Superannuation

Superannuation is a tax-effective way of helping you fund your retirement, it may seem quite complex, the purpose of it is very simple, to help you fund a comfortable lifestyle in retirement.

There is a misconception that super is only important once you are closer to retirement, that could not be further from the true for example, if you invested $50,000 today, earned 7% per annum and re-invested the dividends, in 20 years you'd have around $200,000 (before tax). But, if you waited ten years before making the same investment, in 20 years from now, you'd only have around $100,000.

That's an extra $100,000, or double the amount, simply by investing ten years earlier.

This is because year after year, the money you invest has the potential to earn more money. And if you re-invest earnings/dividends you will earn interest on interest and have more in the future. This is known as compounding, it's what Albert Einstein called the eighth wonder of the world.

Superannuation has been built to take advantage of compounding as you can't access it till later in life, it gets re-invested year after year.

Tax Effectiveness

Superannuation is an efficient tax effective vehicle to help you with your retirement savings, earnings are taxed at a maximum rate of 15%, compare this to your marginal tax rate between 32.5% - 47% there are significant tax saving to be made.

Ways on boosting your Super

• Salary sacrifice a portion of income or a bonus into super as opposed to receiving it as income, this reduces the percentage of tax you pay to a maximum of 15%
• Voluntary Contributions , If you rely on the your employer 9.5% , you will not have enough to fund your current lifestyle in retirement, don't despair you can make voluntary contributions into super and Invest personal asset's in super , this can be really powerful because investment earnings are taxed a maximum rate of 15% and all benefits received at age 60 or over are completely tax free
• Government Co- Contribution If you earn less than $50,455 you could be eligible to receive a government co-contribution to you super, to qualify for the full benefit you generally need to make an after tax superannuation contribution, the government will match your contribution up to $500
• Spouse Contributions If you have a spouse who earns less than $13,800, make an after tax super contribution on their behalf so you can receive a tax offset up to $540 (18% on the first $3,000 you contribute to their account)

How Much Do I need in retirement

Everyone has different lifestyle expectation, how much money you will need in retirement depends on your lifestyle choices and personal circumstances, it's impossible to say exactly how much super you'll need for retirement.

A recent study complied by The Associations of Superannuation Funds of Australian believes a single person requires an annual income of $42,487* and a couple needs $58,204* to be able to live comfortably in retirement.

*Source: Association of Superannuation Funds of Australia, 'Spending patterns of older Retirees as they age- the needs of older retirees' September quarter 2015.

How much super will I need?

Most of us daydream about the day we finally finish work and retire. Whether you dream of cruising around the world, camper vanning around Australia, or just pottering about in the garden and improving your golf skills, the magic question is: how much do you need to make your retirement dreams a reality?

According to the Association of Superannuation Funds of Australia's Retirement Standard, to have a 'comfortable' retirement, single person will need $545,000 in retirement savings, and couples will need $640,000. You can use this guide to estimate how much money you'll need to have a 'comfortable' or 'modest' retirement. See the box below for more information.

	Comfortable retirement	Modest retirement	Age Pension
Single	$42,962 a year	$23,695 a year	$20,555 a year *
Couple	$58,915 a year	$34,090 a year	$30,989 a year *
	One annual holiday in Australia.	One or two short breaks in Australia near where you live each year	Even shorter breaks or day trips in your own city
	Regularly eat out at restaurants. Good range and quality of food	Infrequently eat out at restaurants that have cheap food. Cheaper and less food than a 'comfortable' lifestyle standard	Only club special meals or inexpensive takeaway
	Owning a reasonable car	Owning an older, less reliable car	No car or, if you have a car, it will be a struggle to afford repairs
	Afford bottled wine	Afford cask wine	Home brew beer or no alcohol at all
	Good clothes	Reasonable clothes	Basic clothes
	Afford regular haircuts at a good hairdresser	Afford regular haircuts only at a basic salon or pensioner special day	Less frequent haircuts or getting a friend to cut your hair
	Take part in a range of regular leisure activities	Take part in one paid leisure activity infrequently. Some trips to the cinema	Only taking part in no cost or very low cost leisure activities. Rare trips to the cinema
	A range of electronic equipment	Not much scope to run air conditioner	Less heating in winter
	Replace kitchen and bathroom over 20 years	No budget for home improvements. Can do repairs, but can't replace kitchen or bathroom	No budget to fix home problems like a leaky roof
	Private health insurance	Private health insurance	No private health insurance

Figures from September quarter 2015. - See more at: http://www.superguru.com.au/retiring/how-much-super-will-I-need