Three super resolutions for the new year
Have you started compiling your new year's resolutions? We all know the typical ones: lose weight, drink less, be more mindful, etc.
But have you ever considered adding super to the list? Whether you're 25 or 65, super is probably your greatest financial asset.
It is the most tax-effective income strategy (even more so than property) and with the recent age pension cuts it's quickly becoming the key to a comfortable retirement.
Taking care of your super is like gardening: if you don't tend to it, it will shrivel up or be eaten away over time.
Make 2016 the year for a super overhaul by following three simple steps:
1. Consolidate your accounts
Did you know that there are over a million "lost" super accounts?
The current tax office figure for lost super sits at a collective $12 billion, which if you divide it up among the population means about $500 a person.
If you have three inactive super accounts with, for example, $5000 in each, over five years the account-keeping fees (around $500 a year for most) will be about $7500. So let's be clear: lost super is a waste.
It's easy to lose your super: if you change address and don't notify your fund, or if you change funds and forget about the old one, your super can end up in the wrong hands.
But the good news is that now it's even easier to track it down. If you're one of the millions of people with a myGov account, you can do so at the click of a button.
The tax office's SuperSeeker tool is quick, easy and efficient, so if you have a lost super balance on your conscience, make 2016 the year to track it down.
2. Review the fees and charges
Reviewing your super balance regularly is a no-brainer - you should always check that your employer is paying its 9.5% contribution and that your balance is growing over time. If you think it's growing a little too slowly, act on your instinct and review your fund's fees and charges.
Default super accounts usually include insurance cover. But if you're not at an appropriate stage of life to be paying total and permanent disability (TPD) insurance, then you're wasting your money on a service you don't need.
Go through your super policy with a fine-tooth comb, and cross-check your fees with those for other funds to make sure you're getting a good deal. Aussies spend about $20 billion a year on fees and charges, so it's best to stray from the crowd and opt for a low-fee fund.
3. Start salary sacrificing
If you're disheartened by your current super balance, it's never too late to do something about it.
Making extra contributions can be effective for any income bracket. Middle- to high-income earners can benefit from the big tax advantages of salary sacrificing, while low-income earners can make after-tax contributions to claim the government's co-contribution.
For those earning under $54,454, the government will match your extra contributions for the financial year up to $500, depending on how much you put in. That's a pretty big helping hand, so take advantage of it while it's still around.
For higher-income earners, salary sacrificing is a great way to cut tax.
You can contribute up to $30,000 a year if you're 48 or younger, or $35,000 if you're 49 or older. If you earn $90,000 a year and salary sacrifice $10,000pa, your marginal tax rate would be 37%.
But you pay only 15% on the $10,000 that goes into your super fund, which is a $2200 saving. Make sure that you don't leave your extra contributions too late - the approval process can take a while, so get in well before the end of the financial year.