Your superannuation questions answered.
Just thinking the word ‘superannuation’ can make your brain spin. There are a lot of rules and limits to keep in mind. So, to answer some of your top superannuation questions, we take a quick look at how your super works.
“Are my super contributions tax-deductible?”
- If you’re an employee, you can contribute between $25,000 and $35,000 (depending on your age). This is including your employer’s required 11.5% super contribution. These payments are taxed at the rate of 15% (which is much lower than most people’s taxation rate on income).
- If you’re self-employed, you can claim a full tax deduction for superannuation contributions until you reach the age of 75.
- If you are 65+ you need to satisfy a work test if you want to continue making super contributions.
To learn more about super rates and limits, read “What are the superannuation contribution limits and tax rates?“
“Can I take money out of my super before I retire?”
In most cases, money in your superannuation has to stay locked away until you reach your ‘preservation age’. This age depends on when you were born. For example, if you were born before July 1, 1960, your preservation age is 55. For those born on or after July 1, 1964, your preservation age is 60.
To find out when you can unlock your super, the Australian Tax Office has put together a handy chart of preservation ages.
Some superannuation funds also have special conditions under which they’ll release of your money before your preservation age. Check these conditions with your super fund.
“What happens to my superannuation when I change jobs?”
There are a couple of options to manage your super when you change jobs, you’ll need decide which one will work for you. You can either leave your superannuation in your former employer’s fund when you change jobs. Alternatively, you can roll it over into another superannuation fund. Make sure you keep track of your super accounts to avoid lost super.
“What if my employer isn’t making the right super payments?”
By law, your employer has to pay 11.5% of your ordinary earnings into your superannuation fund. If they don’t pay the right amount by the due dates (quarterly), they have to lodge a ‘superannuation guarantee charge statement’ with the ATO. The ATO will then ask your employer to pay what they owe you in super, plus interest and an administration fee.
It’s a good idea to get into the habit of checking your pay slip to see if your superannuation has been paid into. If you think your employer hasn’t been paying the right amount of super, you can contact the ATO. To find out more about unpaid super read “$2,025 in Unpaid Super Every Year – Here’s What You Can Do About It“.
“When am I officially ‘retired’?”
The official retirement age at the time of writing this blog is 65. However, you also may be ‘retired’ if you are aged 60 and you have stopped working. Or maybe you are not working more than 10 hours a week from your ‘preservation age’ and don’t plan to go back to full-time work in the future. It’s worth checking with your superannuation fund to find out how they classify retirement.
“How much super will I need when I retire?”
The Australian and Securities Investment Commission (ASIC) estimate that by the age of 65, a single person who wants a ‘modest’ lifestyle (with annual living costs of $23,032), would need a lump sum of $300,000 (in today’s money).
For what ASIC calls a ‘comfortable’ lifestyle (with annual living costs of $41,830), you’ll need a lump sum of $544,000 by the age of 65. Couples will need a lump sum of $431,000 for a ‘modest’ retirement and $744,000 for a ‘comfortable’ retirement.
Read more at this article: How much super is enough to retire?
“What happens to my super if I get divorced?”
The simple answer is that superannuation is an asset. Just like your other assets held by a couple, your superannuation will be split between you and your spouse in a divorce settlement. However, neither of you will be able to access the money until you retire.
The reality is that superannuation in a divorce can be complicated. Our top tip when it comes to divorce settlements is to get some good legal advice if this is one of your questions.
“What about self-managed super funds (SMSF)?”
Self-managed super funds (SMSFs) have become very popular in recent years. But there’s also a trend of people closing their SMSFs – mostly because they are time-consuming and risky unless you do a lot of homework and get good advice.
“How do self-managed superannuation funds work?”
To find out more about how Self -managed superannuation funds work and for a comparison read ‘APRA Super-fund or a Self-Manged Super Fund‘.
Still wondering how superannuation works?
Check out “What do I need to know about Superannuation?“
