As you approach retirement it’s natural to start thinking about ways you might boost your superannuation balance. We offer some simple ideas.
Make additional contributions
Legally, your employer has to contribute to your chosen superannuation fund at a rate of 9.5 per cent of your salary, whether it is a managed superannuation fund or an SMSF.
But if you rely on these contributions alone it can take a while for your super balance to accumulate.
Many people close to retirement age choose to boost their superannuation by making additional, voluntary contributions. This activity is known as salary sacrificing.
Salary sacrificing is a concessional contribution to an SMSF, and you can contribute a maximum of $25,000 if you’re under 75.
Salary sacrificed contributions to your SMSF, rather than being taxed in your name, are taxed in the SMSF at 15 per cent, so there can be a tax advantage to salary sacrificing additional contributions if your personal tax rate is greater than 15 per cent.
Weigh up how much you can afford to sacrifice, and bear in mind that employers are technically able to cut an individual’s Superannuation guarantee (SG) contribution entitlements if you reduce your taxable salary via a salary-sacrificing arrangement, which will effectively cut your total salary package.
Pool your resources with your spouse or kids
Your superannuation will typically be one of your biggest assets other than your home, so pooling your super with a partner in a joint SMSF provides you with an even larger amount of money to invest.
Combining your super with your partner’s also means you may pay less in fees, as one set of fees typically covers all the members of an SMSF.
An SMSF can have up to four adults aged 18 or older as trustees. You may wish to consider the pros and cons of adding any adult children to your SMSF.
Look into the tax benefits of SMSFs
A benefit of being in an SMSF are the tax advantages for various asset classes or investments held within the fund.
Plus, SMSF trustees have the ability to manage the taxation implications of investment transactions on member accounts.
Investigating the tax benefits of an SMSF could be time well spent.
For example, SMSFs allow all members to make asset contributions (also known as in specie contributions) instead of cash.
These contributions can take the form of shares, managed funds and commercial property, which are transferred from a member’s personal names into an SMSF.
There can be positive tax benefits over time to consolidating assets under an SMSF, but you should investigate the precise income tax and capital gains tax issues for your circumstances.
Remember that, as with all contributions, you cannot access the money until after you have reached preservation age.
Shop around for better returns
An SMSF typically offers a wider range of investment options than a managed superannuation fund, so you can boost your super by shopping around for better returns.
Shares, cash and property are three of the most popular asset classes for SMSFs, but other, less common choices include investing in other listed securities or managed funds, bonds, warrants, collectibles and artworks.
You need to consider how any short term investment changes will sit alongside your long term strategy and goals for your superannuation.
Your appetite for financial risk typically changes depending on your stage of life. If you’re near retirement, chances are you’ll be looking to play it safe as you’ll be living from your SMSF nest egg in a matter of years, so bear this in mind when choosing your investments.
As with any major financial decision, it pays to read the fine print. Seek professional, expert advice if you need it, and make comprehensive cost-benefit comparisons for all potential members when thinking about establishing or making changes to your own SMSF.
If you want to learn more about SMSFs, download an today.