Maximising Your Superannuation: Opportunities when Approaching Retirement
As retirement draws near, ensuring your financial stability becomes essential. One effective strategy to secure your financial independence is by topping up your superannuation. This approach offers numerous benefits, including taking advantage of government incentives such as the downsizer contribution scheme. In this first in a series of articles, we’ll look at the basics.
We strongly suggest that you consult with a financial adviser before making changes to your financial situation to ensure the strategy is the most appropriate for your situation.
Understanding Superannuation Topping Up
Superannuation, often referred to as “super,” is a long-term savings plan designed to help fund your retirement. By making additional contributions to your super, you can significantly increase your retirement savings. These additional contributions can come from various sources, including salary sacrifice, personal contributions, and other government schemes like the downsizer contribution.
Benefits of Topping Up Superannuation
- Tax Advantages
Contributions to superannuation can provide significant tax benefits. For example, salary sacrifice contributions are taxed at a concessional rate from as little as 15%, which is generally lower than your income tax rate. Additionally, the concessionally taxed environment for superannuation earnings is usually less than your marginal rate of tax.
- Boost Retirement Savings
By contributing more to your super, you can take advantage of compound returns, which can significantly grow your savings over time. The concessionally taxed environment of superannuation means that the post-tax compounding can often be much greater than investing the same funds under another entity such as your own name.
- Tax-Free Income
When you are over 60, payments made from an income stream from your superannuation are tax-free. This can provide a range of planning benefits to meet your goals. Unsurprisingly, it is often the go-to source of cash flow for our advised clients.
Things to Consider when Topping Up Superannuation
- Balancing Cash Flow
While there are great benefits, you need to meet a condition of release to access the funds within superannuation, such as retirement. Balancing between locking funds away and having access to funds should be a key planning consideration.
- Asset Allocation
Many clients opt for the default option in their superannuation funds. Understanding how your superannuation is invested relative to your stage in life and your goals is crucial. The life stage option that has been introduced is often inadequate to meet clients’ needs.
- Fees and Performance
Understanding the fees payable within your superannuation fund should not be looked at in isolation. The performance of the fund relative to your goals is often overlooked in favour of either low cost or often perceived best-in-class performance.
Conclusion
Maximising your superannuation as you approach retirement is a crucial step towards securing your financial future. This strategy offers substantial tax benefits and the potential for tax-free income once you retire. However, it’s essential to consider factors such as cash flow impact, asset allocation, and fund performance to ensure your superannuation works effectively for you. Always seek advice from a financial adviser to tailor these strategies to your unique situation, ensuring that your financial plan aligns with your retirement goals.
By focusing on these steps and seeking professional guidance, you can enhance your financial independence and ensure a well-planned retirement.
Disclaimer: This may contain general advice. It does not take account of your objectives, financial situation or needs. You should talk to a financial adviser before making a financial decision. This has been prepared by Dollar Growth Financial Advice Pty. Ltd. refer to the Financial Services Guide for details. While care has been taken in the preparation of this, no liability is accepted by Dollar Growth Financial Advice Pty. Ltd., its related entities, agents, representatives, employees for any loss arising from reliance on the information contained herein.
