Understand Your Super

You Have 99 Problems, Super
Shouldn’t Be One of Them.

How Superannuation Works

1

How Money is Paid into Your Super

When you start working, your employer will either open a superfund account for you or will ask you to do it yourself. If you earn more than $450 per month, your employer is legally obligated to contribute 9.5% of your salary into your super.

Outside of the obligatory employer contributions, you can choose to contribute to your super yourself, either by salary sacrificing (putting in a portion of your pre-tax pay into your super) or personally contributing (putting in a portion of your after-tax pay into your super).

2

How to Grow & Look After Your Super

Your super account is a bit like a trust fund: it’s a secure vault for your money, and that money will grow over time as it accrues interest and you contribute to it.

But if you really want to get the most out of your super (and make sure to have a stress-free and independent retirement), you’ll need to look after it. This can include contributing to it regularly to grow it faster, consolidating your super funds to save on fees, regularly checking your balance, or choosing a wise investment option.

We'll talk about how much super you need for a comfortable retirement a little bit down this page.

3

How to Access Your Super

Your super is secure - it’s incredibly hard to access before your preservation age (the age at which you can start taking money from it). Once you reach this age, you’ll be able to regularly deposit your super into your bank account, tax-free.

If you access your super funds before your preservation age, your withdrawals will be taxed.

Investment Options

Did you know that 15 million Australians haven’t switched from their default investment choice?

When you open your super account, you will most likely be placed into the default
investment option, which is usually a balanced option.

But you have the choice of investing your money differently, depending on your needs and wants. Please make sure to read the product disclosure statements from your superfund to ensure that you make an informed choice of investments.

The three most popular investment options are explained below:

Balanced

This is the default option, and provides the chance to grow your super with lower risk than the Growth option.

Growth

This option aims for higher returns than the Balanced option, with a higher risk profile. This option may be recommended for those who are young or are wanting to see their super grow quicker.

Conservative

This option ensures that you have a low risk for loss, but a lower return in the long-term. It is suggested that older people choose lower risk options closer towards retirement to reduce the risk of loss and uncertainty for their retirement.

Insurance Options

Beyond saving up for your retirement, superannuation funds also offer several insurance options.

DEATH COVER

Pays a benefit to your beneficiaries when you die, either as a lump sum or as an income stream.

TPD Cover

Pays you a benefit if you become seriously disabled and are unlikely to ever work again.

Income Cover

Pays you an income stream for a specified period if you can't work due to temporary disability or illness.

If you do choose to receive insurance through your fund, the premia will be deducted from your super account balance.

Tax Considerations

Concessional Contributions

Also known as salary sacrifice. If you make pre-tax contributions, this sum will be taxed at 15%, which is below the marginal rate of most full-time employees earning more than $37,000 p.a. From 1 July 2017, the concessional contribution cap is $25,000 for all ages.

Non-concessional Contributions

Also known as undeducted contributions or personal contributions. These contributions aren't taxed, as they come from your after-tax income. From 1 July 2017, the non-concessional contribution cap is $100,000. You can also bring forward three years of contributions (totalling $300,000) to a single year if you're under 65.

Low Income Earners

If you're a low income earner, earning $37,000 p.a. or less, up to $500 of the tax you have paid on your super contributions will be automatically added back into your super account through the low income super tax offset (LISTO).

High Income Earners

If you exceed $250,000 in your combined income and super contributions, you'll need to pay Division 293 tax, which is an additional 15% tax on the lesser of your concessional contributions, or the amount in excess of the Division 293 income threshold.

How much super do I need?

Currently, the limit on a tax-free superfund account is $1.6 million (after hitting $1.6
million you’ll need to pay tax on the account balance), and we’ve seen this figure used
as the ideal amount for your super. But for a lot of people, especially women, that’s not
an easily-attainable number.

Here’s the good news: $1.6 million isn’t needed for a comfortable retirement!

ASFA, the peak body for super in Australia, recommends that a single person needs a
minimum of $545,000 to fund their retirement. Yes, it’s still a sizeable amount, but it’s
only one third of the above figure of $1.6 million.

ASFA’s recommendation of $545K will last you 22 years on a modest retirement, living
frugally on $24,270 p.a.

Couples will need $640,000 for a modest retirement.

Find out more about how much super you’ll need here.

Stay on Track at Any Age

In Your 20s

  • Take some time to research superfunds and choose the right one for you, as it's likely you'll be with them your entire life
  • Consider the level of insurance cover you will need based on your lifestyle
  • Check the super on your payslip & your super account balance at least every 3 months
  • This is the perfect time to learn how to manage debt and nurture positive financial habits that will last you through your life
  • Consider setting savings goals to motivate yourself and keep on track

In Your 30s

  • If you're planning on taking a break from the workforce, this is the time to start contributing more
  • Check to see if your employer offers flexible hours or other benefits for working mothers
  • If you have dependent children, you should think about whether to extend your insurance cover
  • If you're married, talk to your partner about contributing to your super
  • If you're unsure about whether to contribute to your super or pay off your mortgage, talk to a financial professional

In Your 40s

  • This is a good time to review your goals to make sure you're on track
  • Do you need to take time off to care for ageing parents? Ensure your super won't suffer
  • Considering contributing part of a pay rise or bonus towards your super
  • Have you made a binding death nomination so that your super goes to your preferred beneficiary? 
  • If you're suffering financial hardship, you may be able to access your super on compassionate grounds — but this should be a last resort

In Your 50s

  • It's not too late to catch up on your super as you get closer to retirement!
  • It may be time to consider transferring your assets into your super — but consult a professional before doing so
  • If you've reached your preservation age, you're eligible to enter the Transition to Retirement Income Stream (TTR)
  • Review your investment options to ensure that your super has a lower risk of losing value
  • Look after what you have, as you now have less time to gain it back

In Your 60s

  • You can withdraw your super tax-free at age 60 if you stop working; and you can withdraw it tax-free without stopping working at age 65
  • Time to start deciding how much longer you want to work
  • Do your children need financial support?
  • Review your insurance cover, as you may need less if you've paid off your home, have no significant debts, and your children have moved out
  • Review your super assets and ensure that your binding death nomination is up to date

Retirement

  • Keep track of your investments to make sure your account balance doesn't lose value
  • Be financially prepared if the government makes cuts to benefits you may be eligible for
  • Once you turn 75, you can no longer make contributions to your super, so make sure you've moved your assets into it in your early 70s
  • As you want a guaranteed income at this stage, speak to a professional about the advantages and disadvantages of guaranteed income streams or annuities
  • Enjoy retirement!

Your Super Checklist

Head spinning from all this new info? If you’re nervous about forgetting something important relating to your super, we’ve created a checklist that you can refer back to.

Starting Your Super Journey
How to Compare Superfunds
Nurturing Your Super

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