Superannuation might be the last thing someone thinks about amid the usual end-of-year parties and holidays, but now could be an opportune time to think seriously about your financial future.
Whether retirement seems a long way off or too close for comfort, taking action on superannuation is something everyone can do, especially when it’s broken down into bite-sized actions.
The easiest place to start is checking where your super is invested.
“It’s important to get your asset allocation right,” said Corey Wastle, principal at Verse Wealth.
“Think about how long you will be working and your lifestyle goals in retirement.”
Investment horses for courses
“If you’re under 50 your investments should be wholly into growth through assets like shares and property. If you’re closer to retirement you should be in more conservative allocations but remain mindful of their ability to fund your retirement lifestyle,” Mr Wastle said.
Even in retirement, if your whole fund is in cash then you won’t generate enough income to maximise your investments and you could spend your super too quickly as a result.
Integral Private Wealth principal adviser David Simon warned members to understand their super allocation.
“Make sure your asset allocation suits your risk profile,” he said.
Some so-called ‘balanced’ funds may be 80 to 90 per cent in market-based assets that members might see as ‘growth’ and having more risk than they are prepared to take.
Save alongside the taxman
Legislative changes to super – introduced from mid-2018 – have significantly changed possibilities for further savings but many people are not yet aware of them.
One such change allows concessional (tax advantaged) contributions up to a maximum of $25,000 per year – including your boss’s contributions on your behalf – to be made by anyone who wants to.
“If you’ve got spare cash, ring up your super fund in June and make a tax-deductible top-up contribution,” said Susan Jackson, principal of the Women’s Financial Network.
“Super is very tax-effective,” Mr Wastle said. “You both save on tax and build up a bigger retirement balance.”
Many people worry their super balance is following the share markets lower, and are reluctant to make extra contributions in that environment.
“Remember when the markets are weak everything is on sale,” Ms Jackson said.
For those who have built up a sizeable fund, new rules restricting contribution levels and tax-free retirement accounts have made the system much more complex than it used to be.
“Make sure you understand what the changes are and double check that all your information is correct. That way you won’t be making reactive decisions,” Ms Jackson said.
New downsizing provisions enable people over the age of 65 to sell their home and put an extra $300,000 in super. However, Ms Jackson warns caution on this, saying “very few people are doing it and it’s very difficult”.
“Downsizing could eat up $100,000 in selling and buying costs and it could affect age pension entitlements by boosting your assets outside the home,” Ms Jackson said.
New rules on the assets test means pensions are cut much faster when asset caps are triggered, so downsizers may find themselves no better off by making the move.
“It works if you’ve got very few assets or a whole lot of assets but you don’t want to get caught in between,” Ms Jackson said.
“You could be better off down the track using a reverse mortgage after you have run down your super assets,” she said.
“You can stay in the house and draw the money down when you like.”
Another recent change allows first-home buyers to save up to $30,000 for a home deposit through super at the rate of $15,000 a year.
The scheme allows the diversion of up to $15,000 a year of contributions to build a deposit in the low-tax super environment.
“It helps you get extra bang for your buck in saving a deposit, but you have to be very clear on your intent to buy a home,” Mr Wastle said.”
“If you change your mind you can’t withdraw the money until you’re 60.”