Too Young to Think
Concessional Contributions Cap:
The reduction of the superannuation concessional contributions cap to a flat $25,000 each year regardless of age also makes saving at a younger age a higher priority.
Alternative Investments
While these rules make superannuation much more attractive to younger people, it is still important to consider alternative investments. Large expenses such as mortgages or the expenses associated with raising children will impact greatly on your finances. Superannuation, whilst a solid investment for the future, can not provide assistance in affording other large expenses across the life cycle. With in the future in mind, younger people should consider investing in alternative investments at the same time as harnessing the investment potential of their superannuation.
As always, it is important to receive professional financial advice before committing yourself to any investment strategy.
For older Australians nearing retirement age, superannuation is a great way for them to prepare for their retirement. It provides generous tax concessions and in many cases they can access their super already. But should younger people be thinking more about superannuation as they may not be able to access this money for many years?
Super for Young People
Younger Australians can look forward to being able to access their superannuation in retirement tax free. While tax concessions are a great incentive, you should consider that contributions in your later working life will be limited. Depending on your circumstances, you should consider making extra contributions to your superannuation early to take advantage of the tax benefits.
Other superannuation benefits that younger people should consider include:
Co-contributions:
The superannuation co-contribution is an initiative of the Australian Government to help individuals to boost their retirement savings. Eligible persons include low or middle income earners who make personal super contributions to their super funds.
Contribution Splitting:
This allows a couple to share the contributions made by one partner. This can be beneficial where one partner has a much higher superannuation balance than the other.
Transition to Retirement (TTR):
This Government initiative allows people to access their superannuation early, even if they continue to work.
Is salary sacrifice available?
For most people, superannuation is the best environment in which to accumulate funds for retirement. You may like to consider making extra contributions via salary sacrifice to give your retirement savings a boost. Ask your new employer if they will allow you to make higher contributions to superannuation from your pre-tax income.
Start a savings plan
If you have something you want to save for, you may be able to arrange for a regular deduction from each pay to be paid into a high-interest savings account or managed investment fund. If this is not possible, you can arrange for a regular debit from your spending account to a high interest savings account that is difficult to withdraw from. Your savings will grow dramatically.
Changing jobs can have a significant impact on your finances.
New Job Checklist
Depending on your situation and how you consider it, changing jobs can be an exciting or stressful time. If you’ve recently started a new job you can be forgiven for having other things on your mind. However, there are some important things that you should tick off your list to really get your career moving in the right financial direction:
Set up your super - If you were previously in an employer fund, there is a chance you may need to join a new fund. If this is the case, it is a great opportunity to make sure that you choose a fund that’s more suited to your long-term needs and risk profile.
Notify your employer of your superannuation fund - In the majority of cases, you will be able to instruct your employer where you would like your superannuation to be paid. Make sure that you complete your Superannuation Choice form and give it to your payroll manager. Also check your member number and details so that you provide your employer with the correct information.
Review your life insurance - This is particularly important if you’re changing superannuation funds and you held life insurance with the old fund. Most life insurance companies offer a “continuation option” which allows you to replace your former cover with personal insurance cover (to the same amount) without the need for underwriting. Don’t make the move until you have new cover in place.
Review your income protection insurance - If you are moving up the career ladder, make sure you increase your level of income protection insurance to reflect your higher salary. If you don’t have income protection insurance, now is the time to get it.
The information contained in this newsletter is of a general nature only and does not take into account your particular objectives, financial situation or needs. Accordingly the information should not be used, relied upon or treated as a substitute for specific financial advice. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided. Taurus Financial Services Pty Ltd its directors or staff, nor its employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.
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