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Highlights
- Superannuation is considered one of the best ways to combat inflation impact
- It’s a long-term investing strategy, and one cannot use their invested funds till aged 55
- The contribution made are Tax deductible
The current market scenario is signalling a bearish phase, and it looks murkier for investors as Ukraine Russia War continues to disrupt the global economy with rising inflation. In such a scenario, common working people try to combat inflation instead of being bogged down by it. Superannuation is undoubtedly one way to fight that, and with specific tips, you can maximise your returns. But before we get to that, let's understand What is superannuation?
A company's organisational pension plan designed with its employees is known as superannuation. A firm pension plan is another name for it. Until retirement or exit, money deposited in a superannuation account will grow tax-free. One of the key benefits of superannuation is that it functions as a long-term investing strategy. And like any long-term strategy, it takes advantage of compound returns. The exponential rise over time is what can have a significant impact on your retirement financial situation other than a low tax environment.
Now the million-dollar question is how one can maximise and reap the benefits of superannuation.
To begin with, one must start with choosing a fund, and to avoid paying additional fees, please make sure you have only one super fund. Then, Consider the costs associated with each fund while evaluating them, as well as your investing alternatives and insurance requirements on a new comparison tool called YourSuper. One must ensure that the super fund you are considering is performing well.
Next is making a personal contribution to your super fund. You are allowed to make a concessional contribution into super of up to AU$27,500 every fiscal year and deduct it from your taxes. There are two ways one can accomplish this: Salary sacrificing, in which your company contributes a portion of your pre-tax income to your super fund directly, and the other part is direct payment to the super fund of your savings in a lump sum. Personal contributions made with funds you have previously paid taxes on are also permitted. Such contributions are termed Non-concessional contributions. You cannot claim Non-concessional contributions under tax deduction, but they are not taxed when deposited into a super fund.
Next on the list is Salary Sacrifice consideration. Though it may sound harsh and hard to do, listen to the good part. You usually pay less tax overall when your salary is sacrificed into a super fund because it lowers your taxable income. If you have a job that pays more than AU$45,000 a year, the tax on salary sacrificed super contributions is 15%, which would be less than your marginal tax rate.
Considering life insurance needs is also important between income protection insurance, Death Insurance and Total and Permanent Disability Insurance. Please decide what is more important than the other as per your financial goal and security.
To sum it up, you cannot access your super fund until you are 55 and 60. Your birth year determines your exact age of withdrawal. It's crucial to consider both your current cash flow needs and your long-term financial objectives when choosing how much to contribute.
I hope these points help you in achieving your financial goals and security.
