By Isaac Chanakira
Most developed countries have retirement saving schemes which you can participate in, such as 401K in America or Superannuation in Australia. In Australia, companies must contribute 10 % (used to be 9.5% until 2021) of your base salary towards your superannuation. This superannuation scheme only applies to those over 18 years and earn $450 a week or over. Those criteria represent most working people in Australia.
Superannuation is probably the most common investment tool available to all working people in Australia. This investment type is compulsory, and the company deducts the superannuation money before you can put your hands on it. Imagine what would be the outcome if you were allowed to access the cash first and then use your initiative to pay it back into your super fund? A tiny percentage of people will be paying it back but will be spending it all and have nothing at retirement. Unfortunately, most of us think that it is someone else’s responsibility to look after our welfare. Lack of accountability is a disease that, if left unchecked, will spread like cancer. The need for instant gratification and spending more than what you earn is like a covid epidemic affecting the whole world, which is always a disaster.
As an individual, you need to take ownership of your being. Be true to yourself and see where you are today financially. If you are in a mess, take responsibility and admit that you, alone ultimately, is responsible for how you are doing right now. It is pointless to try and apportion blame on someone or something else. Just honour it and come up with a plan to get yourself out of the mess. It is an excellent step to realise that your past actions did not serve you well, and you must change for the better moving forward. Your actions and not accusations will determine whether you will be able to get yourself out of the mess. You can dig yourself deeper into the trouble by accusing everyone and everything, including this article, or you can choose to amend and take some action to improve your situation.
If you are still reading this article up to this point, I am sure you are determined to change, or you are already doing well, congratulations. We can now talk about superannuation because if you are working, you are already in the program, and we need to fine-tune it so that you get the most out of it. Many people are not even aware of how much money they have in their super, even if it is the most significant investment they own. Regardless of your age, you need to be aware of what is yours in this world. You do not have to wait until you have a few years to retire to start getting interested in your superannuation. The earlier you determine how to invest your money, the better the results.
If you are a twenty-year-old person, retirement seems like a hundred years away, but I was twenty years too, and now I am left with a few years to retirement, and it seems like only yesterday when I was that young. Setting yourself up in your early years will enable your money to grow and do the heaviest lifting for you because of the compound interest. Your money will spend enough time in the market to withstand the volatility resulting in a better and bright future with lots of money for you. Putting on the hard work early will pay off.
Below are some of the points you need to consider about your super:
- You have a right to choose the super fund of your choice. Not all super funds are the same; therefore, you need to research and compare different funds. Some have very high administration charges than others, and some are under-performers. Take five years when making this comparison to get an idea of which fund seems to outperform the others bearing in mind that past results are not an accurate indication of what the fund can produce in future. High administration fees and poor performance can heavily corrode your returns, so it is essential to take your time during this crucial research, for it can make a huge difference in your retirement funds. Let your company know which fund you choose; otherwise, they will choose a fund for you.
- In Australia, you must make sure that you give your super fund your Tax File Number (TFN) as soon as possible because if you don’t, your money will be taxed at 49% instead of 15 to 30% depending on your salary range. You can also sign for your life insurance and permanent disability insurance through your super fund. It is usually cheaper than getting it outside your super fund.
- Most big companies offer their employees the ability to salary- sacrifice more money towards your super, and they will match your contribution. If you nominate to salary-sacrifice 5% of your base salary, your company will also pay an additional 5% towards your super. It will be the best thing to boost your super for those lucky to have companies that offer this matching. I work for a company that provides this benefit, but, to my surprise, some people do not take advantage of this free money primarily due to a lack of financial knowledge. You might need to find out from your company if this benefit is available and make the most of it.
- You can also contribute after-tax money towards your super and is known as the non-concessional contribution. In Australia, you can contribute $110000 towards the non-concessional contribution cap of your super per year, provided your superannuation balance is $1 700 000 or less. It is not easy for most of us to contribute that much money in a year, but that should not stop you from making regular small contributions of after-tax money. If you are lucky to get a lump sum from somewhere, e.g., winning lotto or inheritance, you can put the money into your non-concessional contributions. If you haven’t been paying any after-tax money before, you can carry forward the balance up to 3 years, meaning that you will be able to make a one-time contribution of $330 000 in one year. The good part about this non-concessional contribution is that the returns on investment are tax-free after age 60. In America, these non-concessional contributions are known as Roth IRA.
So, there you have it. If you are in Australia, use this information to start making the most of your superannuation. It is time you need to pay attention to and actively manage your retirement fund to make it grow. To those in other countries, find out how your retirement fund operates and see how best you can utilise it to build your wealth.
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Thanks for the post