Superannuation (or super) is a financial tool that allows individuals to save money for their retirement — but many of us aren't using it to its full potential. It may seem like a dull topic at first, but that's exactly why it is often underestimated! In fact, it's a superpower that many of the most successful wealth builders in Australia use.
By understanding what superannuation is and how it works, you can harness its potential to help you build your wealth and make the most of the tools you already have. So, let's dive into the world of superannuation and discover why it could be your secret superpower in your wealth-building journey.
Generally speaking, superannuation is a type of savings for your retirement. A portion of your salary is being invested on your behalf by your employer, which aims to provide you with a source of income in retirement.
Employers are legally required to pay 10.5% of your ordinary time earnings into your super as part of the Super Guarantee (also known as SG). This is soon to change to 11% on July 1st 2023. Therefore, the more you earn, the more your employer will add to your super.
The catch with superannuation is that you generally cannot access it until the preservation age. This also depends on what year you are born and there are rules as to when people can access their super. However, there are certain situations that allow you to early access your super savings, including severe financial hardship and specific medical conditions.
Super has plenty of benefits that are also overlooked. Just one example of this is that you can make super contributions up to $27,500 a year and these are tax deductible.
Additionally, superannuation is designed to be a long-term investment and it doesn't just sit idle in an account. The money you contribute is invested and therefore has the potential to grow significantly over time. In order to maximise this and give it the best chance to grow, it is important to stay informed and updated on the way your super is invested. This can be challenging and it helps to
engage a good financial adviser to help you make the right decisions for your personal situation.
Super gives you peace of mind for the future and this is the big reason people invest in it. Knowing that you have a reliable source of tax free income when you hit 60 can be incredibly reassuring and help you feel more confident and secure as you approach your golden years.
However, super also has its own difficulties and considerations, just like other financial products. For example, there are certain limits on how much you can contribute to your super account each year and strict rules around accessing it.
A true superpower of superannuation is what we call compound interest. Compound interest is where you not only receive interest on the principal invested but you also receive interest on your interest plus principal.
Your super doesn't just sit there as you wait for retirement! The money is then invested in various asset classes, such as shares, bonds, property, and infrastructure with the aim to grow your balance with returns. These returns are then reinvested, which means your money can grow through the magic of compounding interest over time.
The earlier you start contributing to your super, the more time your money has to grow, which means you'll have more money for retirement.
Superannuation is one of the most tax friendly environments available to Australians at a rate of 15%. This includes employer contributions, salary sacrifice, personal deductible contributions, and investment earnings. When the time comes for you to access your super, you are able to draw a tax free income at preservation age which is once you are over 60 years of age.
Although super is a very useful tool, it's important to remain within the rules, caps and eligibility criteria of super. This can be challenging to navigate and that's exactly where the Link Wealth advisers can help you.
If you are interested in making the most of your super, get in touch with one of our financial advisers here.
Link Wealth Group
We formed Link Wealth Group because we noticed so many financial advice practices overcomplicate the financial planning and mortgage process. It doesn’t have to be difficult! We know we can provide top-notch easy-to-follow wealth advice to Australians in a way that also empowers you to be in control of your finances and your path to financial freedom.
Disclaimer: This website contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
Link Wealth Group ABN 98 157 712 055 is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 Australian Financial Services Licence 232706 and Australian Credit Licence 232706.
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