Like many Australians, you may have dipped into your super early as part of the government’s Coronavirus financial hardship scheme. While the extra funds can come in handy right now, it’s important to keep sight of the bigger picture.
If you lost your job or had your hours reduced due to the impact of the Coronavirus, you may have taken advantage of the government’s early release of super scheme and dipped into your super to help with your living expenses.
Once you’re in a more comfortable financial position, it may be time to think about how you will rebuild your super balance to minimise the long-term impact on your retirement savings. This is especially important when you’re young because of the power of compounding returns over time. You can use the government’s moneysmart super withdrawal estimator to see how much of an impact the withdrawal may have on your retirement, so you can work out how much you need to rebuild.
Here are four simple suggestions for how to get your super back on track again.
1. Put any spare money back in your super
If you didn’t need to use all the money you withdrew from your super, you can add it back to your super account as a one-off contribution. As well as boosting your balance, this might allow you to reduce your income tax (if you’re eligible to claim your contribution as a tax deduction).
Keep in mind, however, that the ATO is imposing penalties for anyone they determine has taken money out of super and then recontributed it for the sole purpose of obtaining a tax deduction. You can read more about it on the ATO website.
2. Add a little bit extra to your super each pay day
If you’re back at work now and earning a wage, check whether your employer supports salary sacrificing. This is using part of your before-tax salary to contribute to your super, on top of the 9.5% Super Guarantee contributions your employer already makes for you. It will also reduce your taxable income, which means you could potentially pay less income tax.
Regularly putting in extra money to top up your super can make a big difference to your balance over time. For example, this chart shows the difference contributing a small amount each pay could potentially make to your super balance at retirement.1
|Salary sacrifice per week||Super balance at age 65||Difference|
1. Assumptions: This example assumes an initial super balance of $0, a salary of $65,000 p.a. and a weekly salary sacrifice of $10, $20 or $30 per week over 25 years. Current age is 40, and retirement age is 65 years old. Results are in today’s dollars, adjusted for annual inflation of 3% CPI and 3% of rising community living standards. The balanced investment option assumes an investment return of 3.46% p.a. after fees and tax. Source: CFS First Tech Team.
3. Put a lump sum to good use
If you’re lucky enough to come across a lump sum, it could make sense to put all or some of this money into your super. For example:
- a redundancy payout
- a tax refund
- an inheritance
- the proceeds from a sale, such as a car or your house.
Just remember that there are limits around how much you can contribute to super each year. Currently, you can make up to $25,000 in before-tax (concessional) contributions and $100,000 in after-tax (non-concessional) contributions each financial year.2 If you go over these caps, you may have to pay additional tax.
4. Check your investment strategy
How your super is invested may make a difference to how long it takes your balance to recover. Typically, growth assets like property and shares have higher returns than defensive assets like cash and fixed interest. Most investment options in super funds have a mix of both growth and defensive assets.
Check your latest statement, log on to FirstNet or download the Colonial First State app to see if your investment strategy is appropriate for you. If you’re not sure, get in touch with a financial adviser.
Find out more
To learn more about getting your super back on track, talk to your adviser or call us on 13 13 36, 8am to 7pm, Monday to Friday (Sydney time).
2. Australian Taxation Office, Key superannuation rates and thresholds, May 2020.
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.