Maximise my balance at retirement

Contribute as much as you can, as early as you can and make the most of tax concessions.

Research has shown that saving for retirement at a level of 9% of salary will not be adequate for the majority of people.  

This level of savings may be enough for people who: 

• start contributing to super at the start of their working life
• have an uninterrupted working life
• retire at age 65 but not before
• have a high salary
• have no major expenses when they reach retirement (such as a large residual mortgage).

But with an aging population, an average planned retirement age of 58 (according to a recent Association of Superannuation Funds of Australia Limited survey) and a trend towards more part-time and casual employment, few people are likely to find that compulsory contributions alone are enough.

Here we discuss some of the more strategic approaches that can be considered to maximise your retirement benefit:

Invest in super

The tax savings of super are not limited to contributing. Compare the tax savings on investment earnings gained from investing in super versus investing outside of super.

Make the most of the 1 July 2007 super changes.

Now that there is no limit on the amount of super you can receive tax-free in retirement, it could be worthwhile putting as much money into super as you can (within Government limits , to get more tax-free income in retirement. You may even consider the sale of an asset to increase your super with a big post-tax contribution. If you are over 50 and are looking to really boost your super, consider taking advantage of the 5 year transitional arrangements for pre-tax contributions. Read more about making the most of extra contributions.

Use Government incentives to your advantage

On first examination, schemes like the Government’s co-contribution incentive may not seem applicable to you. However you may be in the position to make post-tax contributions to your eligible spouse’s account, provided their income does not exceed the relevant threshold. The contribution pages under My super contain all of the information on the Government’s co-contribution scheme. For the right advice on how to best use the scheme to your advantage, make an appointment with Telstra Super Financial Planning. To make an appointment, call Telstra Super 1300 033 166 or request an appointment online.

Contribute and save on tax

You pay only 15% on contributions to super, but up to 45% (plus Medicare) on your salary. This means that if your Marginal Tax Rate is above 15%, you could contribute to super and pay less tax.

If you are aged 55 or older, are still working and are in the position to purchase a retirement income stream, a Transition to Retirement strategy could work for you. With this strategy you contribute as much as you can to super pre-tax (within Government limits) and top up your income from a tax effective retirement income stream. Read more

If you are not ready to transition into retirement, you can still take advantage of the tax savings you get by contributing to super. Use our pre-tax vs post tax contribution calculator to compare these contribution types and show you the impact on your take home pay.

Contribute to super and keep your take home pay

Because of the tax incentives discussed, depending on your circumstances you may be able to gradually increase your contributions to super, without a noticeable effect on your pay packet.

Phillip is in his mid-40s with a super balance of $100,000 and has a salary review every 12 months. His current salary is $50,000, and his last pay increase was 3%. That would normally have meant an increase in his take-home pay of $19.76 a week - which would have been quickly absorbed into his normal living expenses. On the advice of a financial planner, Phillip committed a third of his salary increase (i.e. 1% of his total salary) as a pre-tax contribution to his superannuation. This means Phillip will be contributing an additional $500 to super each year and he also takes home an extra $57 a month.

The extra $500 in the first year now going into his super account is money Phillip never had included in his take-home salary before his salary increase, so it will not leave a hole in his budget. On the other hand, it could create a large boost to his retirement income - especially if Phillip continues to add 1% from future salary increases until he is contributing 6% of his total wage every year.

Here is how it might turn out:

If Phillip keeps contributing 6% until he retires at age 65, here is how the contributions could have helped his final retirement benefit. You should note that many variables effect the exact impact on the end retirement benefit, full details are provided in the assumptions.

Plan, plan, plan

You get the biggest possible balance at retirement through careful planning. You pay nothing extra for financial advice with Telstra Super Financial Planning, so give them a call as early as possible on your retirement planning journey. To make an appointment, call Telstra Super on 1300 033 166 or request an appointment online.