Rebuilding retirement savings during tough times
On average, super balances have dropped significantly compared to what they were a few years ago. To rebuild super, clients can either wait for it to increase organically (with the help of the Superannuation Guarantee) or they can make additional contributions to speed up the process.
People may argue that they don’t have the extra money to invest into super.
However, what about using money they won’t miss? Or how about boosting retirement savings while still maintaining current net income?
Here are a few simple super strategies that help rebuild lost retirement savings while maintaining current lifestyle.
Using the tax bonus wisely
Most people should have received their tax bonus by now — this is money that they may not require to maintain their cost of living. Instead of purchasing the latest electronic gadget, the money could be contributed to super in various ways.
When contributing to super, not only are we taking advantage of a low tax environment and compounding interest, there may be additional benefits, such as a reduction in income tax or increased super from the Government.
Government co-contribution
If a client’s assessable income plus reportable fringe benefits are less than $60,342 (2008-09) per annum, they may be eligible to receive the Government co-contribution if they make an after-tax contribution into super (the client must also be under age 71 at the end of the financial year and have at least 10 per cent of total income from employment or business). The optimal amount of after-tax contribution will depend on the amount of income the person is receiving.
Spouse contributions
If clients are not able to take advantage of the co-contribution because of their income levels, they may be able to receive a tax offset of up to $540 (based on spouse contributions of $3,000).
Clients may be eligible for a tax offset if they make an after-tax contribution into their spouse’s super account and their spouse earns less than $13,800 per annum of assessable income plus reportable fringe benefits. The receiving spouse must be eligible to contribute (they must meet the work test if they are 65 or older), and spouse contributions cannot be made for someone aged 70 or older.
Boosting retirement savings while maintaining current income
Pre-retirees were the hardest hit when super balances dropped. This is because they have little time to recover their losses before their retirement.
Many pre-retirees will have decided to continue working to rebuild their super and put less strain on their retirement savings by delaying retirement.
Transition to retirement
By combining salary sacrifice with a transition to retirement pension, a client aged 55 or older can boost their super while keeping the same disposable income.
Points to consider
From a tax perspective, investment into super has always been better for most people than investing outside super.
However, super presents preservation issues that should be considered. Therefore, generally clients should only contribute to super if they have surplus income or are close to retirement.
Rachel Leong is a technical services consultant, Advice, at Suncorp Wealth Management.
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