Superannuation

Superannuation is a plan to provide for retirement, financial independence and security. The concept is very simple, the setting aside of today's income to provide income when we retire.

Superannuation is widely acknowledged as simply the most efficient way for most people to save for retirement.

For many people who have spent most of their adult lives working, retirement is a whole new era. Some will look forward to the new opportunity while others are nervous about this change in their lifestyle.

Retirees will be faced with about forty hours a week of extra time! Not all will retire in the same way. Some see this as a chance to take up new hobbies, have a long holiday or even remain involved in part-time work.

In determining these lifestyle decisions, they will need to consider their family situation, their health, and their financial situation. For most retirees, their goals and lifestyle in retirement will largely be determined by their financial situation.
 

Financial Situation

One of the many changes faced by retirees is that their regular salary or wage stops at retirement. From that point, they are primarily responsible for providing their own income in retirement.

There are several ways of deriving an income in retirement.
Some will only receive the age pension, which is approximately 25% of average weekly earnings. A retirement lifestyle based solely on this income stream, for most individuals, would be unacceptable.

Furthermore, with the number of pensioners increasing, and the tax paying workforce decreasing, future governments will find it increasingly difficult to provide the same level of pension for all people.
 

Capital Requirements

Retirees will require a pool of capital at retirement which will provide them with an income for the rest of their lives. They will also be seeking to protect their assets and lifestyle from being eaten away by tax and inflation.
 

Ensuring that the pool of capital is large enough to meet lifestyle expectations in retirement becomes the ongoing challenge, because in contrast to their working lives, retirees will no longer be able to top up their savings periodically with their salary or wage.

How Much Capital is Needed?

Determining just how much capital is required is difficult. It is probably safe to say that most people in retirement need 50 - 75% of their pre-retirement income per annum.

Factors to consider include investment earnings and asset allocation, the effects of inflation and taxation, escalating health costs, estate planning issues, and goals and lifestyle requirements.

Another key factor is the length of time to be spent in retirement. This has a major impact on the level of capital required, particularly if it is expected to fund a lifestyle for a period greater than in past generations.

There are two reasons contributing to this extension of time spent in retirement:

1. Increase in Life Expectancy
2. People Retiring Earlier

See whether you are on track to having the benefit you may need in retirement to last for the rest of your life.

The Need to Save for Retirement

Accordingly, there is a real need to save for retirement, or in other words, to save for life after work. To have sufficient capital, individuals will need to start planning and saving early.

Having decided to save for retirement, there are several vehicles which can be utilised to accumulate these savings. One of the best long term vehicles is superannuation.

See what your benefit may be at retirement and how long this may last you. Note: this is an AMP built and tested calculator
 

Why Use Superannuation to Save for Retirement?

Superannuation is one of the simplest and most tax effective ways to save for retirement. Superannuation is simple because:

1. In most cases the contributions are automatically made into an existing fund
2. These contributions grow with interest and/or capital growth
3. At retirement, the benefit can be taken as a lump sum or regular income stream
4. A contributor can generally continue to remain in the fund up to age 65 even if they are no longer employed.

As one of the Government's preferred means of encouraging all Australians to save for retirement, superannuation receives valuable tax advantages over other forms of investment. The tax efficiency occurs at three levels:

1. Contributions made to superannuation may attract a tax deduction or a tax rebate.
2. Earnings and realised capital growth are subject to tax at a maximum rate of 15%, and not marginal tax rates.
3. The eventual benefit taken out is taxed concessionally, and when used to commence an income stream, further concessions are available.