If you’re in your 50s, you’re on the home stretch towards your retirement and hopefully you’ve built a good amount of super savings along the way. So now is also a great time to start thinking about your new life. That’s ‘life’ as in lifestyle. All those things you can do when work doesn’t take up so much of your time. We’re not talking big expensive trips (although there might be one or two of those), but everyday stuff like daytime movies, learning a new skill, taking long drives, eating lunch on the coast. Because, after all, what’s a weekend when you’re no longer on the 9-to-5 treadmill?
But let’s not get ahead of ourselves. Retirement is probably a few years off yet, and besides, you retire when you decide. If at all. Many people work well into their 70s.
For some, if they haven’t already, their 60th birthday is often a trigger to plan more specifically for life after work. This big-zero birthday is also a good time to get extra-deep and ‘up close and personal’ with your super. This may help you see where you’re at with your super savings or figure out if you want to make more contributions to supercharge these savings during the coming years. There are always options and choices, no matter what your balance looks like right now.
Here are a couple of things you might consider when reviewing your super and assessing if you’re on track to support your retirement lifestyle. We’re not going to throw everything at you today (your dinner will get cold or your commute to work will be over before we’ve even begun), but we are going to mention two of the niftiest little moves you can start considering now.
Super salary sacrifice
Yes, just as it sounds, for this, you do have to sacrifice a bit of your salary each pay period. This is an arrangement you can make with your employer, where you ask them to pay part of your salary or wages directly into your super fund instead of to you. If your employer makes super contributions through a salary sacrifice agreement with you, those funds are taxed in the super fund at a maximum rate of 15%. For most people, this tax rate is lower than the marginal tax rate they pay on their take-home salary. (More on that later…)
Salary sacrifice contributions are called concessional contributions. Each year you can take advantage of concessional (pre-tax) contributions –it’s capped at $25k for the financial year ending 30 June 2021. After that, it increases to $27.5K p.a. for the financial year 2021/22. If you’re able and want to take advantage of the cap, you need to make sure your concessional contributions get in before 30 June of the relevant year. That means, for example, with the concessional contribution cap of $25k for the financial year 2020/21, your concessional contributions need have to reach your super account by 30 June 2021. So make sure you’re factoring in any processing timeframes between your financial institution or employer sending the contribution amount(s) to your super fund. Ah, we thought you might like that!
Of course, you can do this at any age, but if your living costs have eased (kids have moved out and food, electricity and internet bills have halved – just saying) then you might be able to contribute more to your super. It’s always good to regularly review your finances and make an assessment about your own situation at different stages of your life. For more info on the concessional contribution cap limits, head to the ATO.
Speaking of the end of the financial year, now is also a great time to check with your pay office to see what your current tax rate is. If you’re on the highest marginal income tax rate of 45 per cent, salary sacrificing for super could save you a motsa, but there are benefits for most taxpayers. That’s because your super contributions are taxed at 15 per cent compared with the marginal income tax rates that range from 19 per cent to 45 per cent. Good to keep in mind that it’s only tax-effective if you stick to the annual concessional contributions cap we talked about and the funds are left in your superannuation account till retirement. Remember though, once you put the money into your super, it’s not readily accessible again. You’d need to fulfil the “conditions of release” of your super fund, and early withdrawals could attract tax. 1
You already know the other side benefit to this too: out of sight is out of mind. If you sacrifice your salary straight to your super then it can’t get lost in your general spending. Instead, that money can go straight to your future and avoid being eaten up by the present.
Yes, there are different options. Lots of options. Your investment options, like most of the language around superannuation, are really just about what risks you are comfortable with and how much risk you are willing to take. And when we say ‘risk’, we mean the investment risk of your money going backwards or your investment returns being lower than expected. The investment risk will vary depending on the type of assets you want to invest in, how long you’re planning to hold your funds in that investment and how you want to manage that investment. Once you’ve figured this out, you can make your selection on the option (or options) that aligns with your risk level.
And of course, the other side of risk is reward.
If you’re willing to take a higher risk and usually a longer recommended investment period/term, then you could get a higher reward. The options chosen by most moderate to higher-risk takers are usually described as ‘growth’ and ‘high growth’ investments.
Then there are more conservative options, where the risk of losing money is lower and, you guessed it, the returns are also relatively lower and often have a short recommended investment period/term.
It’s no surprise that in between these two risk levels are lots of other, well, in-between options, including the most common ones, which are usually called ‘balanced’.
Okay, now for just a little bit of nitty-gritty. Traditionally, some younger people are more willing to take more risk because they have more years to make up any losses. The closer to retirement they get, some people decide to take less risk because they have fewer years before they start to live off their super and they select an investment option with a shorter investment term.
As with most things, according to the Australian Bureau of Statistics, superannuation in Australia was heavily impacted by the COVID 19 pandemic in 2020. By March, superannuation financial assets dropped $258.4 billion because investors in the share markets, like the rest of us, were uncertain of what the future would hold. By the end of June, there was a partial recovery of $130.2 billion, as investors got a clearer picture of how the pandemic was impacting our world. 2 As a result, many people recognised a drop in their super balance.
If you haven’t done so already, getting advice about your investment options can help give you a much clearer picture about your personal attitude towards risk and the potential investment returns. Being able to make an informed decision about your level of risk and selecting the investment option (or options) that suit you can have an important impact on your super balance at retirement.
Things to consider for your retirement savings:
- Salary sacrificing to boost your super savings could reduce your tax bill, assuming you don’t exceed the concessional contribution cap and you leave the funds within your superannuation till retirement. People on the top marginal tax rates often save the most from salary sacrificing, but all tax brackets can benefit.
- Have a crack at a super savings calculator to see how adding a little could potentially be a lot. ASIC has a Superannuation Calculator on its MoneySmart website. Just be sure to read and understand the parameters, assumptions and disclaimers that apply to whichever calculator you use.
- Check your investment option and decide if you’re comfortable with the risk it includes.
- Ask for a breakdown of each investment option. Different funds have different sets of assets and risk levels, despite using similar names.
- Your superannuation fund may be able to put you in touch with a financial adviser who can help you make these decisions. You can also contact the Financial Planning Association for a referral.
- Those over 65 could take advantage of downsizing their home by contributing up to $300,000 from the proceeds of the sale.3 There are eligibility criteria and timeframe requirements apply. All the info on this is available on the ATO website.
Did you know we can help you get started? Call an ING super specialist on 133 464 between 8am and 8pm Monday to Friday (Sydney time) to find out more.
- With all contributions, the funds can only be accessed if you met the superannuation release requirements. Therefore if you make a withdrawal from your super account prior to retirement age and the withdrawal is from the concessional contributions (like employer contributions, salary sacrifice or voluntary concessional contributions), this will be taxable at the time the withdrawal is made. There may also be fees incurred when withdrawals are made and other conditions or requirement. You should review the terms and conditions of your superannuation account to ensure you understand all the implications of making contributions, withdrawals, the fees and costs, plus any relevant conditions and requirements.
- Impacts of COVID-19 on superannuation funds (released 24 September 2020) https://www.abs.gov.au/articles/impacts-covid-19-superannuation-funds
- Downsizing contributions ATO (Last modified: 21 Aug 2020) https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Downsizing-contributions-into-superannuation/
The information is current as at publication. Any advice on this website does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. ING Living Super (which is part of the ING Superannuation Fund ABN 13 355 603 448) is issued by Diversa Trustees Limited ABN 49 006 421 638, AFSL 235153 RSE L0000635
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The information is current as at publication. Any advice on this website does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. Deposit products, savings products, credit card and home loan products are issued by ING, a business name of ING Bank (Australia) Limited ABN 24 000 893 292, AFSL and Australian Credit Licence 229823. ING Living Super (which is part of the ING Superannuation Fund ABN 13 355 603 448) is issued by Diversa Trustees Limited ABN 49 006 421 638, AFSL 235153 RSE L0000635. The insurance cover offered by ING Living Super is provided by Metlife Insurance Limited ABN 75 004 274 882, AFSL 238096. ING Insurance is issued by Auto & General Insurance Company Limited (AGIC) ABN 42 111 586 353 AFSL Licence No 285571 as insurer. It is distributed by Auto & General Services Pty Ltd (AGS) ABN 61 003 617 909 AFSL 241411 and by ING as an Authorised Representative AR 1247634 of AGS. All applications for credit are subject to ING's credit approval criteria, and fees and charges apply. You should consider the relevant Product Disclosure Statement, Terms and Conditions, Fees and Limits Schedule, Financial Services Guide, Key Facts Sheet and Credit Guide available at ing.com.au when deciding whether to acquire, or to continue to hold, a product. Before interacting with us via our social media platforms, please take a minute to familiarise yourself with our Social Media User Terms https://www.ing.com.au/pdf/Social_Media_User_Terms.pdf.