If the ins and outs of superannuation leave you confused, the answers to these frequently asked questions will help you understand the basics.
FREQUENTLY ASKED QUESTIONS ABOUT SUPER
How much do I need to retire?
According to the Association of Superannuation Funds of Australia (ASFA), a couple requires savings of $640,000 if they wish to enjoy a ‘comfortable’ lifestyle in retirement. For a single, the figure is $545,000.
Due to support from the age pension, a single or a couple can fund a ‘modest’ lifestyle with savings of just $70,000 at retirement.
How is my super taxed?
Broadly, contributions are categorised as either concessional or non-concessional.
Concessional contributions are contributions on which an employer or an individual has claimed a tax deduction.
Non-concessional contributions are made from after-tax income. They include many personal contributions and government co-contributions.
Concessional contributions are taxed at 15% within the superfund, with a tax offset available to low income earners. Non-concessional contributions are not taxed within the fund.
Investment earnings are taxed at 15% in the accumulation phase. Over age 60, earnings in the pension phase, and any payouts from the super fund, are tax-free.
How can I contribute to super?
If you are over 18, employed, and earn more than $450 per month your employer will contribute 9.5% of your ordinary time earnings to super. You can further boost your super by:
- Asking your employer to make concessional salary sacrifice contributions from your pre-tax income.
- Making personal contributions from your after-tax income. Subject to set limits you may be able to claim a tax deduction for these contributions in which case they will become concessional. If no tax deduction is claimed they will be non-concessional.
- Low to middle income earners who make a personal non-concessional contribution may receive up to $500 as a government co-contribution.
- If you contribute on behalf of a spouse who earns less than $37,000 a year, you can claim a tax offset of up to $540.
- A special ‘downsizing’ contribution is available to over-65s who sell a home.
Age limits and work tests may apply to some types of contribution.
When can I access my super?
- When you turn 65, even if still working.
- When you reach preservation age (between 55 and 60 depending on date of birth) and have retired.
- If you start a transition to retirement (TTR) income stream.
- If you face severe financial hardship, specific medical conditions or under the first home super saver scheme.
Who can I leave my super to?
If your super fund allows binding death benefit nominations, you can elect to have your superannuation paid to your legal personal representative. The money will then be distributed as instructed by your Will. Alternatively, you can instruct your fund trustees to pay your death benefit to one or more of your ‘dependents’. Under superannuation law these are:
- Your spouse (includes same-sex and de facto partners).
- A financial dependent.
- People you had an interdependency relationship with.
Without a binding nomination, your super fund’s trustees decide which dependents will receive the death benefit. They will be guided, but are not bound by, any non-binding nomination.
How do I make the most of my super?
Superannuation remains, for most people, the best vehicle within which to save for their retirement. However, it can be complicated and there are numerous rules to navigate.
That creates challenges, but it also generates opportunities, many of which can add thousands of dollars per year to your retirement income.
Ready to unearth those opportunities and make the most of your super? Now is the perfect time to talk to your financial adviser.
Personal insurances are designed to provide protection from the financial consequences of death or disability. They therefore form an important part of most financial plans. Here, in brief, is how they work.
FREQUENTLY ASKED QUESTIONS ABOUT PERSONAL INSURANCE
What are the different types of personal insurance?
Life Insurance. This pays a lump sum benefit if you die.
Total and permanent disability insurance (TPD): This pays a lump sum benefit if you meet the definition of being totally and permanently disabled. It is often bundled with life insurance.
Trauma insurance: Also referred to as recovery insurance, trauma insurance pays a lump sum benefit if are diagnosed with or suffer from one of the specified illnesses, such as cancer, heart attack or stroke.
Income protection insurance: If you are unable to work due to illness or injury, income protection insurance will pay you a regular income, usually capped at 75% of your pre-illness income. You can select the waiting period before benefits become payable, and the length of the benefit period.
How much life insurance should I have?
For life and TPD cover, one rule of thumb is to work out how much is needed to pay off debts and provide for current and future family living expenses. Subtract from this total the value of current investments, including superannuation, to arrive at an approximate value of the insurance cover you require.
Of course, individual circumstances vary widely. Your financial adviser will be able to help you assess your needs and resources, and perform the relevant calculations for you.
How often should I review my cover?
Your personal insurances should be reviewed whenever there is a major change in your personal situation. Key events to look out for include:
- Taking out a home loan
- Getting married or setting up house with someone
- Starting a family
- Receiving an inheritance
Generally, as savings increase and debts decrease, the level of cover required reduces over time, but again, much depends on your individual situation.
How do I understand my insurance contract?
It’s important to understand what is and isn’t covered by your insurance. This will be detailed in the Product Disclosure Statement, so it’s important to read and understand this. If you are unsure about anything, ask your adviser for an explanation.
How do I choose the best insurance?
While pure life insurance is pretty straightforward, the other personal insurances may differ significantly from policy to policy. Definitions of diseases may vary. There may be a range of optional extras – some valuable, others more of a gimmick. With TPD insurance, you may have the choice of ‘own occupation’ or ‘any occupation’. Insurance companies vary in the speed with which they process claims, and beyond that is the question of which insurances should be held via a superannuation fund and which should be held directly.
All this complexity means that selecting the best insurance cover is best done with the help of an experienced financial planner.
More than one third of Australian families have no life insurance cover. Many more are under-insured, even though the financial impact of not being adequately insured can be severe.
Put your mind at rest. If you have any concerns about the level of protection provided by your current personal insurance policies talk to your adviser today.