Money Management – 6 Tips For Optimizing Your Superannuation In Your 20s
Your twenties are a time for travelling, seeing local bands, and enjoying overpriced cocktails or fancy craft beers in your local bar of choice with friends. On a much less exciting note, this decade is also the best time to start optimising your superannuation. Smart money choices and retirement savings that you can make now will reward you exponentially later in life thanks to the magic of compound interest.
Choose a Superannuation Fund
Rather than accepting your workplace’s default fund, now is a great time to pick the right superannuation fund for you. The three main choices are an industry fund, a retail fund, or a self-managed super fund (SMSF). If you are considering an SMSF, there are SMSF Accountants who can help you understand what is involved. Otherwise, an industry superannuation fund generally has lower fees for members than a retail super fund.
Consider Super When Applying for a New Job
In Australia, the law states that all employers must pay all full-time, part-time, and casual staff a minimum of 9.5% superannuation. However, it isn’t unheard of for organisations to offer a higher rate of super as an extra perk. It might not sound as enticing as half-price clothes from your favourite retail store, but you will be grateful to have extra cash for retirement long after you discard those clothes. If you have the chance to earn additional superannuation, take this into account when making your decision.
Salary Sacrifice Extra Super
Not every company offers salary sacrificing, but if your organisation does, then it is a clever idea to put extra money aside for retirement. Salary sacrificing involves nominating a regular amount of your pre-tax income to be paid into your superannuation fund. As long as your income is below $250,000 per annum, you only pay 15% tax on this portion of your paycheck. This is well below the tax rate of 32.5% for $37,001 – $90,000 pa and 37% for $90,001 to $180,000 pa, allowing you to optimise your lifetime earnings.
Send Employee Bonuses, Inheritance Money, and Tax Returns into Your Super
If you are fortunate enough to receive an annual employee bonus or some cash from another unexpected source, consider putting this into your superannuation. You can make additional payments of up to $25,000 per year into your superannuation fund without it affecting your 15% tax rate. You may also be eligible for a government co-contribution of up to $500.
Don’t Forget to Pay your Super if you are Freelancing
If you are self-employed, then it is up to you to cover your superannuation. You should take this into account when you set your rates. We recommend that you do this on a monthly or quarterly basis. Don’t neglect to cover your superannuation in favour of paying bills or booking a holiday – you will pay for this heavily when you reach retirement age.
Check what Insurance You are Paying
Do you have more than one superannuation fund? It is vital that you know the answer to this question with certainty. Losing track of your superannuation money is bad enough, but you may also be paying unnecessary insurance on multiple funds. The law recently changed to ensure that any opt-out insurance applied to superannuation policies left inactive for 16 months must be auto-cancelled. However, many people are still paying for insurance they don’t want or need.
By planning and optimising your superannuation now, you are setting yourself up for a relaxing and stress-free retirement.