The Retirement Superannuation System

The Good About Super

The government makes such a fuss about the superannuation that we forget the fact that it is only one plan of saving. You are permitted to save outside the superannuation system and still have access to the same expanse of investments which include property, shares, bank accounts, trusts, insurance bonds, term deposits, rare coins, antiques, or ostrich farms.

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The Advantages of Super Over Other Forms of Investment

1. It will be there when you need it. The superannuation system has two primary variations in the way you can invest, either inside, or outside:
   1. You can remove part, or all of the investments you have placed elsewhere outside the system. A bank account is an example where you can withdraw funds at any time.
   2. However, you cannot generally access superannuation savings, until retirement when you are at least 55 years old.
2. It has tax benefits
   In most cases, the marginal tax rate you have to pay on the interest earned from a bank account is much higher that the special concessional tax rate that applies to superannuation funds.
3. Your employer is obligated to contribute
   Employer contributions are one of the most appealing features to the superannuation. The bulk of your superannuation is probably made up of employer contributions, so your retirement is already in good shape.

The drawbacks to the superannuation are that it is confusing and causes misunderstandings. Because its basis is financial, it is always changing. Besides being complex and restrictive, it is loaded with fees. Certainly, the government is to be commended on a compulsory super system, however, Australians as a rule, do not have savings accounts, and many own only their home upon retirement. If repayments had not been kept up, the bank would have taken their homes!

Voluntary and compulsory super is good, despite all the criticism. It exemplifies regular saving and tax-efficiency. Also, it is generally invested in good quality, long-term assets, such as shares, property and fixed interest. Furthermore, like your house, you cannot retrieve the money once it is invested, which is a huge plus. Therefore, a vital part of your long-term financial plan should be the superannuation.

What You Actually Need to Know

There is only a handful of key issues you need to understand on the superannuation, once you strip away the legislative technicalities.

The Amount You Already Have

Your annual statement will show the amount you have already contributed to the super. NOTE:
Over the years, as you have started new jobs, each one would doubtlessly generate another superannuation account. It is possible that you have considerable amounts in the different superannuation funds. However, by consolidating your super wherever it is feasible, you can save money in fees and make it less complicated to follow the development of your super account.

Amount Needed

Generally, 75 percent of your pre-retirement income is the recommended amount, although circumstances may vary greatly among individuals.

Bridging the Gap

There may be a shortcoming between the amount you should be contributing to the superannuation and the amount you are actually contributing. You can make up the difference by increasing your contributions and maximizing the returns you are receiving from the amount you have already accumulated.

Combining the two would ideally be the best way to ensure that your savings fund at retirement is adequate.

1. Increasing Your Contributions

The net returns will be higher if you top your superannuation. The advantage is that you will be concessionally taxed while you save. Currently, for most people the tax paid in respect of superannuation is less than that paid in non-superannuation alternatives.

How to Contribute

You can put money into the super two ways:

a. your employer can contribute an amount on your behalf, which is presently 9 percent.

b. accumulate super by making contributions of your own by taking money out of your salary, or by contributions with no returns tax wise.

Salary withholding means choosing to receive less salary and having that amount credited to your super. The advantage to this is that the tax on contributions is paid at the rate of 15 percent rather than your current tax rate. In the end, as you pay less tax, you augment your investment.

If salary withholding arrangements are not obtainable, superannuation endowments will have to be paid with money after the taxes have been taken out. Defined as un-deducted contributions, they have never, or will ever, be claimed as tax deductible.

2. Increasing Your Returns

Contributing to a fund that permits you to choose various types of investments will maximize the return from your superannuation fund. As a result, your super fund will suit your individual risk profile, your needs and your stage of life. Do not miss out on some golden growth opportunities by neglecting to take the time to evaluate the alternatives.

Investing your money now in a way that suits your needs for either growth, or for security of your capital, ensures that you are maximizing your chances of bridging the retirement gap. The gap is the difference between how much money you currently have, and how much you will ultimately need to fund a comfortable retirement.

Managing Your Own Super Fund

Setting up your own self managed super fund (SMSF) may have advantages, but it is not for those who do not have the time, dedication, money or the skills to do so. Severe penalties await those who violate the guidelines set down by the legislature.

The primary reason for setting up a SMSF is to provide funds for your retirement, not for present use and diversion. However, it does give you more choices in a wider range of assets to invest in, along with more control over the investments. Managing your own super fund can be rewarding, but it is also a great responsibility.

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