Regardless of their age, people should consider some simple strategies to help maximise their superannuation balance for when they retire, says Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney.
“While there are superannuation strategies that work across all age groups, there are some that are better suited to people at a particular age or stage in their life.
“Even people in their 20s, who may think they are too young to think about retirement and superannuation, could benefit from a few basic steps that aren’t going to be as suitable or relevant as they grow older.
“Unfortunately it is no longer possible to leave retirement planning until your 50s or 60s – the limits on how much can be contributed each year mean that people need to start maximising their superannuation contributions much earlier in life if they want to save enough to ensure a comfortable retirement,” Mr Philpot said.
20 year olds
Those in their 20s should be seeking the maximise the growth potential of their superannuation over the long term by ensuring it is invested in growth or high-growth investment options.
“This age group can afford to ride out short-term market volatility and take advantage of the fact that over time – particular a thirty or forty year period – the overall trend of markets is almost inevitably upwards,” Mr Philpot said.
Another consideration for those in this age group is to avoid setting up new superannuation accounts when changing jobs.
“This is a life stage where people are likely to have three or four different jobs, which can inadvertently result in them having three or four different superannuation accounts.
“Keeping super in one place can make a significant difference to the final balance at retirement, due to minimising the level of fees and being able to track and manage one account rather than multiple accounts.”
30 year olds
People in their 30s should also be investing in growth or high-growth options as they too have time on their side to ride out market volatility, Mr Philpot said.
“In addition, this is an age where people may now have a young family, so anyone with dependents should consider appropriate life insurance within superannuation, which is a very tax-effective way to hold such insurance.
“It may also be worthwhile looking at spousal contributions if one partner earns less than $13,800 a year.”
40 year olds
This age group should also ensure they have appropriate insurances in place to meet their family’s needs.
In addition, they may be in a position to consider strategies such as salary sacrifice to build up their superannuation balance.
“Many people in their forties are starting to reach the peak of their earning capacity, particularly if they have already made good headway on paying off the mortgage,” Mr Philpot said.
“It’s therefore a good time to start thinking about using salary sacrifice to boost their concessional contributions up to their $30,000 annul limit.
“As a rule of thumb, this is a worthwhile strategy if their salary level is over $100,000 and the home mortgage is less than 50 percent of the property’s value.”
50 to 65 year olds
This is the age when most people start to get serious about their superannuation, and as long as they have taken the right steps earlier in life, they should be in a good position to ensure a comfortable retirement, says Mr Philpot.
“Now is the time for people to begin thinking about what kind of income level they want in retirement, and checking whether their superannuation is on track to meet this income retirement.
“Generally speaking, a sustainable annual income should be no more than five percent of the superannuation balance.
“It’s also time to focus on maximising contributions, taking advantage of concessional contribution limits as much as possible. They can’t be carried forward into future years so if they aren’t used, they are lost.
“Also, plan non-concessional contributions to get large amounts into superannuation before age 65. Up to this age, people can ‘bring forward’ up to three years of non-concessional contributions and contribute up to $540,000 in one financial year. This can be useful for those who, for example, sell their business as part of their retirement planning.
“Last but not least, from age 60 consider ‘transition to retirement’ strategies. This means transitioning super to pension phase, with the result that any income earned on superannuation assets becomes tax-free. The pension drawn is also tax-free after the age of 60 and can be re-contributed,” Mr Philpot said.
Source: HLB Mann Judd Sydney
