February 25, 2018

10 Benefits of Superannuation that You Might not Know About

When it comes to retirement planning, you’ll most likely hear the term superannuation. Its purpose is to help people prepare for retirement and secure the future. Using a superannuation calculator can give you an idea of how much super you’ll have when you retire.

Without it, you’ll find it very hard to live comfortably once you retire. Aside from this, here are the other benefits of superannuation:

1. Lower Tax Rate on Contributions

Super is designed with a series of tax breaks to encourage contribution. You and your employer can set up a salary sacrifice agreement that involves exchanging the income tax rate with the lower 15% super contributions tax rate. There are different rules for low income earners and high income earners to be aware of.

2. Ability to Choose your Super Investment Options

If you are a member of a super fund you can generally specify what your risk appetite is for investment. You can decide on investment options such as Growth, Balanced, Conservative or Cash.

3. No tax upon retirement

There will be no tax on capital gains or income once your superannuation starts paying the allocated pension. If you retire before reaching 60 years old, the superannuation will handle the 15% tax of the assessable amount until you reach the age of 60.

4. Tax on Investment earnings

In general, money made through investments within a superannuation comes with a lower tax rate compared to those made outside of the superannuation. It’s usually taxed at a maximum rate of 15%. Capital gains longer than 12 months within the fund will be taxed at 10%. This can be further reduced by tax deductions or tax credits.

5. Investment in bigger assets

You and other superannuation members can pool your retirement savings so you can invest in bigger assets.

6. Less expensive insurance cover

Insurers can usually offer a more affordable deal when publicly offered superannuation gets insurance policies in bulk. Paying for insurance premiums is also more convenient since these can be automatically deducted from your superannuation account.

7. Continue the insurance cover

Many insurers have an option to keep your insurance cover even after leaving your employer. This is greatly beneficial for those who find it hard to get the same levels of insurance protection.

8. Co-contribution from the government

You can get a tax-free co-contribution or bonus top-up form the federal government if you make non-concessional contributions to your superannuation account.

9. Avoid insurance medical exam

There are large superannuation accounts that offer automatic cover for new members without undergoing a medical exam.

10. Death Benefit Nomination (DBN)

If you use a binding death benefit nomination, you can ensure that your money will go to the right people when you die.

Know other benefits of superannuation in Australia? Share your retirement planning or superannuation advice in the comments section.

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You’re About to Retire in Australia. What Happens to Your Super?

There are a couple of ways to access your super in retirement to get the most out of your money.

It’s 4:20 pm and the work day is nearly done. But this is no ordinary work day. This day your last work day ever! There’s been a cake, a few tears, a golden watch, a bit of box packing, and in a few minutes the workday is going to end and never start again.

Congratulations. Hopefully, you used a superannuation calculator earlier in life to make a retirement plan. If you did, you should be confident that you will live a comfortable life on rewards of all the years of work you did.

While you’re going through the transition from working to retired, your super funds also change. Here’s are the two broad options; take all your money or transfer it into an ‘income stream’.

Take all your money (aka lump sum payment)

After preservation age, retirees can withdraw superannuation and use it as they see fit. The benefit of this is flexibility. If retirees want to purchase a house, go on a holiday, pay for a new car and invest it as they like, then they can.

The downside is they may lose some of the tax benefits of investing through super accounts. While retirees aren’t taxed to take the money out of super, they will likely be taxed at their marginal tax rate on any income it produces once it is outside super. In comparison, the tax rate for gains within super is only 15%. If investments make a significant annual return, depending on the situation, it may be more tax effective to keep it with the super system. To do this, retirees may need to use an income stream.

Income streams

Pensions

Pensions work similarly to a retirees current superannuation account. In this case, people keep their money invest in funds and receive capital growth and income from these investments. They can choose to receive this income, with or without their own capital. The downside is the income is subject to market performance.

Annuities

With an annuity, retirees lock in the amount they will be paid each year at the start. So regardless of how the markets perform they will be paid the amount they set at the beginning. This does, however, limit the upside potential of their investments.

The good news is that retirees can mix and match between all the options or swap options later if they change your mind.

They could take a part lump sum, then transfer the rest to an income stream, only to take whatever is remaining as a lump sum in twenty years’ time.

Maximising retirement savings can require some intricate planning based on individual circumstance and desired lifestyle. It is definitely worth discussing your specific needs with an independent retirement planner.

Now you have a basic idea of what the options are with super, all you need to do is solve a much tricky problem; how will enjoy your super balance in Australia?

Are you a recent retiree, we’d love to hear what worked for you at retirement in the comments section below.

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Superannuation in Australia

Many people don’t see retirement as something to prepare for when they’re still young, and that there is still a lot of time to think about it. But in reality, if you want to have a comfortable retirement, it is advisable to spend some time in learning about superannuation funds as early as possible.

What is superannuation fund? Also called super fund, it is essentially money set aside for your retirement. If you’re an employee, your employer contributes to your super fund, plus your own contributions. According to the law, your employer should pay 9.5% of your salary into your superannuation fund. These contributions accumulate and grow over time, ensuring that you can live comfortably once you retire.

Insurance through your Super Fund

Most super funds include life insurance to members. It usually differs in coverage: death cover, total and permanent disability cover, and income protection. Why is it important to find out more about insurance included in your superannuation fund? Here are some points to take into account:

  • The default super fund of your employer should have minimum life insurance or default cover that you can increase, decrease or even cancel. The insurance premiums will be deducted from your super account.
  • Getting a life insurance through your super fund is usually cheaper. It also offers flexibility since you can choose the amount that you plan to be covered for, and you can get the cover needed by yourself or your family.
  • With the default cover, there is no need to undergo a medical check-up to get it, and you don’t need to pay higher premiums when you have a pre-existing condition.

Retirement Calculator

Another thing worth-considering as far as superannuation in Australia is concerned is knowing how much your super fund is when you retire. You can do this with a superannuation calculator in Australia. It can give you an idea if you’re on track in saving for retirement and how much money you need for the lifestyle that you want to have once you retire.

There are different types of superannuation calculators in Australia but in general, keep in mind that it can only give you an estimate or an idea of how much your super fund is worth upon retirement and how fees will affect the final amount. It cannot indicate the actual final superannuation benefit since there are other things to be considered. These include investment earnings, your age, inflation, financial needs, and other external factors.

Know other tips when it comes to retirement calculator and superannuation in Australia? You can share your ideas in the comments section below.

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