Imagine this; You’re in your 60s lounging on a beach in Thailand, sipping coconut water from your freshly cracked coconut and not having a worry in the world about finances, bills, or work.
Sounds like a dream?
Well with the right superannuation strategy, you can make this a reality.
We all hear about superannuation and how it is so important for our futures, but what does it actually involve? Is it worth it? Does the Super fund you choose even make a difference?
In short, Superannuation is your retirement piggy bank. It is a mandatory savings scheme where your employer contributes a percentage of your salary, and you can also add to it Simply put, it is a long-term investment that grows over time - designed to facilitate a relaxing retirement.
Basics
Once joining the workforce, your employer essentially starts contributing a certain percentage of your salary (current minimum rate is 11.5%) towards your chosen super fund, however you can contribute as well through voluntary contributions. Your fund then invests this money into diversified assets like stocks, bonds, and property, to grow over time. These funds can then be accessed under certain conditions such as once you have reached preservation age, when you buy your first home, or if you are permanently disabled.
So, what’s the catch? In order to invest your funds Super funds charge fees, so it is important to compare service costs when choosing yours. Additionally, super is a long-term game. You cannot and should not expect quick returns as Super is about building wealth over decades. It is also important to ensure that you keep up to date with your investments and follow the financial markets in order to ensure that you agree with how your funds have been utilised and spread across different assets.
To make superannuation work for you;
Start early: the earlier you start, the more time your money has to grow through compounding effects.
Choose a Super fund that is consistent with your financial goals: Conduct your own research and compare funds to find one that aligns with your risk tolerance and goals.
Contribute regularly: Voluntary contributions are an excellent way to contribute towards creating your portfolio, even if it is small amounts. These contributions can also provide tax benefits.
Set your goals: How much do you want to retire with? A concrete number gives you something to work towards
Choosing the Right Super Fund
Selecting the right super fund is crucial for maximising your retirement savings. Consider the following factors when making your decision:
Fees: Look for a fund with low fees, as these can significantly impact your returns.
Investment options: Ensure the fund offers a range of investment options that align with your risk tolerance and investment goals.
Performance: Consider the fund's performance over the long term, as past performance is not indicative of future results.
Customer service: Choose a fund with good customer service, as you'll need to be able to easily access your account and receive answers to any questions that may arise.
Understanding Superannuation Fees
Super funds charge fees to cover the costs of managing your investments. These fees can vary significantly between different funds, so it's important to compare fees carefully. Common types of fees include;
Administration fees: Relating to covering the costs of managing your account and providing you with information about your investments
Investment fees: These fees are charged by the fund manager for managing your investments (can also be called advisor fees)
Performance fees: Some funds charge performance fees based on returns from the investment strategy.
Contributing to your Super
On top of the contributions your employer makes, you can also make voluntary contributions to your superannuation. Contributions are a great way to boost your retirement savings and potentially claim tax deductions. The two main types of contributions are;
Concessional Contributions: these contributions are made using pre-tax income, which can reduce your taxable income. As of 1 July 2024 in Australia, the cap for concessional contributions is $30,000.00 per financial year, deposits greater than that may be subject to additional taxes according to circumstances. This cap can be carried forward for unused contributions, for a maximum of 5 years.
Non-concessional Contributions: These contributions are made using after-tax income. The cap for non-concessional contributions in 2024 is $120,000 and can also be carried forward.
When can I access my Superannuation?
Typically Superannuation is accessed when one has permanently retired and reached the preservation age (60) or at 65 even if you are still working. Funds in a Super accumulation account cannot be otherwise accessed unless there are certain circumstances - for example, things like compassionate grounds, first home buyer schemes, or disability reasons. Once preservation age is reached, funds can be transferred into a pension account and, from there, they can be withdrawn at your will. It is illegal to withdraw funds from Super unless these conditions are met - as a means to deter people from participating in early access schemes and ensure that funds are used for their intended purpose.
Retirement Planning
Superannuation is just one part of your retirement planning. It's important to also consider other factors, such as your lifestyle goals, projected expenses, and potential sources of income. A financial advisor can help you develop a comprehensive retirement plan that takes all of these factors into account.
Remember, superannuation is your golden ticket to a comfortable retirement. By understanding how it works and taking steps to maximise your savings, you can bring that picturesque Thailand vision within reach.
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