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How does the super and retirement system work?


Whatever your age, you should give some thought to your retirement plan. It may seem a long way away, but the sooner you start planning, the better the outcome is naturally likely to be.

That's not the stance most people take, despite the risk of having sub-par superannuation savings when it comes time to retire.

Get to know your super and retirement options and how the system works early on, and you're bound to get more out of it.

In January this year, Roy Morgan found that almost a third of Australians up to the age of 64 consider it too soon to worry about a retirement plan. However, 38 per cent find that life gets in the way as they get older, making it harder to dedicate the time on building a good nest egg.

Get to know your super and retirement options and how the system works early on, and you're bound to get more out of it. So, let's have a quick run through what you need to know, starting with the tax structure.

What tax do I pay on my super fund?

The Australian government wants to encourage people to save up and plan for their golden years, so there are attractive tax rates on superannuation savings. The majority of Australians fall into an income bracket that means they pay 19 to 47 per cent tax on their wages.

However, super savings during the accumulation phase (pre-retirement) are treated at just 15 per cent. Once you retire, you pay 0 per cent on the interest in the fund.

There's more information on this in our video below:

How can I invest with my super?

Once you know how much you need to retire, you can begin accumulating savings through investment. Although you won't be doing the legwork of the investment yourself, you will still have a choice of how you want to invest in your super fund. These are usually split into one of three portfolios:

  • Low risk: Conservative investments usually with less payoff
  • Medium risk: A more balanced option with moderate exposure
  • High risk: A growth portfolio for aggressive investment

There are four typical types of investment made by a fund: cash, fixed-term deposits, shares and property. The first two are known as income assets, and generally make around 4 to 6 per cent return over time, though it fluctuates in the short term as interest rates do.

When you get into the stock market and property investment, you're investing in growth assets, which fluctuate more though can return between 9 to 11 per cent as a long-term average.

A low-risk portfolio will mostly include income assets, while a high-risk option will have a higher exposure to growth assets. Justin Butler takes us a little bit deeper into the subject in the below video:

Whether you want to consolidate your superannuation funds, talk about the costs of retirement or just to go through your superannuation statement, the team at Eclipse is here to help guide you to a stronger financial future. Give us a call on 07 4946 7359 or pop into our office if you'd like help from our local experts.

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