your super funds, including any that you may have lost track of or forgotten about.

Salary sacrifice

The most tax effective way to bolster your super savings is through salary sacrificing because you are putting your pre-tax salary into your super fund. The money going into super is only taxed at 15%. You may be able to slip into a lower tax bracket. Here is the example of Johnny who earns $90,000 before tax, excluding his employer's super contribution. If Johnny decides to redirect $10,000 of his pay into salary sacrifice super contributions, he will save $2,400 in tax, with the extra money going into her super fund. But the trade-off is that you are locking your money away until retirement and cannot access it until you have reached your preservation age.

An automatic payment plan is the best way to salary sacrifice because the money is taken from your salary before you even see it. Ask your employer or the human resources department to deduct extra money from your salary.  It is best to include the details in your terms of employment and get the agreement in writing. This ensures your employer calculates their 9.5% super guarantee contribution on your original income and not on your reduced salary. Contributions are capped at $25,000.

How much should you be salary sacrificing?

One way to work out how much to put aside is to look at how much you want to retire on. What are your expectations in retirement?

There are plenty of calculators (moneysmart.gov.au from ASIC or superguru.com.au from ASFA) that will give you different levels of income in retirement. Calculators ask you how much you have already saved, your salary and when you want to retire.

Government co-contributions

Take advantage of the government's co-contribution scheme that rewards you for making personal non-concessional (after tax) contributions.

If you earn less than $53,564 per year (before tax) and make non-concessional super contributions, you may be eligible for a matching contribution from the government, known as a government co-contribution.

If you earn less than $38,564, the maximum co-contribution is $500 based on 50c from the government for every $1 you contribute. It doesn't matter whether you make small regular contributions or irregular lump sums; the co-contribution is based on the total amount of non-concessional contributions you make over a financial year.

The amount of co-contribution you are eligible for reduces the more you earn; however, you can earn up to $53,564 and still be eligible for something.

Low Income Super Tax Offset

You could qualify for the Low-Income Superannuation Tax Offset (LISTO).

Around 3.1 million Australians (63% are women) will receive the LISTO, which has replaced the Low Income Superannuation Contribution which ceased on June 30, 2016. The LISTO provides a refund of contributions tax for anyone earning up to $37,000, up to a maximum of $500.

Low-income earners will typically receive around $260 on average, explained Martin Fahy, CEO of the Association of Superannuation Funds of Australia (ASFA). You can find the relevant information at ato.gov.au

If you claim a deduction for your personal contributions, you may not be eligible for the government's co-contribution.

Annual bonuses

What do you do with an annual bonus? Superannuation is the ideal place. While you are not permitted to salary sacrifice accrued annual leave or long service leave, you can salary sacrifice your bonus entitlements. The catch is that you must come to an arrangement with your employer before you are paid a bonus, not after.

This means you must tell your employer that you will salary sacrifice part or your entire bonus (up to the contributions cap) before you have been notified the amount of the bonus.

However, if you want to salary sacrifice your bonus after you have been told, it can be a non-concessional contribution and out of your after-tax salary. ?

Contribution caps

To limit the tax concessions on superannuation, you are restricted by a maximum allowed on contributions. You can contribute up to $25,000.  This includes your employer's 9.5% superannuation guarantee payment. If you go over the contribution cap you are taxed at a higher.

Non-concessional contributions

If you can spare the money, you can really boost your super savings by making after-tax contributions. You will usually save more by investing through super than by investing in the same assets outside super.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
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