14 Nov 2018
With a large gap between how much people think they need and what they actually need, we look at ways you could increase your savings in retirement.
For Australians to live the retirement lifestyle they aspire to from age 65, AMP research shows savings would generally last around five years, creating a super shortage of about 12 and half years (taking into account the average life expectancy in this country is 82 and a half years old)1.
When looking at specific age groups, the findings revealed those aged 35 to 44 were most likely to leave themselves short if they retired at 65, with a super shortfall closer to 13.6 years, while news for generation Y was more positive as it was the cohort with the lowest shortage at 12.1 years2.
Despite figures highlighting that people were saving less than what they needed to live the lifestyle they expected in retirement, there are ways you could still look to boost your retirement savings.
Ways to boost your super through contributions
1. Salary sacrifice contributions
Salary sacrifice is where you elect to have a portion of your before-tax income paid into your super by your employer. This is in addition to what your employer pays you under the Superannuation Guarantee, if you’re eligible, which works out at no less than 9.5% of your before-tax salary.
While salary sacrificing is voluntary, it does mean a reduction in your take-home pay, however as you’ll only be taxed 15% on the money you salary sacrifice, it may be a tax-effective way to save if you pay a higher rate of tax on your income, which many people do.
2. Tax-deductible contributions
Tax deductible personal contributions are also voluntary contributions, which you can make using after-tax dollars (such as when you transfer funds from your bank account into your super) and then claim a tax deduction on when doing your tax return.
Because personal contributions to your super fund (which you claim a tax deduction on) will only be taxed at 15%, this produces broadly the same tax benefit offered by a salary sacrifice arrangement.
This is of benefit if your employer doesn’t offer you the option to salary sacrifice, or if you receive some money that you’d otherwise pay tax on at your full income tax rate.
3. Personal contributions (and co-contributions)
You can also make voluntary contributions to your super using after-tax dollars, which you don’t claim a tax deduction on.
If your total income is equal to or less than $37,697 and you make personal after-tax contributions of $1,000 (and meet other eligibility criteria), you could receive a maximum co-contribution of $500 from the government as well.
If your total income is between $37,697 and $52,697 your maximum entitlement will reduce as your income rises. And note, figures are indexed each year and may change in future.
4. Downsizer contributions
People aged 65 and over can now make a voluntary contribution to their super of up to $300,000 using the proceeds from the sale of their home – regardless of their work status, superannuation balance, or contributions history.
For couples, both people are able to take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super.
Downsizer contributions are not tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions.
If you’re going to add money to your, or your partner’s super, remember limits apply when making super contributions, which means if you put more in than what you’re able to, penalties may apply.
Other hints that could see you pocket more money
5. The low-income super tax offset
If you earn $37,000 or less annually, and you (or your employer on your behalf) make super contributions (under the Superannuation Guarantee, a salary sacrifice arrangement or that you claim a tax deduction on), the government may refund the tax you paid on those contributions back into your super account, up to a maximum of $500 per year.
If you’re eligible for the low-income super tax offset, it will be automatically calculated by the Australian Taxation Office and deposited in your super account after you lodge your tax return.
6. The spouse contributions tax offset
You can generally make after-tax contributions to your spouse’s super and claim an 18% tax offset.
To be eligible for the maximum tax rebate, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less.
If their income is above $37,000, you’re still eligible for a partial tax offset. However, once their income reaches $40,000, you’ll no longer be eligible, but can still make contributions for them.
To be entitled to this tax offset, eligibility rules apply, and the receiving spouse must be under the age of 65, or if they’re aged 65 to 69 they must’ve worked for at least 40 hours within a 30-day period under work test requirements.
7. Consolidating your super
If you do have super with multiple providers, there may be advantages to rolling your accounts into one, such as paying one set of fees which could save you hundreds of dollars each year and even thousands over many years.
There will be important things to consider though, such as:
- Will you be charged exit or withdrawal fees?
- Might you lose features/ benefits attached to the account you’re closing, such as insurance?
Meanwhile, if you want to roll your super into your AMP account, we can do the consolidation work.
8. Reviewing your super situation
Your super fund should be working for you, so it’s important to review it at least once a year. It's useful to check out things like:
- Fund performance
- Any fees you might be paying
- Your super investment options
- Any insurance you might have inside of super and whether it suits your needs.
Looking for a bit more info?
For more information regarding the rules around super contributions and the limits that apply, check out our Super contributions info page.
Meanwhile, some other articles that may provide some further details around some of the topics above include:
13 Sep 2019
Spending money to keep up with the Joneses will deliver short change, especially if you’re looking to build financial securityRead more
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