How to boost your balance before retirement
They may be trite, but clichés are clichés for a reason: they’re usually true.
So it goes for the saying, ‘the best time to start was yesterday. The next best time to start is now’. This may apply to many things in life, but it applies particularly well to super.
If you’ve run the numbers to see what kind of super balance you’ll need to help you live out your dream retirement and realised you have some catching up to do to help you get there, it’s never too late to start.
There are a few different strategies you can consider that may be able to help:
Review your investment options
The way you choose to invest your super, through the investment options you put it in, can have a significant impact on how much super you will retire with.
This is because each investment option is specifically created with a different return objective and suggested investment timeframe in mind, to appeal to investors with different attitudes to risk and time to spend in the market.
With this in mind, it may be worthwhile reviewing how your super is currently invested and whether different investment options may be able to help your super grow further.
Watch this short video to learn how different investment options are designed, and how they work:
You can choose which investment options apply to your current account balance, and your future contributions.
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Current account balance
You can specify how much of your current balance to invest in each option by dollar amounts, or by whole percentages.
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Future contributions
You can specify how much of your future contributions – these contributions from your employer, and any roll-ins, regular or one-off contributions you might make – to invest in each option by whole percentages.
Case study: Mary
Let’s look at the effect that switching investment options has on Mary’s super.
Mary is 50 and currently employed on a salary of $70,000.
She has accumulated $200,000 in her super account and is planning to retire at 65.
In addition to what her employer contributes, Mary is salary sacrificing $10,000 a year to her super – which is a pre-tax contribution.
Mary’s super investments are currently based on a balanced investment option, and she’s concerned she won’t have sufficient funds at retirement.
As she can’t afford additional personal contributions, she’s considering whether she should change her investment risk profile to a higher-growth option, and is wondering what difference this would make to her super balance when she retires in 15 years’ time.
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The assumptions used for the projections are:
- Mary is 50 with a current superannuation balance of $200,000
- Her annual salary is $70,000, with SG contributions 9.5% of her salary
- She qualifies as a high growth risk profile investor
- Projection term 15 years (to age 65)
- Salary sacrifice contributions are $10,000
- Balanced returns 7.30%, High growth returns 8.25%
Make voluntary contributions
Sometimes the easiest trick is the most obvious one, and in this case, the easiest way to boost your super balance is by contributing more to your super.
You can contribute up to $110,000 to your super each financial year from your after-tax salary, or up to $27,500 each financial year from your pre-tax salary. Remember that the $27,500 cap also covers your employer’s contributions to your super.
If you’re looking to make a bigger contribution, you can:
Carry forward unused concessional contributions
While the current annual cap for concessional contributions is $27,500 in the 2021/22 financial year, a special rule called the ‘carry forward’ rule can help you maximise this. It works by allowing you to make the most of any unused amounts under the cap from previous financial years.
If your total superannuation balance is below $500,000 as of the previous 30 June, you can carry forward unused amounts over a rolling five year period, with unused amounts from the 2018/19 financial year the first you can carry forward. It’s important to remember that the concessional contributions cap was previously $25,000 between the 2017/18 and 2020/21 financial years, and that it increased to $27,500 in the 2021/22 financial year.
For example, if you had only made $10,000 of concessional contributions in the 2020/21 financial year, you would be able to contribute a total of $42,500 in the 2021/22 financial year: $27,500 up to the new cap in the 2021/22 financial year, plus the $15,000 worth of unused contributions carried forward from the year before, when the cap was $25,000.
If you maximised your contributions in 2020/21, your new rolling five-year period would then begin in 2021/22.
Bring forward unused non-concessional contributions
If your total superannuation balance is below $1.7 million as of the previous 30 June and you are aged under 67 at any point during the current financial year, you may be able to make up to three years’ worth of after-tax contributions in one year by tapping into your future cap space in advance.
As the annual cap for non-concessional, or after-tax, contributions is currently $110,000, this means you could bring forward your cap from the 2022/23 and 2023/24 financial years to contribute up to $330,000 in one financial year.
The amount you may be able to contribute depends on your total superannuation balance. You learn learn more via the ATO.
Watch this short video to learn how to boost your super:
When making voluntary contributions, remember that your super will essentially be locked away until you reach retirement age. It’s important to think about your ongoing commitments before making a contribution.
You can check your concessional and non-concessional contributions by logging into your account.
Review your insurance
As a member of Qantas Super, you may have insurance through your super. While you receive a certain level of cover, it’s important to review this cover throughout your career to ensure it’s always providing you with the right level of protection for your circumstances at any given time.
For example, you may want to review your cover when you go through a big life event that will see your financial obligations increase, like buying a house or having a child.
Similarly, it may be useful to review your cover when your obligations change later in life; for example, if you have finished paying off your mortgage, or you’re no longer taking care of children or other family members.
Every dollar in your super counts, so you may want to review your cover to make sure you’re not paying for cover that you might not need.
Consider Transition to Retirement
If you’re not in any particular hurry to stop working full time, a Transition to Retirement (TTR) strategy could allow you to both tap into, and continue contributing to, your super.
Essentially, a TTR enables you to semi-retire. If you’ve reached your preservation age, a TTR allows you to deposit some of your super savings into an income account. You can then start receiving regular payments from this account, helping make up the difference in your salary from your reduced work hours.
Because you’re still working, your super account will continue to receive employer contributions and any voluntary contributions you make.
There may be different rules about opening a Transition to Retirement account in Qantas Super depending on which Division you’re in.
Watch this short video to learn how Transition to Retirement works:
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If you want to learn more or need help with making a decision about your super, you can chat to a Super Adviser. It’s included as a part of your membership so there’s no extra cost.
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