2020, what a year. Among the myriad of other things going on, it was also a bit of a game changer for the way we engage with our super.
“Why is that?” you ask. Well, whether you accessed your super early or not, what the COVID-19 early release scheme did was remind a lot of us that we have real money in super. So, no matter if you heard about early release on the news, looked at your super balance to see how much you have, thought about or even took money out, 2020 was the year that more and more of us had super in our sights.
So, if you did access your super, or just became more aware that you have a nest egg growing in the background, why not grab the opportunity that a new year affords and take some steps now that could help set you up for the future?
Ways to build (or rebuild) your super
During the economic shut down you may have been forced to (or even inadvertently) cut back on spending. Why not embrace that new found frugality rather than returning immediately to your pre-COVID lifestyle? You could then use some of your savings to contribute extra money into your super.
The beauty of putting money into your super (especially when you’re a bit younger) is that you can take advantage of compounding returns – that’s where you earn returns not just on the money you’ve put into your super, but also on the returns themselves. Magic.*
There are a few ways you can make super contributions. Let’s discuss:
Typically, before-tax contributions happen via a salary sacrifice arrangement with your employer. You select an amount or percentage of your gross salary that you’re happy to go straight into your super account before you get paid. This money gets taxed at 15%, which may be much lower than the tax you’ll likely pay on the money if it went to your bank account. Salary sacrifice is a super power in itself. The money disappears into your super account, so you never see it, then do you actually miss it?
If your employer doesn’t offer salary sacrifice into super or you’re self-employed, you can make tax deductable personal contributions. That’s when you transfer money from your bank account into your super then claim a deduction. Just bear in mind, there are limits to the amount of voluntary contributions you can make each financial year.
You can also top up your super after tax from your take home pay. There may be benefits in doing this if you’re a low or middle income earner as you might be eligible for a government co-contribution of up to $500 into your super. Ca-ching.
You and your partner are planning on growing old together anyway, so why not pool your assets to your future advantage? If your spouse is in a better financial position than you and you earn less than $40,000 per year, they may be able to help you grow your super through spouse contributions.
Subject to eligibility rules, your spouse could also benefit thanks to a tax-offset on the after-tax contributions they make into your super account.
Ways to grow your balance without adding extra $$$
If the idea of putting extra money into your super right now doesn’t quite work for you, there are also a couple of other non-monetary actions you can take that may help build, or rebuild your super balance.
Find and combine your super
Most recent ATO data shows there’s $20.8 billion of lost and unclaimed super just floating around out there. Could some of that be yours? Well, it’s worth a check, and it’s less time consuming than looking for spare change in the glove box of your car. Log in to your online account and select the ‘Combine’ tab to search for any lost super. You can also visit myGov to search for any lost super.
Whether you find lost super or not, by checking your online account you’ll also be able to discover if you have more than one super account. More than one super account means paying more than one set of fees, and who’s into that? Over a lifetime, fees can really add up, so while you’re logged into your online account, why not roll all your super into one?
Before combining your super, check what fees you pay in each account and any insurance benefits you may lose.
Check your investment options
Like all super funds, HESTA offers a range of different investment options which are essentially divided into two types – growth or defensive.
Defensive investments are things like cash, bonds and term deposits which tend to have lower risk, but also, generally lower returns. These types of investments might suit short-term investors, because they tend to fluctuate less.
Growth investments are riskier, and invest in things like shares, private equity and infrastructure. By investing in growth assets, you might see more ups and downs in your super balance in the short term, but you might also see it grow higher in the long term.
It’s up to you to choose where you’d like to invest your money. If you don’t (or if you haven’t) your super will be invested in our default MySuper-authorised Balanced Growth option. Taking a little time to understand the best type of investment for your age and level of risk tolerance now could have a significant impact on your super balance at retirement. To find out which investment option might be best for you, make a time to chat to a HESTA Super Adviser.