Super education means more dollars for you
Retirement planning may be the last thing on a graduate’s mind but understanding how superannuation works and knowing how to make the most of it will make you wealthier in the long run.
What is superannuation?
Theo Marinis, finance expert and author of Sexy Super?, describes superannuation as a “long term investment.”
“It’s an amount of money paid by you employer into a superannuation fund, which is intended to finance your retirement – you can’t access it until your at least sixty, if you were born after 1st July 1964.”
How to make the most of your superannuation?
Mr Marinis said that all employers, under the current Superannuation Guarantee (SG) Act, are obliged to contribute 9 per cent of an employee’s total package into a designated superannuation fund.
However, his advice is to make further contributions, “as soon as you can, as much as you can, for as long as you can, even if it’s only $20 more per week.”
Mr Marinis outlines two options to fast track a graduate’s investment plan; co-contributions and salary sacrificing.
“How you contribute into your super depends on your income level,” he revealed.
Co-contributions
An employee who instructs their employer to make “after-tax” [net salary] contributions into their super fund can also receive additional super money from the government known as “co-contributions.”
Mr Marinis says that to be eligible for a full co-contribution your total income must be less than $30,342. The maximum co-contribution is $1,500, based on $1.50 from the government for every $1 you contribute.
“This means if you put $20 a week or $1,000 a year away then it will be matched by up to $1,500 from the government,” Mr Marinis explains.
“The trick is to do it from a very young age say from the age of 19 until you’re 65. With your $1,000 per annum and the government co-contribution of $1,500 [going into your super each year] at a 6 per cent earning rate that’s $250,000 by the age of 65 and that’s not even counting the 9 per cent SG from your employer.”
For employees who earn more than $30,342 the government co-contribution reduces incrementally and no longer applies when income is above $60,342.
Salary Sacrificing
Mr Marinis says that employees on a higher income levels can make contributions into their super fund by salary sacrificing from their pre-tax [gross] salary
For example, someone earning $70,000 before tax could top up their super by ‘sacrificing’ $10,000 in salary, reducing their gross taxable salary to $60,000.
The benefit of salary sacrificing $10,000 into super before tax means that only 15 per cent in contributions tax is taken out so the individual pays far less tax on their investment then they would be if they invested $10,000 from their normal net pay.
Which superfund?
“The option to choose a super fund depends upon your employer,” Mr Marinis says.
“You might be employed under an award, which then stipulates where the money goes. However, a lot of employers allow you to choose the superfund you wish to invest into,” he explained.
The basic principles to use when choosing a super fund are:
Cost effectiveness
Choice
Graduates should check out whether their super fund offers insurance benefits or Risk Benefits. These include [Death and Total Permanent Disablement Cover and Salary Continuance Cover to cover you or your beneficiaries if you die or are unable to work because of an illness or accident. Even though you have to pay a premium for Risk Benefits Mr Marinis says it is worth taking up the option.
Transparency
Mr Marinis says that is important, particularly for young people who are selecting a super fund, to choose one they can keep tabs on easily and that allows them to access their super account through the internet.
Mr Marinis’ final piece of advice to grads who make their own decisions regarding super investments is that they should eventually consider taking financial advice.
“The trigger point when it would pay to seek out advisor guidance would be when they have accumulated around $100,000 in their super fund.”
Visit the Financial Planning Association website to find a directory of accredited advisors.
To find out more about making the most of you super you can download Sexy Super? at www.sexysuper.com.au . All proceeds on sale of the book will go to charity. Book buyers choose which of the three children’s charities they want their purchase funds to go to.
