Everything You Need to Know About Superannuation
Managing your superannuation is a critical step in preparing for retirement, and it’s never too early to start. Whether you’re just beginning your career or nearing retirement, understanding the rules, benefits, and strategies can help you make informed decisions. Here’s a breakdown of key takeaways from an interview with superannuation specialist Marco Mellado from Sandland Private Wealth, as he shares insights on navigating superannuation effectively.
Starting Early and Planning Ahead
Marco Mellado emphasizes the importance of early planning for retirement. Instead of waiting until your 60s to think about your super, consider educating yourself about tax rules, the investment environment, and the various regulations surrounding superannuation.
Key points to consider:
- Evaluate your non-super financial position, including debt and life insurance.
- Envision your retirement lifestyle: What are your expected expenses? Will you travel or have significant purchases?
- Regularly refine your plans as you get closer to retirement.
- If financial planning seems daunting, consider consulting an advisor.
Making Big Financial Decisions in Retirement
One caller, Amy, shared her situation about paying for a $50,000 dental expense. Marco suggested avoiding arrangements like placing a caveat on your home. Instead, if you have sufficient funds, paying upfront may be better than relying on super’s returns, which can fluctuate with market changes.
Super and Tax Benefits Over 60
If you’re over 60 and drawing a pension from your super, the good news is it’s tax-free! Marco highlighted the dual benefits:
- The income you receive from a super pension is entirely tax-free.
- Investments within the pension account also grow tax-free, making it one of the most tax-efficient retirement vehicles.
Transition to Retirement Accounts
Transition to retirement (TTR) accounts allow individuals to access some of their super funds while still working. This strategy helps if you want to reduce your working hours without a significant drop in income. However, it’s primarily a cash flow benefit, as there’s no significant tax advantage.
Defined Benefit vs. Accumulation Funds
Caller Clarissa asked about combining a defined benefit fund with an accumulation fund. Defined benefit schemes, often older and linked to government or large organizations, calculate balances based on formulas rather than direct contributions and investment returns. While they can’t be combined with accumulation funds, they’re generally valuable. Marco suggests focusing on optimizing the accumulation fund.
Accessing Super in Special Circumstances
If you’re facing financial hardship or medical challenges, you may be eligible for early access to your super. Marco recommends contacting your fund directly to explore options like compassionate grounds or financial hardship access.
Ethical Investment in Super
For those interested in ethical investments, Marco advises starting with your fund’s website and investment pages to understand their holdings. While transparency can vary, direct inquiries to the fund can provide more detail. Be aware that some ethical options may include investments you wouldn’t categorize as ethical, so thorough research is necessary.
Beneficiaries and Taxation
Beneficiaries of super funds, especially adult children, may face taxes on their inheritance. To minimize this, strategies like re-contributing funds or withdrawing and reinvesting them outside super can help reduce tax liabilities.
Investment Strategies for Retirees
Marco discussed lifecycle investment strategies where super funds move members’ investments to more conservative options as they approach retirement. While this mitigates sequencing risk (a market dip right before retirement), it may limit long-term growth. Alternative strategies, like bucket strategies that balance immediate and long-term needs, may be more suitable for some.
Super Contributions and Employer Obligations
One caller raised concerns about missed super contributions. Marco clarified that employers are responsible for making regular super payments. If contributions are missing, employees should first check their employment contract and then address the issue with their employer.
Managing superannuation effectively requires a proactive approach, a clear understanding of your options, and sometimes professional guidance. With these insights, you’re better equipped to secure a comfortable retirement.
