We often get asked, “Should I be topping up my super?” It’s a common question among many of our clients here in Perth, particularly as they begin to plan for a comfortable retirement. The primary motivation behind this question is ensuring you’re on track to build enough retirement savings for the kind of life you want to enjoy later on. But there’s also the tax angle to consider—superannuation has several attractive tax benefits that you don’t want to miss out on. 

So, how do you know if it’s the right time to top up your super? And more importantly, is it the right decision for you? 

Before we dive in, let’s take a moment to remind you that this information is general in nature and doesn’t account for your specific circumstances. Superannuation can be complex, and the rules are ever-evolving, so it’s always a good idea to seek personalised advice from our team at LIFE Financial Planners, where we tailor every recommendation to your unique financial situation and goals.

Why is Super So Attractive? 

Let’s start by making sure you understand why Australia’s superannuation system is such an appealing vehicle for retirement savings. 

The ultimate benefit of super is that once you reach retirement age—currently 67 years old—you can access your super income tax-free. That means every dollar you withdraw from your super in retirement is yours to spend, without the tax ‘leakage’ you experience on your regular salary. For example, if you’re currently earning $120,000 a year, after tax, you’ll have around $88,000 to spend. But in retirement, if you want that same $88,000, you only need to withdraw that amount—tax-free—from your super. This means the amount of wealth you need to accumulate for a comfortable retirement is significantly lower within the super system than it would be if you were relying solely on non-super investments. 

But that’s not the only tax benefit. During your working life, any earnings in your super fund are taxed at just 15% on income and 10% on capital gains—often much lower than the rates you’d pay if you held these investments in your name. 

And let’s not forget, that superannuation is also tax-free when passed on to a spouse after you pass away, which can make it a very effective estate planning tool. 

So, Should You Be Topping Up Your Super?

The Drawback: Preservation 

Of course, no system is perfect, and superannuation has its limitations. The main drawback is something called “preservation”—your super savings are inaccessible until you’re at least 55-60 and retired. This means the money you contribute to super should be funds you’re confident you won’t need until later in life. It’s vital to weigh this against other financial priorities, like your mortgage or more immediate financial goals. 

Contribution Caps 

Another important factor to consider when topping up your super is contribution caps, particularly concessional contribution caps. These are limits on how much you can contribute to your super and still claim a tax deduction. The current concessional contribution cap is $30,000 per year, which includes the compulsory 11.5% employer super contributions. 

If you’re thinking of topping up your super, your first step should be to check how much of your contribution cap is already being used by your employer’s contributions and how much “headroom” you have left within the cap. 

How Does Tax Come Into Play? 

While super’s tax advantages are attractive, they may not always benefit everyone equally. For instance, if your taxable income is under $45,000, you may not gain much from making top-up concessional contributions. The preservation of your money could outweigh any potential tax savings. In some cases, it may even be more beneficial to retain these funds in your own name or to explore after-tax contributions as retirement approaches. 

What Are Your Alternatives? 

Here in Perth, where we see a range of property market fluctuations and living expenses rising with our growing city, it’s essential to think about how best to allocate your funds. One common alternative to topping up super is focusing on paying off your mortgage. While this approach doesn’t offer immediate tax savings, it provides guaranteed returns—whatever your mortgage rate is, typically around 6% right now. Paying down your home loan early can save significant interest over time and free up more disposable income for later. 

For those planning to retire early, investing outside of super can offer greater flexibility. Since super is locked away until at least age 60, putting savings into personal investments can give you access to those funds sooner if needed. 

Topping Up Later in Life 

It’s also worth considering that you can make larger lump-sum contributions to super later in life. The non-concessional contribution cap currently sits at $120,000 per year, and there are even provisions for larger downsizer contributions if you sell your home in retirement. 

This flexibility allows you to focus on other financial priorities earlier in life—like paying off your mortgage—before turning your attention to super in the lead-up to retirement. This might be the best approach for many Perth families who are juggling multiple financial goals. 

How Much Super Do You Actually Need? 

Ultimately, the question of topping up your super depends on how much you’ll need in retirement. It’s a good idea to start by estimating your desired retirement income and then use calculators like those on MoneySmart to figure out how much super you’ll need to generate that income. Once you have a target in mind, look at your current super balance and projected employer contributions to see if you’re on track. 

If you’re not sure where you stand, we’re here to help. At LIFE Financial Planners, we specialise in helping clients like you plan for a financially secure retirement—tailored to your needs and the unique financial landscape here in Perth. We’ll provide you with personalised advice, and the support you need to make informed decisions about whether topping up your super is the right move.

A one-size-fits-all approach rarely applies to retirement, and understanding, if a Self-Managed Super Fund (SMSF) is the right choice for you, depends on your individual circumstances, needs and wants for the future. In this guide, we take a look into the world of Self-Managed Super Funds (SMSFs), sharing how they work while our experienced Financial Planner Perth provides clear and supportive insights to help you plan a retirement that works for you. 

Understanding SMSFs: A Clear Distinction:

A Self-Managed Super Fund (SMSF) distinguishes itself as a private fund, allowing you to take the reins of your retirement destiny. It stands apart from industry and retail super funds, providing you with the freedom to shape your investment advice and make choices aligned with your unique aspirations. 

Benefits of SMSFs:  

Choice and Freedom:

SMSFs empower you with a broader spectrum of investment options, allowing you to venture into assets like real property, art, and collectibles. The flexibility to borrow for property investment further expands your horizons. 

Control Over Your Destiny:

As a member-trustee, you hold the strings to your retirement investments both during your working years and when you decide to retire. This level of control extends beyond the offerings of traditional super funds. 

Tax Benefits:

Enjoy reduced tax rates on investment returns within SMSFs, capped at a maximum of 15%. Post the age of 60, you can enjoy the tax-free status of your received payments, providing a valuable financial advantage. 

Scalability:

The ability to bring together up to six members enhances your capacity to access investment opportunities that may elude individual investors. This scale may also contribute to keeping fees at bay, potentially amplifying your investment growth. 

Estate Planning Flexibility:

SMSFs offer a unique advantage in estate planning, allowing for flexible distribution of death benefits in accordance with the trust deed and super law. 

Considerations on the SMSF Journey:  

Responsibility:

Autonomy of power requires significant responsibility. Managing an SMSF is a meticulous process to ensure you are in accord with regulatory compliance, with penalties for non-compliance ranging from fines to potential legal proceedings. 

Expertise:

SMSFs are complex, and it is best to rely on someone to help you navigate both financial and investment expertise. Trustees must stay abreast of market changes, ensure a diversified portfolio, and remain vigilant to legislative updates. 

Time Commitment:

The administration and management of an SMSF demand time and dedication. While the workload is substantial, many find a sense of purpose and involvement in running their own fund. 

Insurance Costs:

It is essential to be aware that SMSFs may entail higher insurance costs compared to public super funds, which negotiate bulk premiums with insurance providers. 

Outsourcing Options:

Recognising the demands, trustees can consider outsourcing management to professionals such as investment managers or financial advisers.  

Minimum Amount Consideration:

While there is no rigid minimum for setting up an SMSF, costs can escalate based on the fund’s complexity, structure, and associated fees. 

Frequently Asked Questions:  

Can I Borrow for Property Investment?

Indeed, SMSFs can leverage Limited Recourse Borrowing Arrangements for property investment, unlocking a pathway to diversified portfolios. 

Penalties for Non-Compliance:

Understanding the potential consequences of non-compliance is crucial, ranging from the loss of concessional tax treatment to fines and legal ramifications. 

Suitability of SMSFs:

SMSFs are not a one-size-fits-all solution. Determining their suitability requires carefully assessing individual circumstances, financial goals, and investment knowledge. Seeking advice from a financial adviser is a prudent step. 

Crafting a fulfilling retirement involves understanding the nuances, committing to the responsibilities, and seeking the guidance of SMSF financial planner in Perth who are dedicated to finding the most appropriate retirement strategy for you. Remember, planning the route to retirement is as unique as you are. With informed decision-making and thoughtful planning, your SMSF can become a powerful asset driving you towards the retirement you deserve.

Your Self-Managed Super Fund

While they are vastly rising in popularity, SMSFs are still complicated to implement and maintain, requiring the right planning and expertise. Our team of  SPAA Accredited SMSF Specialist Advisers will bring a wealth of experience and skill to ensure that your SMSF requirements are met and upheld from inception to finalisation. For more information, contact us via phone 08 9322 1882 or email admin@lifefinancialplanners.com