Finding the best performance, rewards and security from your super fund doesn’t have to be an ongoing search. Simply asking the right questions can help you navigate the options better.
The most appropriate strategy for maximising your super fund performance always depends on your own circumstances. Before getting started, consider the following:
- Cash flow: How will your strategy impact your cash flow?
- Potential changes to legislation: Are you making the best choice for the current and next financial year?
- Risk: What type of investor are you and are your decisions consistent with your risk profile?
The most common downfalls for superannuation savings are simple. They include:
- Having more than one super fund.
- Not choosing the right option for your situation.
- Paying too much in fees.
- Ignoring built-in tax benefits.
If choosing a self-managed super fund (SMSF), the ATO recommends a minimum of $200,000 to make the estimated annual costs of $2000 worthwhile.
Maximise your pre-tax contributions with salary sacrifice
Relying on the 9 per cent that your employer contributes to your super isn’t enough to be self-funded in retirement. Most studies say even 18-year-olds should start putting away around 12 per cent (the new compulsory amount come 2019).
Consider forgoing part of your pre-tax salary in return for other benefits, such as additional employer superannuation contributions. Left in your own hands, that cash is taxed at your marginal tax rate. However, the sacrificed amount is taxed at between 15 and 30 per cent (depending on the level of your income) within the fund. This can particularly benefit those in higher tax brackets.
Maximise personal input and claim tax deductions
If you are self-employed or not an employee with superannuation guarantees (such as consultants, subcontractors, etc.), you may be eligible to claim personal contributions to super as tax deductions.
Offset capital gains tax liabilities with personal contributions
This strategy basically takes assets outside your super and injects them into your fund. Since July 1, the only way to do this is to sell any assets and use the cash to make a contribution. This makes capital gains tax (CGT) hard to avoid, but tax concessions for superannuation may compensate for any CGT and transaction costs in the long term.
Going SMSF? Buy and hold shares or trade?
It’s popular to go for ASX blue chips and sit back to watch long-term growth and dividends, but index funds already provide this exposure. Many post-GFC SMSF holders are trading with the ups and downs of the market. While many have outperformed traditional funds, you can never pick all the troughs and peaks of the market. Learn to know when to take profits and cut losses to bring the best rewards.
More than 8 million working Australians are in the middle of receiving the new superannuation guarantee rise, which will hit 12 per cent by 2019. It means today’s 30-year-olds on average full-time earnings will retire with an extra $118,000 in their super fund.
But for those already further into their super savings plan, it makes sense to review your contribution commitment.