Action required – now!
There is a closing window of opportunity to turbocharge your super
R
ight now most Money readers need
to think about their superannu-
ation. I mean right now. This is
urgent. It’s worth thousands of dollars to
you if you get it right.
You have a unique opportunity to put in
more money than you will be able to do
in the future. If you can, take advantage of
it. But be quick. You have a matter of weeks.
The window is closing.
The first opportunity, for those aged over
50, is to salary sacrifice $35,000 this year
into your super fund. Do it if you can. If you
are on the 39% marginal tax rate (including
Medicare) the difference in tax (15% for
super versus 39% for you) is 24%. In other
words you are $8400 better off by making
the sacrifice this year.
From July 1, super changes from the last
budget – they were debated vigorously in
the last election campaign – mean that the
maximum any person can put into super
as an annual concessional contribution is
$25,000. Say you are on $100,000 a year;
$9500 is set aside by your employer via the
superannuation guarantee charge. That
will leave $15,500 that a person can salary
sacrifice (and less if your employer pays
insurance premiums for you ... watch out
for that one, otherwise you may over-fund
your super account).
The next opportunity is non-conces-
sional contributions. These are savings
you have accumulated and already paid
tax on. Until June 30 you are allowed to put
$180,000 into your super. Or, if you have
the money, three years’ worth – $540,000 –
in one go. Each person in a couple can do it,
so $1,080,000 can go into super.
I recognise many families will not have
these sort of savings lying around to throw
into their super fund but those who have
recently gained an inheritance, sold a busi-
ness (though there are different rules here)
or downsized their home may certainly
have the resources.
From July 1 this limit will be reducedAT LARGERoss Greenwood
Ross Greenwood is Channel 9’s finance edi-
tor and Radio 2GB’s Money News host.to $100,000, so three years’ worth will be
$300,000 per person. Now I want you to
think about this, because there’s no doubt
that while the attractions of super are being
reduced, they still exist.
Let’s just take these sums. $1,080,000
returning, say, 6% after tax gives $64,800. If in future you can con-
tribute only $600,000, the income on that
will be $36,000. I recognise a few things
here. For example, you could technically
put in another $600,000 per couple in
three years.
For many, this sort of money is impos-
sible. But do remember I’m taking an
extreme example to show why, if you can,
you should act now.
In other words, despite all the govern-
ment changes and the disincentives to put
money into super, it still has strong attrac-
tions. And though the very wealthy have
had tax penalties and limits put in their
way, understanding the rules and maxim-
ising contributions is still a vital method
of raising your retirement income.
The biggest issue to confront many fam-
ilies who accumulate more assets is that
they progressively lose the age pension
when their assets – apart from the family
home – hit $375,000 for a couple. That’s the
point where they start to lose the age pen-
sion, up to the recently reduced upper limit
of $821,500, where it goes altogether.
This amount includes most super
(though, importantly, not super rolled over
into allocated annuities or lifetime annu-
ities). As an aside, for sharemarket
investors the increasing popularity
of lifetime annuities to create a reg-
ular income stream for at least part
of families’ superannuation assets is the
main reason the Challenger share price has
jumped from $3.80 to $12.80 in five years.
Challenger is the major issuer of lifetime
annuities in Australia.
But trying to get as close to these limits
as possible during your working life is
important. After all, if you do not max-
imise the tax advantages, you will end
up paying more to the government than
you ought to or need to. And no person is
obliged to do that.Despite all the
changes, super still has
strong attractions