Help, I forgot to save any super!
Plenty of people don't get around to consistently building a nest egg. Self-employed Australians who work in the gig economy or as freelancers, contractors or who run their own business miss out on automatic employer contributions into a superannuation fund.
Their super balances lag way behind because they have to put the money aside for themselves and super gets overlooked as they juggle cash flow.
But as people grow older and they realise they are missing out on superannuation's valuable tax benefits; they want to rev up their super.
Don't put off saving super any longer. Here are 10 ways to catch up and boost your super.
1. Claim a deduction
The good news is that most self-employed people can claim a full tax deduction for contributions they make to their super until age 74. There is a limit on how much you can contribute: $27,500 from your pre-tax income and $110,000 from your after-tax income.
2. Start small
If you don't have much extra money, give up some regular expenses and put the savings into your superannuation fund. 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 at home each week, you could save $20 a week and over 45 years you would have over $175,000 extra for your retirement. Check if your super fund offers an app to allow you to round up purchases to the nearest $1 or $2. So that $3.50 coffee would place $0.50 into your account. It is an automatic way to save more in super for everyone, not just the self-employed.
3. Set yourself up to save
The best way to ensure the money goes into super is to set up compulsory savings and pay GST and super first before you access any money.
4. Start as early as you can
The earlier you start putting money aside, 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 pay when you are 45.
5. Understand the tax benefits of superannuation
It 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 from your superannuation fund if you are aged over 60.
6. Salary sacrifice to super
The most tax effective way to bolster your super savings is through salary sacrifice 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 Katie who earns $90,000 before tax, excluding her employer's super contribution.
If Katie decides to redirect $10,000 of hers pay into salary sacrifice super contributions, he will save $3,450 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.
7. Work out how much should you be salary sacrificing
Look at how much you want to retire on and use one of the many 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.
8. Find out if you're eligible for the co-contribution payment
You may also be eligible for the super co-contribution payment that encourages eligible low- to middle-income earners to save for their retirement. If you're eligible and you make personal super contributions, the government will match your contribution with a co-contribution up to certain limits.
If you earn less than $41,112 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 $56,112 and still be eligible for something.
9. Look into the LISTO
If you earn $37,000 or less you could qualify for the Low Income Superannuation Tax Offset (LISTO). The LISTO provides a refund of contributions tax up to a maximum of $500. 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.
10. Make the most of any windfalls
What do you do with an annual bonus or a windfall such as an inheritance? Superannuation is the ideal place.
The catch is that you must come to an arrangement with your employer before you are paid a bonus, not after.
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