Gen Y, Gen X or Baby Boomer – here’s why super contributions are important
No doubt you have heard about the benefit of putting any spare money into your super account as you get close to retirement, but have you ever thought about why it might actually be a good idea at any age?
If you are Gen Y…
For many Gen Y retirement seems so far away that super doesn’t seem all that important. But you should be aware that there is a simple strategy that may be available to you to help boost your super balance sooner.
The Government co-contribution scheme is available to anyone who has an annual income of less than $54,837 in 2020-21 – with the full co-contribution if you earn less than $39,837. That means that the Government will contribute $0.50 for each dollar of voluntary post tax contributions (up to $1,000) you make to your super account during the financial year. If you earn between $39,837 and $54,837, you will be entitled to a reduced co-contribution – that means for every dollar you earn above $39,837, the amount of co-contribution you will be entitled to receive will be reduced by 3.333 cents.
The co-contribution income thresholds are subject to indexation.
Whatever your income, a big incentive is that investing now gives your money more time to build up as earnings apply to previous earnings as well as your initial capital.
If you are Gen X …
Current rules make it harder to build your super after you turn 50, so if you want a big nest egg, you need to start saving now. Baby boomers had higher contribution thresholds, Gen Y will get higher employer contribution rates for longer – Gen X needs to make their own contributions now.
By now you are probably established in your career and earning a good income. It may be worth considering contributing some of your pre tax income to super – the benefit being taxed at the concessional rate of 15% (or 30% if you earn more than $250,000), rather than your marginal tax rate, for the salary sacrificed amounts.
And remember, you may still be eligible for the Government co-contribution scheme if your total income for the financial year is less than $54,837.
If you have changed jobs a number of times, you may well have more than one super account. By consolidating your accounts, you can save on administration fees (thereby boosting your long-term super) and keep track of your super more easily.
Remember, the earlier you contribute to super, the longer your investment will have to earn more!
If you are a Baby Boomer …
Super is still a very tax-effective investment. Contributions from your pre tax income are only taxed at 15% (or 30% if you earn more than $250,000) and earnings on investments in super are only taxed at a maximum 15%.
By now you have most likely paid off your major expenses such as your mortgage and your kids’ education. So now may be a good time to consider how much spare money you could contribute to super. You can make concessional contributions of up to $25,000. But remember that these include your employer’s contributions, not just your salary sacrifice contributions.
If you are considering how to invest the proceeds of the sale of non-super assets, you can make non-concessional contributions of up to $100,000 each financial year (and up to $300,000 in any one financial year by taking advantage of the ‘bring forward’ provisions), as long as your total super balance is under $1.4 million. This will help you to boost your super even further.
The non-concessional contributions cap and the general cap for concessional contributions are subject to indexation.
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