Oh boy, here we go. Superannuation – what is it? How does it work? Why in the hot hell do we even need it?
Superannuation, or super, as the locals like to call it, is the moolah you and your employers put aside throughout your working life. We’re talking decades of contributions – unless you’re a tech genius and retire at the ripe old age of 35. This pool of sweet, sweet cash money (plus the interest it earns from investments) then makes up your retirement fund so you can deck yourself out in the best campervan and live the ultimate grey nomad life.
I know it feels counterintuitive to be thinking about retirement when you’re fresh out of uni and looking for your first real job. But trust me, you’re going to want a few pennies put away so that you don’t have to rely solely on the Age Pension (which is great and necessary, but only covers basic needs). Also, it’s 2021. We just lived through 2020. I think it’s time we all got our acts together, you know?
Okay, but when do I start handing the money over?
Well, if you’re over 18, earn more than $450 a month and are counted as an employee for tax purposes, then your employer has gotta start paying super in your name. There’s this thing called the Superannuation Guarantee which means employers are legally bound to chuck 9.5% of your gross income into super for you. Handy, right?
It should all happen without you really noticing. You get paid, your super gets paid, everyone wins. But it doesn’t hurt to double-check your payslip and make sure your super contributions are up to scratch. That said, if you’re a self-employed little freelancing/contracting/small biz-owning bumblebee, then you’ve gotta pay your own super. Because who else will?
But what happens to that money?
Good question, amigo. Basically, as your super fund receives your contributions, it invests that money for you. Funds normally have a default investment strategy and a series of other options (with different rates of risk and growth). So you can choose how your super is invested, in case you’re working toward a specific financial goal. But in layman’s terms, your super is invested for you and your little retirement fund continues to grow. Easy peasy.
Can I choose my super fund?
Yesiree! Your employer might have a recommended super fund that they use but you are ALWAYS able to make your own super decisions. There are a tonne of super funds out there so you probs want to make sure you’re in one that suits your ethics (ie. actually cares about the environment), has a track record of protecting members’ savings during downturns, offers a range of different investment options to suit you and just generally invests in your best interests – funds like CareSuper have a strong penchant for social responsibility in what they invest in, which is something to consider. But do your homework to choose a super fund that matches your ethics and profession, as well as checking fees, costs and investment risk profiles.
How do I access my super early?
Okay, so you can’t access your super early if you just want to skedaddle to Europe and go on a three-month blinder. In fact, you can’t even take your super with you if you’re moving overseas permanently. You’ll still have to wait until you reach retirement age to get your grubby little hands on that super cash.
BUT there are extreme circumstances that allow you to access the money. We’re talking things like medical treatments for yourself or a dependent, as a way of preventing your home from being sold by the lender that owns your mortgage, accommodating a disability, paying for palliative care and a few other reasons your super fund or a financial adviser can explain in more detail.
What if I’ve changed jobs?
Consolidate, consolidate, consolidate. If you’ve changed jobs a few times and just chosen to go with the recommended super fund and now you’ve got five super accounts with five different companies, then it’s time to consolidate. Just choose one fund, and they’ll gather all your nest eggs and bring them together under one happy roof for you.
And next time you change jobs, BYO your super account with you. You’re always able to nominate the super fund of your choice. Having just one super fund also means less fees in the long term. Before combining your super, check if you’ll lose any benefits like insurance cover if you close one of your accounts.
In the end, how much super do I need?
Sorry, hun but there’s no right or wrong answer to this one. The amount of super you need for retirement depends on a heap of things – like how long you’re likely to live and how flash you want to live.
But to get an idea, you can use handy dandy superannuation planning calculators. Just stick in your current balance and see a projected annual retirement income. Otherwise, if you’re really looking to get sorted, have a chat with a financial planner. With some super funds, like CareSuper, you’re entitled to basic super-related advice at no extra cost to your membership. Boom.
Fun super things to note!
- If you earn less than $35k per year, your lover — AKA de facto or spouse — can actually make super contributions for you. They can make a contribution of up to $3k and receive an 18% tax offset of up to $540.
- Your super isn’t covered by your will. Morbid to think about, I know, but it’s true. Your super isn’t actually considered a part of your estate, so unless you specifically nominate who gets your super money, the fund will have the final say on which dependants will get the cashola.
- You can ALWAYS make additional contributions. Win the lottery? Get a promotion? Just generally feeling like being a responsible adult? You can make super contributions at any time. You do you, boo.
The information provided in this article is general advice only and has been prepared without taking into account your particular financial needs, circumstances or objectives. You should consider your own investment objectives, financial situation and needs and read the appropriate product disclosure statement before making an investment decision. You may also wish to consult a licensed financial adviser.
CARE Super Pty Ltd (Trustee) ABN 91 006 670 060 AFSL 235226 CARE Super (Fund) ABN 98 172 275 725.Image: Wolf of Wall Street