In this current climate and while many are withdrawing from their superannuation, would it be a good time to increase your contributions to your superannuation?
Graeme in Melbourne, Vic
Top answer provided by:
Hayley Dyson
The short answer is that it is always a good time to contribute to superannuation; however, it largely depends on your cash flow position!!
The great thing about superannuation contributions is that they can bring down your taxable income if set up as a Concessional contribution arrangement. Under current government legislation, an individual who is eligible to contribute to super can contribute up to $25,000 per annum, including what your employer contributes (generally 9.5% of your salary).
So if your employer contributes $10,000 per annum, you can contribute another $15,000 to your superannuation, and this will be a deduction against your taxable income.
A great way to save tax while saving for your retirement!
The other great thing about superannuation investing is that if your superannuation investment options are set up well, they can be making your long term returns that far exceed what is currently available through the banks. Markets are lower at the moment, so it is a good time to be investing.
Your superannuation investment option should be invested in a balance of shares, property, cash and fixed interest options that suits your lifecycle. So if you are closer to retirement, you might want to look at moving to an asset allocation that is more conservative than someone who still has 40 more years of work.
However, if you do have time on your side to ride the ups and downs, you can take advantage of higher long term returns by choosing an asset allocation option that is more aggressive, and you can see some great long term growth for your money!
To summarise, there are some great benefits to contributing extra funds to your superannuation- saving tax, growing your wealth in retirement, and accessing higher returns than are currently offered outside the superannuation environment.
The main drawback to superannuation contributions is that once they are in, it is very difficult to get them out again!! You must meet a condition of release to access these funds, and the government has strict rules as to how much you can access and when.
So if you have sufficient cash flow to make extra contributions, and you are confident that you will not need access to this extra cash anytime soon, contributing to super is a great idea!!
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