Superannuation is more critical than it has ever been. If having an ageing population has taught us anything, it is how managing money now can have substantial ramifications for your retirement plan.
Merge your super Every super account you have comes with a set of fees. It is worth your while chasing down inactive accounts and putting all your super into the one account to reduce fees and maximise the investment benefits.
Salary sacrifice If you can budget putting more of your salary away into a super account every month, you can reap multiple rewards. First, you can use the extra super payments to offset your pre-tax payments up to the current concessional contribution cap of $30,000 per year and after-tax contributions of $180,000. You can also build up your super while you can afford to.
Strategise Your investment strategy should depend on the amount of risk you are willing to take. This will vary on where you are in your career. A growth investment option, which is high risk, might suit you if you are in the early stages of your career development. However, as your income stabilises to your goal amount, it might be wise to change super funds to a lower risk option that will protect your growing retirement nest egg.
Under the coronavirus stimulus package released and revised by the Australian Federal Government on 22 March 2020, individuals in financial trouble due to the negative economic impacts of COVID-19 will be able to access their superannuation funds early. However, while the option is available, it is recommended that individuals only consider withdrawing from their super in the case of absolute emergencies and treat it as a last resort.
With the new rules on superannuation, workers whose incomes are reduced by at least 20% due to the COVID-19 outbreak are allowed to take $10,000 out of their super for the 2019-20 financial year and another $10,000 for 2020-21. Individuals will also not need to pay tax on any withdrawn amounts and existing welfare payments will not be affected either.
While the introduced early access to superannuation funds may be inviting for newly unemployed workers, it is important to consider whether the temporary relief is necessary and worth foregoing super funds available for long term investment. For example, even when accounting for Australia’s slowing economy in the coming years, $10,000 is predicted to be worth over $65,000 in another 30 years.
Especially for younger workers who are less likely to have access to other savings, the choice to give up future savings for current comfort is a difficult one. Experts instead are recommending Australians to apply for the other payments and benefits made available to vulnerable Australians through the coronavirus stimulus package, such as added $550 fortnightly supplements to Australians on JobSeeker payments and other welfare recipients and pensioners.
Experts also predict that the Australian Government will introduce more stimuli for increased cash flow in the Australian economy and more payments for unemployed, struggling and vulnerable Australians in the case of COVID-19 becoming more of a serious economic issue. Hence, withdrawing funds from your superannuation account should be considered a last resort and not for the sake of unnecessary temporary relief.
In addition to being allowed early access into individual super funds, superannuation minimum drawdown rates will also be temporarily reduced by 50% for account-based pensions and others similar until 2021.
The Government has also reduced the upper and lower social security deeming rates by a further 0.25 percentage points, with upper at 2.25% and lower at 0.25% which will come into effect on 1 May 2020.
