Are you financially ready for retirement?

We all have grand dreams of retiring by the beach, seeing family more, or travelling around the world once we hang up our working boots for good.

For most, retirement sneaks up on us.

Distracted by life and the financial responsibilities that comes with it, we are rudely shocked when, sometime in our 50s, we realise our super needs some attention!

The problem is we need ‘time’ to see our super’s full potential. The longer our super is working for us, the better off we will be down the track and the longer it will last.

We often forget to acknowledge what income we may need in retirement and whether it'll be enough to continue living the life we know and want when we retire.

The sooner we work this out the better, and now is a good time to start.

This is the home stretch

Retirement, or the thought of it, has never been closer.

We aren’t going to pretend that we all have it all figured out in our 50s.

But one thing we do know is, if you start to make small changes now, you’ll be in a far better position when retirement finally becomes a reality.

How to make your super work harder in your 50s

If you are not quite where you want to be with your super balance, there are a few ways you can get more into your super.

Think about what level of income you might need to meet your costs and lifestyle you want in retirement and use the steps below to get there.

Salary sacrifice

Salary sacrifice may reduce the tax you pay. This means you may pay 15% tax on the amount you choose to sacrifice rather than up to 47%*, leaving you with more money to invest and grow your super. Talk to your employer to setup salary sacrifice.

Personal contributions

Can’t salary sacrifice? You could still be able to make personal after-tax contributions to your super.

In some instances, you might also be able to claim a tax deduction.

But there are limits

The government limits how much money can go into super in two ways:

concessional contributions are capped at $30,000 per financial year, and non-concessional contributions are capped at $120,000 per financial year.

For example, you are 52 and your cash flow has freed up a bit. You’re earning $100,000 a year. Your employer puts in $11,500 a year to super. You are now able to contribute another $18,500, which will take you to your $30,000 limit for concessional contributions.

In addition to concessional contributions, you can also make non-concessional contributions, which are personal payments to your super. These can come from taxed income, a windfall, or savings. The annual cap for non-concessional contributions is currently $120,000. However, you can contribute more than this by using the ‘bring forward’ rule, which allows you to use up to three years’ worth of contributions in a single year, potentially allowing a contribution of up to $360,000 in one year.

Why contribute extra?

If you take that $18,500 as salary, you’ll pay $5,920 in tax, based on a marginal tax rate of 30% plus 2% Medicare. This leaves you with $12,580 in your pocket.

But, if you put it into super (via salary sacrifice on a monthly basis), or as a personal deductible contribution your super fund only pays tax of $2,775 and your contributions to your fund are $15,725.

If you apply compound interest on a monthly basis to that amount over 15 years, with average super returns at 7% p.a. you’ll add about $415,000 to your super**.

Don’t have that much time?

The five-year catch up.

The carry-forward rule allows you to increase this year’s before-tax contribution limit by rolling over unused portions of your limits from previous years and adding them to this year’s cap. The unused portion, however, must be from within the last five years, and your super balance must be less than $500,000.

Let’s say you’ve been receiving $10,000 a year to your super from your employer for the last four years. You’ve put in nothing else, but you’ve got cash lying around and want to make the most of your super.

You can now contribute to your super the unused portion of concessional contributions from the last five financial years if your balance is under $500,000 as of 30 June of the previous financial year.

This means you could potentially put in $15,000 a year for financial years from 30 June 2020 to 2021 and then $17,500 for 2022 to 2024. You could potentially make tax-deductible contributions of $82,500 this financial year or save some of that available cap for next year*.

Other ways to ensure your super is working hard for you

Combine your super

If you’ve ever changed jobs, it’s likely you have more than one super account - some people have up to five! That’s five sets of fees, up to five sets of insurance premiums and five sets of statements to check each year. It all adds up. The fees you pay across multiple super accounts eats into your hard-earned retirement savings.

If you consolidate, or combine your super, you could save thousands of dollars over the years. And your super will also be easier to manage.

Check your investment choice

Investment returns have a huge impact on your super balance. Consider your risk appetite when you select the investment mix that is right for you. There are investment options for most risk appetites, from low risk, defensive investment options through to higher risk, growth-orientated investment options.

Still not sure how to get the most out of your super?

Talk to our super specialists by booking a complimentary appointment online.

We can help with:

• Retirement preparation
• Combining your super funds
• Contributions, including salary sacrifice and government co-contributions
• Explaining Centrelink eligibility rules
• Protecting you with income protection and life insurance

Book now

For more information on planning your ideal retirement, head to our retirement hub.

The retirement hub

Alternatively, you can call us on 1800 675 839 8am-8pm AEST Mon-Fri or email administration@primesuper.com.au

*47% is the maximum marginal tax rate including Medicare levy. Your marginal tax rate will vary depending on your circumstances. Consult your tax agent on tax matters or a financial adviser on how salary sacrifice affects your circumstances

** Assumptions: 7% return net of all fees and taxes. Actual returns will vary significantly from year to year and could be negative in some years, particularly for investment mixes where more is invested in growth assets such as shares and property. This projection does not allow for such variations. 15% contributions tax is applied. Tax rates applied are for the Financial Year 24/25 Results are shown in today's dollars, which means they are adjusted for inflation. The following default assumptions apply on inflation, 2.5% each year due to the rising cost of living (CPI inflation), a further 1.5% each year due to the cost of rising community living standards. The example is not intended to be a recommendation or provide financial advice. Consider your own investment objectives, financial situation and needs. You may wish to get advice from a licensed financial adviser.

**A model not a prediction. Results are only estimates, the actual amounts may be higher or lower. We cannot predict things that will affect your decision, such as changing interest rates. This calculation is not intended to be your sole source of information when making a financial decision. Consider whether to get advice from a licensed financial adviser. Initial deposit is made today. Regular deposits are made at the end of year, month, fortnight, week, or day (according to the deposit frequency you set). Interest is credited either monthly or annually, in line with standard industry practice. The delayed start comparison feature will have the same regular deposit frequency

++Our limited advice service is provided under an arrangement with Link Advice Pty Limited, AFSL 258145, ABN 36 105 811 836. Financial advisors employed by Prime Super are authorised representatives of Link Advice. If you are provided with personal financial advice you will receive a document called a Statement of Advice which will provide you with information about the advice given to you, the basis upon which that advice was given, information relating to commissions, fees, charges and any relationships that may exist which could potentially influence the advice provided. Prime Super is not authorised to provide personal financial advice.

Disclaimer

This document may include general advice but does not consider your individual objectives, financial situation or needs. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Prime Super is also not a registered tax (financial) adviser and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser.