The Australian Superannuation industry is now worth $2.782 Trillion* (as at March 2019 according to ASFA), and for many Australians, aside from the family home, Superannuation will be their biggest asset when they retire.
So why then is there so much confusion around how Super works? Below are five myths about Super.
1. You can only access your Superannuation when you retire
Not quite. There are seven main ways you can access your Super, known as the ‘conditions of release’. These conditions cover a whole range of reasons and have many restrictions attached to them:
- Reaching preservation age –between 55 and 60 depending on when you were born, provided you commence a transition to retirement pension
- Retirement – after reaching preservation age and ceasing gainful employment
- Attaining age 65
- Permanent incapacity
- Death or terminal illness
- Severe financial hardship – after being on Commonwealth income support for at least 26 weeks and being unable to meet living expenses
- Compassionate grounds – e.g. payment for medical treatment or to meet palliative care costs
2. You need $1,000,000 to retire comfortably
Whilst the $1,000,000 mark can be a good goal to head towards, for many people (especially older Australians who haven’t been accumulating Super their whole life) it may be well out of reach. But that doesn’t mean you should discount the benefits Super can offer.
The benefit of a compounding effect over the long-term should not be taken lightly. Adding small amounts of additional funds to Super over time can have a massive impact on your Super balance.
According to ASFA, in order to lead a ‘comfortable’ retirement, a couple needs at least $50,000 p.a. income in retirement. Now, everyone’s perception of ‘comfortable’ is completely different, and some years may require more than others. So, to put that into perspective, if you had a Super balance of $1,000,000, you would have 20 years of income, not including any kind of growth or income that would be produced.
Throw in some growth and income generation of that $1,000,000, and by keeping the balance of your Super invested in assets that will produce income of 5% (for example) that $1,000,000 could last indefinitely.
3. You can only start an income stream when you retire
Wrong! This is a big misconception and employees often miss out on utilising an important strategy that can really boost their Super balance because they are just not aware of it.
Whilst the rules have changed over the past few years around the transition-to-retirement strategy, it can still be an effective concept to boost your Superannuation whilst you are still working and be tax-efficient at the same time, depending on your circumstances.
4. Your Industry Super default option will best suit your needs
This couldn’t be any further from the truth. Everyone has a different timeframe until they can access their Super; has a different comfort level of how much risk they want to take; and different contributions going in; so why should they be slotted into a one-size-fits-all investment?
For anyone who hasn’t checked their investment mix within Super, now is the best time.
5. The only way to make Super more tax-efficient is to salary sacrifice
As of 1 July 2017, personal contributions from savings or post-tax income are now tax deductible to you personally. That means if you contribute to Super from your savings, you can now claim a tax deduction for that contribution.
Superannuation legislation and regulations are constantly changing, making it increasingly difficult for everyday account holders to know if they are capitalising on the opportunities available to them. Regardless of your age, it is never to too late to review your Super and structure it in a way that will help achieve your retirement goals.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.