Guide To Superannuation
Superannuation is a long-term savings account for retirement. For many Australians this will be the largest asset they have when they come to retire, apart form their family home. Therefore making choices around how it’s invested, what sort of assistance people are getting can make a big difference people can have in retirement.
Do You Have To Pay Tax On Superannuation?
To make superannuation savings more attractive, and to entice people to add to their own super account, superannuation is normally taxed at a lower rate than many peoples usual tax rate. This is so over the long term those savings can build and build every year, and like compound interest, you would end up with a greater amount of savings over a long period of time by having reduced tax in an account that is superannuation.
Do You Have To Use Your Employer's Superannuation Fund?
When you join an employer you have to the choice to take the ordinary fund that the employer offers, or you can choose your own superannuation fund. This is sometimes a better idea, so when you change jobs you can stick with the same superannuation fund. Saving costs of swapping around between funds. Your super account can stay with you for life.
Where Should You Invest Your Superannuation?
Everybody is different and there are a number of choices that can be made in regards to your super, most importantly choosing where your money is invested. You can choose a fund that invests it in more conservative options, like just cash and term deposit, or you might like a fund that invests it in higher return but riskier options like shares, property or even infrastructure.
Superannuation works better if there is more money in the fund earlier, than adding a lot later. This is due to the compounding effect mentioned earlier. If you are getting close to retirement and don’t have the amount of super that you would like to have, it might seem like a good idea to switch options and go for a high return but risky option to quickly maximize your super before its time to retire. This can be a very dangerous option.
Investing in these types of options, like shares, are ideal in the early years of your working life, this is due to the nature of the share market. Sure they might promise high returns, but the cycle of these shares is unpredictable, and they can drop as quickly as they rise. Over the long term this drops and rises might combine to even out and still offer a higher return than say, interest on term deposits. But in the short term it is much too risky.
For example if you invested $100,000 of your super in shares a few years before you retire to try and maximize your super fund, and these shares fall in price, you could lose all of that money. Forcing you to either retire without that extra cash, or work for longer. If this same thing happened in the early years of your working life, you can make up for it later, or the shares might even bounce back eventually, but you don’t have to stress as much as you would have many more years to work and build up your super. Thus if you are getting close to retirement age, it is a safer idea to invest in the safer options such as term deposits or housing.
How To Choose A Superannuation Fund?
When comparing superannuation funds there a range of things people usually look at. Fees and costs are always on the top of people’s lists. Another thing to look at should be the performance of the fund, but remember that past performance is not a reliable indication of future performance. The range of options available to you should also be considered, such as if the fund lets you choose where your money is invested. Also you should look at whether or not he fund comes with insurance.
What Is Superannuation Insurance?
Even though you might not want to think about it, it is important to consider your insurance needs, and make sure you are adequately protected in case the worst were to happen. Most employers will have a super account that offers insurances included in the fund. Look at whether your super fund offers insurance for death, disablement and temporary salary continuance cover.
Death insurance will pay a lump sum in the event that the person who is insured happens to pass away. Then there is disablement insurance, this insurance will pay out a lump sum in the event that you get so sick or injured that you will never be able work again. Inside a super fund, income protection insurance is known as temporary salary continuance cover.
When you are looking at this insurance, one thing to find out is how long the benefit payment period is. Standard benefits tend to be for two years, this will pay you for up to two years from the date that you are unable to work. The advantage of getting your insurance inside your super account is that you don’t have to pay for your insurance month by moth out of your own pocket; it will just come off your super balance. One other insurance that you might want to have that is not included in your super fund is trauma insurance; Trauma insurance pays a lump sump benefit when a certain medical condition has occurred. The most common condition covered under trauma insurance is cancer. This would equal quite a bit of time out of work, as well as costs associated with treatment.
To find out what insurance you have through your super fund, have a look at the annual statement you will receive from your super fund. This will normally outline the contributions, the types of insurance, and your overall super balance.