Today we are talking about superannuation, the second biggest asset
of almost every single Australian, so it only makes sense to pay attention to it.
And today I will answer the following questions for you:
What is superannuation?
Who can have super?
How can you start your super fund?
What happens to your money once it's inside superannuation?
At the end i will tell you the most exciting part : When can you finally access your super?
My name is Katherine from About Retirement
and my work is all about money and preparation for the best retirement we can have,
from the perspective of your income, asset longevity, tax,
Age Pension, investments, investment risk, market volatility - just to name the few.
OK, so what is super and how does it work?
Superannuation or super is a form of savings for your retirement,
with money being contributed by your employer or yourself, if you choose to do so over your working life,
so you can actually enjoy your retirement income, once you finish working.
So who can invest into superannuation? Who can have super?
Well, all Australians over the age of 18, that are employed with income greater than $450 pm,
will automatically receive employer contributions to their super fund.
This is called superannuation guarantee, or SG.
And employers are legally bound to contribute currently 9.5% of your gross income
and that includes any bonuses, commissions or any type of loadings.
If you are below the age of 18, you might still be eligible for super contributions,
if you earn more than $450 pm and work at least 30 hours a week.
Since 2014 financial year, people over the age of 70 who are still employed,
are also eligible for superannuation guarantee.
The rate of employer contributions are supposed to be increasing by 0.5% pa from July 2021,
until it reaches 12% so, increase from current 9.5% up to 12% by 2026.
But due to covid outbreak and many businesses currently suffering financially,
the government is considering postponing that increase for the time being.
If you run your own business through company structure, so you have PT/L,
you are also required to pay superannuation guarantee for yourself to your super fund,
as legally you are really an employee of your own company.
If you however, you are self-employed, your super contributions are entirely voluntary.
You can also make additional voluntary contributions throughout your working life.
This should be the main financial focus, especially when you are coming closer
to your retirement, which is majority of my work, to introduce to my clients strategies
how to utilise savings in the most tax effective, super effective, age pension effective way,
to optimize all those benefits.
So, how do you open superannuation account?
When you start working at your new place, new work, your employer is required
to provide you with the default fund.
But very rarely I would recommend to accept such a fund as very often they are sort of plain vanilla,
with not a great deal of investment or insurance choices that may not necessarily be the best for your needs.
You can however, ask your employer to make contributions to your own fund, to fund of your choice.
This way you can have one super that receives all contributions no matter how often
you change employment or even if you have couple of jobs on the go.
Just make sure that you do your due diligence, you do your full research,
as there is no such thing that one side fits all, no matter what industry funds are telling you on telly.
What happens to your money once it's invested into your super fund?
When choosing your super, your decision is not only to choose the actual super fund,
but also you have to make a decision as to how your savings, how your contributions, your money
is to be invested inside superannuation.
Again that's another type of work you have to do.
You have to do your due diligence from the perspective of: fund choices, investment risk, fees and charges,
flexibility, insurance - if it is still applicable to you,
degree of diversification you are able to introduce to your investment portfolio,
so quite a little bit of work and a lot of information to gather.
So how can you contribute to superannuation?
Well.... we will be talking about contributions tomorrow.
This is a very big topic and requires its own video, separate time.
When can you access your superannuation savings?
Generally, you need to wait until you retire.
Investing in super is kind of agreement, that you will forego access to your savings,
for very generous tax treatment of your savings and all of your investments and returns.
Therefore your savings are being preserved until such time,
that you meet certain conditions of release and those are:
- you meet your preservation age, - you retire from work,
- you can have access to super either partially or fully in case of your financial hardship,
- you become disabled, - you are terminally ill, - or you die.
So superannuation is a great environment to keep your long-term savings,
not only it is concessionally taxed - therefore beneficial for growing your nest egg,
but as much as some may not necessarily like the idea of having money closed off
for so many years - for many that might be just about the only way,
how you can actually make those savings and and grow your nest eeg and your retirement fund.
Otherwise we have the tendency of spending it all.
Tomorrow we will continue our conversation about superannuation.
We'll look at tax and types of contribution that you can make to your superannuation,
and why some are better than others.
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