So you’re starting to think about your retirement and have come to the realisation that the amount in your super fund isn’t where you would like it to be. The question then becomes, “what can I do to boost my super?”. Let’s look at a few options you could consider. Keep in mind that your circumstances are unique, and so some of these ideas may not be suited to you. Consider obtaining some advice that is specific to you.
1. Invest more aggressively
It’s not difficult to appreciate that the higher the rate of earnings within your super fund, the more your balance will grow. There is no magic pudding however. If you want to boost your super balance through higher earnings, you will need to invest more aggressively.
In practice, that might mean for instance, moving from the Balanced option to the Growth option within your fund. This increases the proportion of your savings in assets like shares and property, and reduces your allocation to more conservative assets like bonds and cash. Over the medium to long term, such a change is likely to give you a higher average return. The trade-off however is that the journey will be more volatile.
For instance in your Balanced fund, most years returns might range between say 11% in a really good year and –5% in a really bad year, with most returns falling in the 5-8% range. Move up to the Growth option, and a good year might look like 13%, but a bad year –8%. Fortunately bad years are not especially common, so the Growth fund is likely to provide you with a higher return over time, but to take this course, you need to be prepared to ride out the bad years when they inevitably arise. If you are someone who, when you see a negative return, panic and move all your savings to Cash, then this strategy option is not for you. To boost your super through investing more aggressively, you need to be someone who doesn’t get distressed or distracted by short term factors. Very often the best returns follow a year where returns are negative – markets usually overshoot and go down more than is warranted, so when sentiment turns, the bounce back can be quite significant. If you panicked and switched to Cash, you rode the market down, but missed the bounce back up.
2. Increase contributions
Perhaps the most obvious answer to the question “what can I do to boost my super?” is simply to put more in. If you’re an employee, your employer is already contributing 9.5% of your income into super. Very often however, this is not enough to provide for a comfortable retirement. You can make extra contributions into super either after tax, or before tax. Let’s take a quick look at each:
- After tax contributions – known in superannuation jargon as “non-concessional contributions”. These are contributions made with money that you have already paid tax on. Often these type of contributions are made as lump sums. You might have money from selling an asset, savings that you don’t need prior to retirement, or perhaps even a gift or inheritance. As these monies have already had tax paid, there is no tax when they are deposited into super, nor is there any tax when they come out.
- Before tax contributions – known as “concessional contributions”. Your normal employer contributions fall into this bucket. To make additional contributions in this form, you would typically make a Salary Sacrifice arrangement with your employer for them to put an additional amount into super for you each pay. These contributions have 15% tax deducted, which is hopefully less than the tax you would have paid had you instead taken this money as cash. If you are a high income earner, 30% tax will apply to these contributions.
There are limits as to how much you can put into super via both of these type of contributions. Details can be found here. It’s important you keep these in mind as penalties can apply if you exceed your contribution caps.
3. Work longer
Maybe not the solution you wanted to hear, but working longer can have a big impact on boosting your super. Working an extra year boosts your super in multiple ways:
- An extra year of employer super contributions.
- An extra year where you are not taking out of your fund, so there is a larger balance able to generate a larger return.
- You have an extra year in which you may be able to make salary sacrifice contributions.
We often do financial modelling for clients to analyse how long their retirement savings are likely to last once they retire, and how much they can afford to draw out each year so that the chances of their super savings running out in their life time is minimised. We can play with the assumed rate of earnings – ie. how aggressive or conservative they invest their money, but by far the biggest impact comes about from them just working a few more years. Extra money going in, none coming out, and some additional earnings, can add up to a significant boost to your super balance.
Well, I hope you’ve found this article of interest. Here’s some of our past most popular articles on this topic that you might also find value in:
As mentioned at the outset of this article, your circumstances are unique and I strongly encourage you to seek out professional advice. Click here to easily book an appointment to discuss your retirement plans.
This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.