The 7 advantages of superannuation
Most of us have a superannuation fund but it’s fair to say some of us are probably better than others at keeping tabs on how it’s tracking. Why is it so important to giving your super a bit of TLC? Here are my top 7 advantages of taking good care of your super.
You pay less tax on super contributions.
When you put money into superannuation, it’s only taxed at 15% – one of the lowest tax rates in Australia. If that money went straight into your bank account, you would pay somewhere between 35-40% tax. For example, if you earned $100 and kept it yourself, you would pay around 40% in tax and only end up with $60 in your pocket. If you put that same $100 into super, you would pay 15% tax, leaving $85. So contributions to super equal more money in your pocket long term.
You also pay less tax on any money earned through superannuation
Any money you earn through the various investments within your superannuation are also taxed at just 15% and any capital gains are only taxed at 10%.
Done right, super sets us up to pay no tax on pensions in retirement
While not everyone gets a 0% tax rate once they reach the ‘pension’ phase of superannuation, ideally you should be paying little to no tax on your super once you retire. This includes any extra money your super investments are earning, and the amount you’re withdrawing to live on. A zero tax rate on pensions is what you’re aiming for.
You can choose your own investments
A lot of people don’t know this, but anything that you can invest in outside your superannuation, you can invest in within it. Whether you would prefer to have money sitting in the bank, to buy shares in Australia or overseas, include property investments in your superannuation or buy cryptocurrency like Bitcoin, your choice of superannuation investments is virtually unrestricted.
Superannuation forces you to save for retirement
By law in Australia, your employer must contribute a portion of your earnings into super on your behalf, so we are forced to put aside money that will continue to grow for the future. If you work for yourself it’s a bit of a different story, the responsibility to contribute to superannuation falls back on you, so it’s wise to consider this and seek some financial advice if you’re in this position.
You’ll earn compound interest
Sometimes referred to as the ‘eighth wonder of the world’ compound interest earns you interest on your interest, and super is a great example of where it works best. If you have cash in superannuation, it’s earning interest. Year on year the interest you’ve earned makes you more interest and so on. This has a snowball effect, and is one of the simplest ways to grow your super.
You can take advantage of government incentives
Along your superannuation journey, the government offers a range of savings incentives. Depending on your income and super balance, you might be eligible for the government co-contribution or spouse contribution. If you sell property you may be able to make extra ‘non-concessional’ contributions. There are lots of options that are well worth looking into, when the time is right.
These are the advantages I highlight to all of my clients, so hopefully you learnt something new too. The more incentives you can take advantage of, the more money you’ll have in your hands when you retire, which is what we all want! Get in touch if you’d like some personalised advice about your super and make sure to follow us on Facebook, Instagram and Youtube for even more tips, tricks and updates.