'Spend your super, don't leave it for the kids'
The recent changes in the federal budget reducing the eligibility for the aged pension is an indication that the government wants more people to live on their super benefits and not leave a nest egg to pass onto the next generation.
This may be good government policy for wealthy retirees but many will find it difficult to build up a significant superannuation balance when they retire unless they take early steps to maximise their retirement savings.
Here are some ideas on how to make the most of your super.
Super is a tax-effective investment, as the government provides a tax deduction for contributions.
If you can afford to, you should salary sacrifice into superannuation, up to the maximum contributions cap (currently $30,000 for those under 50 and $35,000 for those over 50).
If you have excess savings outside super, a good strategy is to contribute them into super as after-tax contributions.
The cap for these contributions is $180,000 a year, or you can bring forward three years of contributions and contribute $540,000 at once.
The three year bring forward rule is a taxation rule that allows a client to contribute up to three times the non-concessional contributions cap in a financial year, or over the next two financial years.
The earnings on this money will be taxed at only 15%.
It makes good financial sense to have your life insurance inside superannuation as the premiums can be paid by your contributions.
Also the premiums are generally tax deductible inside super, whereas outside super they are not. Furthermore, the cost of cover is generally more competitive within super.
Start a transition to retirement pension
Consider starting a pension from your superannuation fund as early as possible. Under a transition to retirement pension, you may continue to work while drawing a pension from super.
One strategy is to salary sacrifice, up to the allowable cap, while replacing the income from the sacrificed salary with a pension from your super fund.
Generally you are financially better off with this strategy, because you receive a tax break on your superannuation contributions while your super pension is also concessionally taxed in your hands (or tax free if you are over age 60).
Also when the fund is paying you a pension, the fund earnings are tax free, thereby further boosting the return on your retirement savings.
Finally, any pension drawn out of your super fund which you don't need should be re-contributed into the fund for it to accumulate in a tax-friendly environment.
Seek specialised advice
The superannuation laws are complicated and constantly changing and advice on how to manage and maximise your investment is important.
The right advice can help you make the best use of your super, from an investment and a strategic point of view.