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.
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 $100,000 to your super each financial year from your after-tax salary, or up to $25,000 each financial year from your pre-tax salary. Remember that the $25,000 cap covers your employer’s contributions to your super.
If you’re looking to make a bigger contribution, you can:
Carry forward unused concessional contributions
As of 1 July 2018, members with a total superannuation balance below $500,000 as of the previous 30 June can ‘carry forward’ any unused amounts from under their concessional caps in previous financial years.
This may help you catch up on the contributions you miss while away from work.
You can carry concessional contributions forward for five years, with the first year applicable being the 2019/20 financial year.
The concessional contributions cap is currently $25,000.
For example, if you only made $10,000 of concessional contributions in the 2018/19 financial year, you would be able to contribute a total of $40,000 in the 2019/20 financial year: the annual $25,000 up to the cap, plus the $15,000 worth of unused contributions carried forward from the year before.
Concessional contributions, which include your employer contributions, are from your pre-tax salary. You can make these contributions through salary sacrifice, or personal deductible contributions.
Bring forward unused non-concessional contributions
If you’re under the age of 65 and have a balance below $1.4 million as of 30 June of the previous financial year, you can make up to three years’ worth of non-concessional contributions in one year.
The annual cap for non-concessional, or after-tax, contributions is $100,000, so this means you could contribute up to $300,000.
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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.
Other info you might be interested in
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How much money do you need for retirement?
From deciding when you want to call it a day to figuring out your next holiday, there’s a lot of planning that goes into retirement. One of the biggest factors influencing the answers to both these questions is money.
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How do you know when you’ll be ready to retire?
When it gets to crunch time, it can be hard to figure out the right time to say goodbye to a decades-long career and prepare yourself both financially and emotionally for the change.
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How to plan for a fulfilling life after retirement
Given how tied our work can become to our identities over time, it’s important to think about what life might look like in retirement when that tie to work and all it entails is no longer there.
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What needs to be part of your retirement planning beyond super
We spend a lot of time talking about it here at Qantas Super, but your super isn’t the only thing you need to think about when it comes to your retirement planning.
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We're here to help
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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