Most of us are pushed for time to think about our super or know how to plan for a better retirement – but it is not hard and the satisfaction you get knowing you have set in place some strategies is worth the small time and effort. Here are some basics to get a good start –
1. Stocktake where you are at
Studies show that most people spend more time planning the next holiday than ever spent on preparing for retirement – but it is not hard at all!
Consider if you are a –
- Woman and want to retire at the age of 65, then you need to plan to be living the life of a retired lady for, on average, nearly 24 years – possibly as long as your time in the workforce, or time spent rearing children
- Man, life expectancy is closer to 21 years at age 65. (Sourced from ASFA)
This means if the plan is retiring at the age of 60 – you will need to finance 26 years (male) to 29 years (female) of your life in leisure!
The principle of planning is to answer 5 questions –
- Where you are now?
- Want to have what kind of lifestyle?
- Cost of this lifestyle?
- How much is needed to fund this lifestyle?
- What to do NOW?
Take a moment to plan with the 5 Easy Steps To Plan Your Retirement a simple step-by-step plan to know where you want to be and what to do to get there.
2. Consolidate all Super accounts
Do you have several super accounts? You may save fees and multiple insurance costs. Note the ATO is tidying-up your member accounts under new compulsory transfer laws that were introduced from July 2013, and the super account thresholds for the ATO were changed again from January 2016 (increased to $4,000), then changed again from January 2017 (increased to $6,000). If you’re not sure how many super funds you currently have, then locating these accounts is not too hard. Call or email for a free How-To guide.
3. Ensure TFN – Tax File Number is with your super fund or SMSF
Ensure that your super fund has your tax file number (TFN). If not, your concessional (before-tax, employer and salary sacrifice) contributions are hit with penalty tax, you won’t be permitted to make non-concessional (after-tax) contributions, and lastly, you’ll also be excluded from the co-contribution scheme! Get it checked! Call the super fund, or check your statement!
4. Co-Contribution may be available for you
You can receive a tax-free super contribution from the federal government when you make a non-concessional (after-tax) contribution to your super account or SMSF bank account, subject to you satisfying a work test, an income test and an age test, and lodge the year’s tax return.
2017 – 2018 year: If you earn $36,813 or less, the government pays $0.50 (50 cents) for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $500 a year (but as your income rises above the $36,813 the amount is scaled back until it comes to zero at $51,813)
2016 – 2017 year: If you earn $36,021 or less, the government pays $0.50 (50 cents) for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $500 a year (but as your income rises above the $36,021 the amount is scaled back until it comes to zero at $51,021)
Here is an example – make a $1000 non-concessional contribution and if your income is less than $36,813 for the 2017-2018 year (or $36,021 for the 2016-2017 year), then your super fund account receives a $500 tax-free contribution from the Government. If you make a $600 contribution, the Government pays $300 into your super fund / SMSF bank account.
5. Make extra Salary Sacrifice out of your pay (as well as the regular Employer super contributions)
If you are paying more than 15 cents in the dollar tax, then sending some of your pay to super may have more tax advantages. You may have a benefit in making before-tax (Non-Concessional) contributions if you want to offset a large capital gains tax bill. However, your level of income will generally determine whether you make after-tax or before-tax contributions.
Some cautions – if you want to top-up super (in addition to the compulsory employer super contributions – Superannuation Guarantee (SG)), people on a high income, need to watch the contributions caps. If you exceed the concessional contributions cap, you could be hit with penalty tax, or have to withdraw your excess contributions and be taxed at your marginal tax rate. Since 1 July 2017, if your adjusted taxable income is greater than $250,000, your concessional contributions are hit with an extra 15% of tax, which means concessional contributions of very high income-earners are hit with 30% tax. From 1 July 2012 until 30 June 2017, your concessional contributions are hit with extra tax, if your adjusted taxable come is greater than $300,000 a year.
6. Make after tax contributions to top up super
Another way to contribute to super is with after-tax savings (Non-Concessional contributions), such as an inheritance or win. The maximum, annual cap is $100,000 for the 2017/2018 year. If you’re under the age of 65, you can bring forward up to a further two years’ worth of non-concessional contributions (max $300,000). Note – from 1 July 2017, if your total superannuation balance is greater than $1.6 million, you cannot make non-concessional contributions. And if you are a small business owner you may be eligible for a $1.445 million after-tax contribution limit for the 2017/2018 year (indexed), which is a lifetime contribution limit, in addition to the non-concessional contributions cap. The CGT exemption permits personal contributions resulting from the disposal of qualifying small business assets. Best to be safe and seek independent advice because the rules that apply to this exemption are complicated.
7. Over 65 YO? To contribute need to pass the work test
If under the age of 65 can make super contributions regardless of whether they are working. But if you are aged 65 or over, then you must work 40 hours in a 30-day period during the financial year in which you plan to make the contribution.
8. Getting advice to avoid mistakes
Making major tax and investment decisions is not easy with all the complications of the tax and super laws – so consider getting independent advice – the cost can be nothing compared to thousands in penalties and taxes if you get it wrong! Ask us for no-obligation referals.
What are your thoughts? Start or continue the conversation here!
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