What Factors Affect Your Super Balance and How to Manage Them

The financial security and retirement plans of Australians depend heavily on superannuation. Many people may not realise the value of their super balance until it is too late, the end result being that they have inadequate resources to support themselves in their retirement years.

While super is intended to help Australians save money for retirement, there are several factors that can affect your super balance over time.

In this post, we’ll look at key factors that can affect your superannuation and retirement over time and offer tips on how to manage your super balance for a comfortable retirement. We will also address superannuation and taxation, as well as the various ways to manage your super balance during your career.

Factors That Affect Your Super Balance

The amount of money you accumulate in your superannuation account is determined by a variety of factors. Understanding these characteristics allows you to make informed superannuation decisions and take efforts to maximise your retirement income stream.

Contribution rates and frequency

Frequently contributing to your superannuation account can enable you to save more for retirement, take advantage of compound interest, and lower your tax obligations.

Increased super contributions will at least boost your retirement savings. You can’t access your super until the preservation age, so it’s a wonderful savings plan without the temptation to squander it.

Early superannuation contributions allow compound interest to grow your money. This means that even small donations over time can build a bigger retirement nest egg.

Super contributions can be tax-effective. Super investments are taxed at a maximum of 15%, which is generally lower than one’s marginal tax rate and lower than investing in your own name. These tax savings compound to boost retirement planning.

Investment performance and risk

It is essential to keep in mind that investment performance and risk are interrelated. Typically, investments with higher risk have the potential for greater returns but also bear a greater risk of loss.

Conversely, investments with lesser risk have lower potential returns, but also a lower risk of loss. It is essential to establish a balance between risk and return that corresponds to your financial objectives and risk tolerance.

Fees and charges

Over time, the fees and charges associated with your superannuation fund can have a substantial impact on your superannuation balance.

Superannuation fund fees and charges are deducted from your superannuation account. As such, higher fees and charges can erode your superannuation savings, which will result in a smaller nest egg for you to retire on.

It’s important to keep track of the account fees, management fees, and investment fees that you pay and also ensure that you are with a competitive super fund. This does not necessarily mean the cheapest provider as they may not provide the services you require. Ensure you compare ‘apples with apples’.

Insurance premiums and coverage

It is essential to regularly review your insurance coverage and premiums to ensure that you have adequate insurance coverage for your needs and are not paying for unnecessary insurance. Insurance is vital, but it’s crucial to understand the cost and avoid overpaying.

Government policy and regulations

It is critical to remain current on government policies and regulations that may affect your retirement account balance.

The government sets:

• yearly superannuation contribution caps – which may limit your annual contributions.
• superannuation tax laws – which affect how much tax you pay on your contributions and investment earnings.
• the superannuation access age – which determines the age at which you can access your superannuation, which may affect your retirement plans.

How to Manage Your Super Balance

One of the biggest mistakes you can make is not being aware of your superannuation. It’s your money, so at the very least, you should know where it is, how much it’s accruing each year, and what your current super balance is. Being aware of your super makes it much easier to manage it.

Monitor Your Super Balance and Investment Strategy

Monitoring your superannuation balance and reviewing your investment strategy regularly is necessary to ensure that you are on course to achieve your retirement goals.

Regularly check your super statement to ensure that your retirement income and savings are maximised. Routinely monitor your account balance, employer contributions, fees and charges you pay, your investment returns, and what options you have to increase your super.

Managing risk by reviewing your investment strategy regularly enables you to assess and alter your risk tolerance and confirm that you are comfortable with the level of risk you are assuming.

Your personal circumstances can change which means your retirement objectives and circumstances may evolve over time, necessitating a possible adjustment to your investment strategy. By regularly reviewing your superannuation balance and investment strategy, you can ensure that your retirement plan is always in line with your current objectives and requirements.

Make Additional Contributions

By contributing more money to your superannuation account, you may be able to benefit from the power of compound interest over time, which can help your superannuation balance grow substantially. The two most common types of additional contributions you can make to your super fund to boost your super balance are salary sacrifice contributions and personal contributions.

Salary Sacrifice Contributions

Salary sacrifice is an arrangement between you and your employer to make extra contributions to your super from your before-tax salary each pay period. The payments are taxed at 15% instead of your personal income tax rate.

The annual limit for concessional contributions (including salary sacrifice) is currently $27,500.

Personal Contributions

Personal super contributions aka after-tax contributions are the amount of money you contribute from your take-home pay to your super fund. These contributions are not taxed when they are received by your superannuation fund.

The annual non-concessional contributions cap is $110,000.

Minimising Fees and Charges

It is essential, when managing your superannuation, to consider both your investment strategy and the fees and charges associated with your super account. Here are some suggestions for minimising fees and charges in your retirement account:

• Compare superannuation funds and search for those with competitive fees.
• Consolidate your super accounts into one account, if you have other super accounts, to reduce fees and charges (check insurance cover first before consolidating!).
• Compare the fees associated with various investment options and select one with competitive fees.
• If insurance is not required, reduce or decline it to avoid paying additional fees.
• Examine your superannuation account frequently to ensure that you are not paying for superfluous services or features.

Optimise Insurance

Optimising your retirement plan’s insurance can help ensure you have adequate coverage and protection in the event of unforeseen events. Here are some suggestions for optimising your superannuation insurance:

• The default insurance coverage provided by a superannuation fund is not suitable for everyone; therefore, you should review your insurance coverage to ensure it meets your needs and circumstances.
• Consider your age, health, and family status when determining the amount of insurance coverage you may require.
• Some super funds may not routinely provide insurance coverage to their members, so if you require insurance coverage, you might need to opt-in.
• Life insurance, total and permanent disability (TPD) insurance, and income protection insurance are all available through superannuation funds. Consider the differences between each form of insurance and which you may require.
• Insurance premiums can vary between super funds and insurance providers. Compare the premiums levied by your fund with those of other funds to ensure that you are not overpaying.

Government Programs for Super

Aside from the super guarantee or employer contributions which require employers to contribute an amount equivalent to 10.5% (11% by 1 July 2023) of an employee’s ordinary time earnings, and the aforementioned concessional and non-concessional contributions, there are also government programs to boost your super balance.

Government co-contributions

The government may contribute (government co-contribution) up to a maximum of $500 if you are a low-or-middle-income earner and make personal (after-tax) contributions to your super fund.

Your income and the amount you contribute will determine how much government co-contribution you will receive.

Low Income Superannuation Tax Offset (LISTO)

If you meet these criteria, you can apply for the low-income super tax offset (LISTO).

• You or your employer make concessional (pre-tax) payments to a compliant super fund for the year, including super guarantee amounts.
• You earn $37,000 or less a year.
• You never held a temporary residence visa during the income year.
• You record a tax return and 10% or more of your total income originates from business and/or employment.

The LISTO helps low-income workers save for retirement with a $500 government payment to your super account. This is different to government co-contributions.

First Home Super Saver Scheme (FHSSS)

The First Home Super Saver Scheme (FHSS) lets you save for your first home by making voluntary concessional (before-tax) and non-concessional (after-tax) super fund contributions. If you’re a first-time buyer and will live in the house for at least six months in the first year or as soon as it’s practicable, you can use this scheme.

For FHSS you can save:

• up to a maximum of $15,000 in any one financial year,
• up to a maximum of $50,000 across all years,
• plus receive an amount of deemed earnings that relate to those contributions.

FHSS determination will tell you the maximum amount you can withdraw – aka your FHSS maximum releasable amount. The amount of eligible contributions that can count towards your maximum releasable amount across all years is $50,000.

Superannuation Downsizer Scheme

Eligible adults over 55 can make a one-time contribution to their super fund from the proceeds of selling their family property. The $300,000 limit per person ($600,000 per couple) can enhance your retirement super balance.

Downsizer contributions don’t count towards contribution caps and won’t affect your superannuation balance until the end of the financial year. However, downsizer contributions count towards your transfer balance cap and determine your age pension eligibility when you retire.

Superannuation and Taxation

Superannuation taxation can be complex, and it’s essential to understand how it works to make informed decisions and make the most of superannuation for a better financial future.

Personal Contributions

You can avail of personal deductible contributions on after-tax contributions you make to a super fund if you meet eligibility requirements. Note that if you made a personal contribution but did not claim a tax deduction for it, the contribution is not reportable.

However, annual superannuation contributions are capped each financial year and exceeding these caps may incur taxes and fines. Superannuation investment earnings are typically taxed at a 15% concessional rate, which is lower than the standard marginal tax rate.

Super Income Stream

Tax on superannuation withdrawals depends on age and account type. If you’re age 60 or over and create a super income stream, your income is usually tax-free. A super income stream is withdrawing your money as small regular payments over a long period.

Be aware of the transfer balance cap. The transfer balance cap is a lifetime limit on the total amount of super that can be moved into tax-free retirement phase income streams, including retirement phase death benefit income streams. The age pension (or other government benefits) and pensions from overseas super funds are not subject to the transfer balance cap.

Lump Sum

If your super provider allows it, you can withdraw some or all of your super in a single payment called a lump sum. You don’t pay tax on the tax-free or taxed components of your super lump sum. However, lump sum withdrawals from super will render the amount non-super. If you invest the money, the earnings may need to be declared on your tax return.

Superannuation Tax Optimisation

Superannuation tax optimisation involves numerous options. The following strategies along with financial advice can help you lower taxes, maximise retirement savings and meet your goals.

Regular contributions to your super fund can help your investment grow over time, and you’ll have a larger balance when you retire. Additionally, contributing to your superannuation can reduce your taxable income and lower your tax bill (if you claim a tax deduction for the contributions).

You can pay less tax by transferring a portion of your before-tax salary to your superannuation account. Salary sacrifice contributions are taxed at 15%, usually lower than the marginal tax rate.

If your spouse earns less than $40,000, contributing to their super account may qualify you for a tax offset. This reduces your taxable income and boosts your spouse’s retirement savings.

Use a self-managed super fund (SMSF). SMSFs offer more investment possibilities and tax planning for retirement savings. However, you should consult a specialist before establishing an SMSF.

Managing Your Super Balance Throughout Your Career

Managing your super balance is crucial to retirement planning. You can devise a strategy to grow your super balance and safeguard your financial future at stages early in your career, mid-career, and pre-retirement – but what is important is that you get started!

There are several ways for people who are just starting out in their careers to increase their super balance. Contributing to your super fund early in your career allows your money to grow, which can boost your balance. Since you have a longer investment horizon, you can accept greater risk and seek to invest in an investment mix that focuses on growth. However, higher-risk investments may be more volatile, so examine your risk tolerance and investing goals.

In mid-career, examine your investment strategy and adapt your risk profile to align with your retirement goals. You may also choose to increase your contributions, including salary sacrifice or after-tax contributions if your cash flow allows it. To cut costs and better manage your investments, it makes sense to combine any multiple accounts that you have as long as it’s not at the expense of beneficial insurance coverage.

Finally, as you near retirement, check your super balance to be sure you’re on schedule. Contribute more if you’re behind. To protect your balance near retirement, consider switching to lower-risk investments. If you haven’t already, getting financial advice to create a retirement plan that includes assessing your predicted income and expenses can also help you retire comfortably.

It’s important to review your superannuation regularly and adjust your strategy as your personal and financial situation changes. This way you can’t fall behind your retirement goals, or if you do, you can adjust quickly.

Plan Your Retirement with Newcastle Financial Planning Group

Several factors can impact your superannuation balance, including making contributions early, reviewing your investment strategy, consolidating your super funds, increasing your contributions, and transitioning to lower-risk investments as you approach retirement.

These strategies can help you increase your superannuation balance throughout your career and ensure you have sufficient funds for a comfortable retirement.

In addition, your risk tolerance, investment objectives, and anticipated income and expenses are crucial factors in managing your retirement account balance.

Seeking financial advice can help you develop a retirement plan that is comprehensive and tailored to your specific requirements and objectives.

At Newcastle Financial Planning Group, we can provide the specialist financial planning, expert knowledge and guidance you need to help you make the right financial decisions for your superannuation strategy so you can look forward to your future with confidence.

Call us or book online to secure your first appointment with us today and get started!

 

SOURCES:

• https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-using-your-super/withdrawing-your-super-and-paying-tax/?page=2#:~:text=Your%20preservation%20age%20is%20the,preservation%20age%20of%2055%20years.
• https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=3
• https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=5
• https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-co-contribution/
• https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/low-income-super-tax-offset/?page=2
• https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/#:~:text=About%20the%20FHSS%20scheme,-From%201%20July&text=You%20can%20use%20this%20scheme,is%20practical%20to%20move%20in.
• https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Downsizer-contributions-for-individuals/
• https://www.ato.gov.au/Individuals/Tax-Return/2022/Supplementary-tax-return/Deduction-questions-D11-D15/D12-Personal-superannuation-contributions-2022/?=redirected_D12-PersonalSuperannuationContributions-redirect
• https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-using-your-super/withdrawing-your-super-and-paying-tax/?page=3#Superincomestream
• https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/transfer-balance-cap/
• https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-using-your-super/withdrawing-your-super-and-paying-tax/?page=3#Superlumpsum