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The Importance of Planning for Retirement: Why Your Super Balance Matters

Having a sizable nest egg set aside for retirement can ensure a comfortable life down the road. It allows you to be financially independent and not be dependent on the age pension or family.

Superannuation helps you achieve financial independence and a comfortable retirement. It’s a crucial part of retirement planning and superannuation allows you to make the most of it.

This article explores how superannuation fits into retirement income planning, why your super balance is important, how it affects your retirement income, and how to boost it. We’ll also talk about superannuation trends and how to keep informed.

Whether you’re just starting to think about retirement or are a seasoned pro, this article has something for you.

The Role of Superannuation in Retirement Planning

According to the Australian Bureau of Statistics, the average Aussie prefers to retire at age 65.5. Unfortunately, whether by intent or circumstance, the average retirement age of all retirees is 55.4 years.

If those figures aren’t daunting enough, most retirees depend on the Age Pension as their main source of income, but the Age Pension is available only at age 66.5 (67 years starting 1 July 2023, if you were born on or after 1 January 1957).

The Retirement Age Gap

Another thing to consider is the amount one gets from Age Pension. You get a fortnightly payment of $1,064.00 if you’re a single retiree and $1,604.00 as a couple ($802.00 each). That’s $27,664 annually if you’re single or $41,704 as a couple.

But is that enough money?

According to the Association of Superannuation Funds of Australia (ASFA), a single person aged 65-84 would need a budget of $31,323 ($45,106 for a couple) for a modest lifestyle. The ASFA retirement standard for a comfortable retirement is $49,462 for an individual ($69,691 for a couple).

The Pension Gap

Whether you wish to have a modest retirement or a comfortable one, alone or as a couple, your Age Pension falls short of estimated expenses come retirement.

So, where would you get the money until you’re Age Pension eligible? And how can you fill the gap between your expenses and pension?

Here’s where superannuation comes in.

The Australian Taxation Office (ATO) defines superannuation, aka super, as money that your employer has set up for you to live on after you retire from employment.

Whether you work casually, part-time, full-time, as a contractor, or as a temporary resident in Australia, your employer is obligated by law to deposit superannuation into a super account of your choice. In addition to your yearly base income, your employer must contribute to your superannuation fund at least 10.5% of your ordinary time earnings (11% for the period 1 July 2023 – 30 June 2024). This is called the superannuation guarantee.

Superannuation funds come in several types, including personal super funds, industry super funds, corporate or public sector funds, and self-managed super funds (SMSFs).  Superannuation funds invest in various assets, such as shares, property, and bonds, to grow the fund’s balance over time.

Superannuation is a tax-effective way to save for retirement where the accumulated cash in a super account can provide a source of income in retirement. It can also be used to provide lump-sum payments, such as the payment of a death benefit to a beneficiary or payment to an individual who is permanently incapacitated.

Why Your Super Balance Matters

When making retirement plans, your superannuation balance is a crucial factor to take into account because it determines how much money you can rely on during retirement.

Your retirement will be more comfortable if you have more money in your superannuation fund. Conversely, you may struggle financially in retirement if your super balance is low.

Here’s a comparison of what retiring in Australia can be like with Age Pension, a modest super balance, and a comfortable super balance using ASFA’s retirement standard.

You can also use MoneySmart’s retirement calculator to determine the retirement income you can expect from super and the age pension.

And the Super Guru Super Balance Detective Calculator helps you calculate how much super balance you should have at your current age to have a comfortable retirement. Here’s a table of super balance by age.

Age (Years)Super Balance
25$18,500
30$59,000
35$101,500
40$156,000
45$213,000
50$281,000
55$361,000
60$453,000
65$549,000

How does your super stack up?

Don’t feel bad if your current super balance is lower than ASFA’s estimate. You’re not alone, and probably on the average with most Australians as per the Australian Bureau of Statistics (ABS). The table below shows the average superannuation balance by age group for men and women according to different age groups.

AgeAverage balance (men)Average balance (women)
15-24$6,500$5,100
25-34$42,100$34,500
35-44$107,700$76,900
45-54$219,300$136,000
55-64$326,200$246,300
65-74$435,900$381,700
75 and over$370,900$314,100
Source: ABS, Household Income and Wealth, Australia, 2022.

Noticeably, women have less super balance average than men. This gender super gap can be attributed to several factors, such as women having lower-paying jobs, more of them working part-time, or they take breaks from work to care for children. All these contribute to lower super contributions.

If your current super balance is lower than the Association of Superannuation Funds of Australia retirement standard or what you want, you don’t have to worry yet. There are options for you to boost your super balance to beat inflation and meet your target amount before you retire.

How to Boost Your Super Balance for a Comfortable Retirement

Improving your financial future is possible regardless of your age. There are various ways to increase your super balance. The first category doesn’t involve making additional payments but taking care of the paperwork.

Verify if your employer is contributing to your super.

Check your super account transactions or myGov frequently because your employer is required to pay super at least four times each year.

Use the employer contributions calculator to verify if your employer is contributing the right amount.

Provide your Super Fund with your TFN.

Although it’s not compulsory, it’s advantageous to provide your Tax File Number (TN) to your superannuation fund. If you do, you can avail of concessional tax rates, make personal after-tax contributions to your fund, and receive the government’s super co-contribution scheme (if eligible).

Find any lost super.

If you have other superannuation funds out there, it means you’re probably paying multiple administration fees and insurance premiums – this can deplete your funds in these additional accounts. Make sure your superannuation fund has your most recent contact information and locate any missing super in myGov to prevent further loss of super.

Combine your super accounts.

If you’ve worked more than one job, you probably have many super accounts. It is worthwhile to combine your super accounts to avoid paying multiple fees, which can save you money throughout your career.

Before consolidating your super funds, check your insurance arrangements and any tax ramifications. Consider if it affects premium payments and whether you will miss out on pension alternatives.

Check your insurance rating.

If you have insurance cover via your super, it’s also worth trying to achieve the best rates by occupationally rating your coverage, unless you work in a high-risk line of work. Also, ensure you aren’t paying smoker rates if you are a non-smoker.

Select your ideal investment strategy.

Make sure your investment option matches your goals and life stage. Young members with a low balance may focus on growth since they have time to ride out market swings until retirement. Retirement-ready individuals may prefer lower-growth super investments that preserve their balance.

When checking your investment options, always keep in mind that past performance is not a reliable indication of future performance and that investment returns are not guaranteed.

Before switching or choosing funds, assess your personal circumstances and financial situation and read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD).

Now we come to boosting your super balance by making additional payments.

Salary Sacrifice

Salary sacrifice is when you and your employer package your salary as income and benefits. When you enter into a superannuation salary sacrifice arrangement with your employer, you pay or sacrifice a portion of your pre-tax salary into your super account.

The payments, known as concessional contributions, are taxed at a rate of 15%. You benefit by paying less tax while increasing your retirement savings.

Just remember that you have a cap on how much additional you can contribute. The combination of your employer and salary sacrificed contributions cannot exceed $27,500 per fiscal year.

For example, if your annual income is $100,000 before taxes and your employer contributes $10,500 (10.5% of $100,000) into your super. You can contribute as much as $16,500 ($27,000 – $10,500)  in a year. This means you only need to pay tax on $83,500.

The benefit of salary sacrificing super

Salary sacrifice can be a simple way to expand your super and lower your taxable income because the money goes into your super before being taxed at your marginal rate.

To understand how regular contributions over time could add up and possibly help increase your super balance, visit MoneySmart’s Superannuation Calculator.

Make a voluntary after-tax contribution

You can also contribute to your super with after-tax pay or take-home pay. These payments are considered non-concessional contributions because you have already paid income tax.

Each fiscal year, you can make up to $110,000 in voluntary super contributions. These contributions are on top of employer and salary sacrifice contributions.

After-tax contributions, aka personal contributions, can be made on a regular or one-time basis. When you have extra money, such as a bonus or a tax refund, this can be a smart method to boost your super.

If you make voluntary contributions after-tax to your super, you may be entitled to claim a tax deduction or a government co-contribution when you file your tax return.

Obtain LISTO or government co-contribution

There are two forms of government benefits for your super if you earn less than a specified amount.

The Low Income Super Tax Offset (LISTO) is a government superannuation payment designed to assist low-income earners in saving for retirement. The LISTO is 15% of the concessional (before tax) super contributions you or your employer pay into your super fund. If you make less than $37,000 a year, you might be eligible to receive a LISTO payment – which goes straight into your retirement fund. The LISTO payment ranges from $10 to $500. The government rounds the amount up to $10 if you are eligible for less than $10.

If you have a low or middle income and make personal (after-tax) contributions to your superannuation fund, the government may contribute up to $500 to your super account also. The amount of government co-contribution you receive is determined by your income and the amount you contribute. You do not need to apply for the super co-contribution, and it will be paid to your super account automatically if the super fund has your tax file number.

Contribute on behalf of your spouse

Your partner may be contributing little or nothing to their super if they earn less than you or are currently unemployed. Whether you’re married or in a de facto relationship, you can benefit by helping improve your partner’s super balance by making a spouse contribution or splitting contributions.

Spouse Contribution

You could obtain a tax offset of up to $540 if you contribute to your spouse’s super account by the end of the fiscal year. To be eligible for the entire offset amount, your spouse must, among other things, have an income of less than $40,000 per year.

Splitting Contributions

Splitting eligible concessional (before-tax) contributions from your account to your spouse’s is another way to improve your spouse’s super balance. Contributions splitting generally includes the superannuation guarantee, salary sacrifice contributions, and tax-deductible personal contributions.

If your super fund allows it, you can divide up to 85% of your pre-tax super contributions from the preceding fiscal year. Amounts shared with your spouse will still count towards your concessional contribution ceiling in the year you received them.

Downsize your home and invest in super.

If you’ve owned your house for more than 10 years and decide to sell it, you may be able to contribute up to $300,000 per person or $600,000 per couple to your super.

As of January 1, 2023, you can now make a downsizer contribution if you are 55 and meet all of the eligibility requirements.

The Future of Super: Changes and Trends to Watch Out For

Since the government implemented the superannuation guarantee scheme in 1992, Australia’s superannuation system has undergone many changes.

The SG rate was initially set at 3%, but it has since risen to its current level of 10.5%, and it will rise by 0.5% every year until it reaches 12% by 1 July 2025.

More changes may come in the near future. Here are some of the proposed changes and ideas being discussed.

$3 million threshold for tax concessional rate

On 28 February 2023, the government stated that beginning 1 July 2025, a 30% concessional tax rate will be applied to future earnings for superannuation balances exceeding $3 million.

This measure has not yet become law, but when it does, it means that if your total superannuation balance at the end of the previous financial year was more than $3 million, you will have to pay an extra 15% tax on the amount of earnings on any balance that is more than $3 million.

Reduction of the annual income threshold

One proposal that has resurfaced is to lower the yearly income requirement from $250,000 to $200,000. However, when asked about its possibility, Treasurer Dr Jim Chalmers said that a change is “not on the table.”

Should this proposal come to fruition, note that if your income and concessional contributions add up to more than $200,000, you may have to pay an extra 15% tax on some or all of your concessional payments.

Restriction on early access to superannuation

At the moment, people can access a portion of superannuation for things like medical care and home loan repayments to keep them from losing their house.

In the last four years, the number of people using super early to pay for medical costs has gone from less than 23,000 to more than 30,000 per year.

The federal government intends to tighten early access to superannuation funds to ensure that Aussies use their superannuation funds for their primary intent—to have a comfortable retirement.

Keep yourself up to date with potential changes in the superannuation system by checking the financial news or being in touch with your super fund.

Get Superwise About Your Superannuation with Coastal Advice Group

Superannuation was created to help ensure that every working Aussie gets to live a comfortable retirement. One way to ensure that you retire comfortably is to know your super balance and to actively manage it by making contributions where possible.

You can also get personal financial advice from an experienced financial adviser to help you see the big picture.

Superannuation is vital to your financial future in retirement as an Australian. Whatever stage you are right now in your career, learning about how you can make the most out of your long-term retirement savings plan is always a good practice.

At Coastal Advice Group, we can provide the specialist financial planning, expert knowledge and guidance you need to help you make the right financial decisions for your superannuation strategy so you can look forward to your future with confidence.

Call us or book online to secure your first appointment today and get started!

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DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.