Our Australia Life

Boosting Our Superannuation: How We’re Securing Our Retirement Future

When we settled into our Australian life and purchased our first home, it was time to think seriously about our retirement plans. The concept of superannuation, often referred to as “super,” became a key focus. For those unfamiliar, superannuation is Australia’s system for saving for retirement, and it plays a crucial role in ensuring financial security in our later years. Here’s a deeper dive into what superannuation is, why we decided to ramp up our contributions, and how you might benefit from doing the same.

Understanding Superannuation: The Basics

Superannuation is essentially a retirement savings plan. In Australia, employers are required to contribute a percentage of your salary into a super fund on your behalf. This fund is then invested, growing over time until you retire. The goal is to accumulate a substantial amount of money to support yourself during retirement.

Key Features of Superannuation:

  1. Employer Contributions: Employers contribute a mandated percentage of your salary into your super fund. This is known as the Superannuation Guarantee (SG) and is currently set at 11% of your earnings.
  2. Investment Options: Super funds offer various investment options, ranging from conservative to high-growth portfolios. Your choice depends on your age, risk tolerance, and retirement goals.
  3. Tax Benefits: Contributions to your super are generally taxed at a lower rate (15%) than your personal income tax rate, which can be as high as 45%. This tax efficiency makes it a valuable tool for growing your retirement savings.
  4. Insurance Coverage: Most super funds include insurance options such as life cover, total and permanent disability (TPD), and income protection.

Why We Decided to Increase Our Superannuation

After buying our first home, we turned our attention to enhancing our superannuation. We faced a few challenges: we had arrived in Australia in our mid-thirties, meaning our super balance was relatively low compared to our peers. My own super balance was particularly modest since I had been working part-time.

Given that we were nearing our forties, we recognized the need to aggressively increase our superannuation contributions. Here’s why we took this step:

1. To Build a Robust Retirement Fund

Our primary goal was to ensure a comfortable and secure retirement. By increasing our superannuation contributions, we aimed to grow our retirement savings significantly. This was essential for us to enjoy a comfortable lifestyle in our later years, especially after the financial commitments of buying a home.

By increasing our super contributions, we accelerated the growth of our retirement savings. Regular top-up contributions from each pay cycle helped build a larger superannuation nest egg. Although we were mindful of the annual contribution caps, the additional savings were a crucial step in preparing for a more comfortable retirement.

Increasing our Superannuation

2. To Take Advantage of Tax Savings

Increasing our superannuation allowed us to take advantage of tax benefits. Contributions to super are taxed at a lower rate compared to our personal income tax rates. For example, while our marginal tax rate was 32.5%, superannuation contributions were taxed at only 15%. This tax efficiency not only boosted our retirement savings but also reduced our current tax liability.

Increasing our superannuation allowed us to save on taxes. Super contributions are taxed at a lower rate (15%) compared to our marginal income tax rate. This tax benefit reduced our overall tax bill and helped us keep more of our earnings. However, we carefully monitored our contributions to avoid exceeding the cap, which could lead to higher tax liabilities.

3. To Automate Our Savings

One of the challenges of saving money is resisting the temptation to spend it. By opting for additional super contributions, we set up automatic deductions from our pay. This strategy ensured that the money was saved before we had the chance to spend it. Automating our savings this way made it easier to consistently contribute to our retirement fund without having to think about it actively.

One of the most practical advantages of increasing our superannuation was the automation of our savings. The additional contributions were automatically deducted from our pay, minimizing the temptation to spend. This approach simplified our savings strategy and ensured consistent contributions to our retirement fund.

Our Top Criteria for Choosing a Superannuation Fund

When selecting a super fund to increase our contributions, we evaluated several key criteria to ensure we made the best choice:

1. Performance

We researched the performance history of various super funds. We chose a fund with a strong track record of investment performance over the past five years. Consistent performance is crucial as it significantly impacts our long-term investment returns and super balance.

2. Fees

We carefully considered the fees charged by different super funds. Lower fees mean that more of our money goes into investments rather than administrative costs. Since fees compound over time, finding a super fund with competitive fees was essential to maximizing our investment growth.

3. Investment Options

Super funds offer a range of investment options, from conservative to high-growth portfolios. We selected a growth investment option since we were in our thirties and had a longer time horizon before retirement. This choice aligned with our goal of aggressive growth in our super balance.

4. Insurance Coverage

Most super funds provide default insurance options, including life cover, TPD, and income protection. While we had additional insurance outside of super, we reviewed the default options to ensure they complemented our existing coverage and met our needs.

Increasing our Superannuation

A Personalized Approach to Superannuation

Increasing our superannuation contributions was a strategic decision tailored to our specific circumstances. While this approach worked for us, it’s essential to prioritize your current financial needs and make additional contributions when feasible. Everyone’s situation is unique, so consider your goals, financial situation, and retirement plans when deciding how much to contribute to your superannuation.

As we continue to build our retirement savings, we’re moving forward with our Australian life journey, focusing next on investing and further securing our financial future.

For more advice and insights on managing your superannuation and planning for retirement, feel free to reach out. We’re here to share our experiences and help you navigate your own financial journey in Australia.