Superannuation 101: Your guide to a happy retirement

Money and Life
(Financial Planning Association of Australia)

Superannuation is a handy way of saving for retirement, so that you'll have an income to live on once you're no longer working.

With Aussies living longer than ever before, you could be looking forward-to many happy years of retirement. Having a financial nest-egg to support you into old age is essential.

Australia's superannuation system is a highly regulated and efficient way of saving for your retirement. Your employer must pay a portion of your earnings into your superannuation fund, which invests them on your behalf.

Find out how to get the most out of your superannuation, the types of super funds and how much super you'll need to retire comfortably.

How much superannuation will I be paid?

In Australia, your employer is required by law to pay your super contributions once a quarter.

The current superannuation guarantee (SG) rate is 9.5%. So, your employer must pay a minimum of 9.5% of your ordinary time earnings (OTE) to a complying superannuation fund or retirement savings account.

The SG rate is due to rise to 10% on 1 July 2021, and continue to increase by 0.5% each year until it reaches 12% in July 2025.

Can I add to my super? 

Yes, you can! Making personal contributions to your superannuation is a great way to reach your retirement goals sooner.

One way to do this is through a salary sacrifice arrangement with your employer. This simply means that you pay an agreed amount from your pre-tax salary into your chosen superannuation fund with each pay.

It's a very tax-effective way to add to your super, as these contributions only attract tax at 15% (up to a certain level), which is generally less than your marginal tax rate.

Read more: Salary sacrifice: A lot less painful than it sounds

How much to contribute depends on several factors, including how long until you want to retire and your retirement goals. Speaking to a financial planner can help you evaluate the best options for you.

Superannuation co-contribution

You may also be eligible for contributions from the government to help you save for retirement. The super co-contribution and the low-income superannuation tax offset are both ways the government can add to your super. Find out more about government contributions on the ATO website.

How much super do I need to retire comfortably?

Research shows that many of us underestimate how much we'll need to live comfortably in retirement.

According to the MoneySmart website, how much you'll need depends on your big costs in retirement and the type of lifestyle you want to have. "If you own your own home, a rule of thumb is that you'll need two-thirds (67%) of your pre-retirement income to maintain the same standard of living."

The Association of Superannuation Funds of Australia (ASFA) estimates that single people will need just over $44,000 a year to be comfortable, while a couple will need just over $62,000 (excluding housing costs).

A 'comfortable' lifestyle is defined as one where you're able to take part in a range of leisure and recreational activities, while maintaining a good standard of living i.e. you can afford to purchase household goods, private health insurance, a reasonable car, clothes and domestic or occasional international travel.

Again, we recommend getting professional financial advice to help plan for your retirement and ensure you have enough super to retire comfortably. 

What are the different types of superannuation funds?

These days most people are able to choose their superannuation fund. You can also use the super fund nominated by your employer if you want to.

The majority of superannuation funds can be classified into one of these categories:

1. Industry super funds

Originally developed for employees of certain industries, many of the larger industry funds are now open to anyone to join. They often have lower fees and usually offer MySuper accounts.

2. Retail super funds

Usually run by financial institutions, e.g. a bank, or an investment company, and are open for anyone to join. They often have a wide range of investment options. However, fees can be on the mid-to-high side and can vary a lot between funds, as can returns.

3. Corporate super funds

These are organised by companies on behalf of their employees. They may be operated under a board of trustees, or managed by an appointed retail or industry fund. Generally speaking, the costs will be lower in a large employer fund than for small businesses.

4. Public sector super funds

These are for government employees only. They generally offer lower fees and return profits to the fund.

5. Self-managed super funds (SMSFs)

An SMSF is a private superannuation fund that you manage yourself. It's a growing sector which appeals to many people because it offers greater flexibility and choice in the type of assets you can invest in.

As the trustee of your own superannuation fund you're responsible for setting the investment strategy and complying with all of the tax, insurance and regulatory obligations. So it is more work and requires more financial and legal knowledge than a regular super fund.

Find out more about the pros and cons of having an SMSF.

If you're interested in setting up an SMSF, make sure you seek qualified financial advice on whether this is the right approach for you.

Related: Self-managed super funds: The importance of getting the right advice

What type of investments are available to me?

Within each super fund, you'll have a choice of super products, which are basically different ways to invest your superannuation.

These may include a different mix of asset classes, e.g. shares, property, cash and/or exposure to different markets. Each product carries a different level of risk and potential reward. Which approach is right for you will depend on several things, especially your age and stage of life, time to retirement and your retirement goals.

You should always seek financial advice before making any changes to your superannuation settings. A qualified financial planner can help you understand which superannuation product is right for you.

Related:What are the best investments for your retirement?

When can I access my superannuation?

You've spent years building up your nest-egg, so when can you make use of it? You can access your super once you meet one of the following conditions:

• when you turn 65 (even if you haven't retired)
• when you reach the preservation age and retire; or
• under the transition to retirement rules, while continuing to work.

There are also some special circumstances where you may be able to access your super early, such as severe financial hardship, including COVID-19.

Read more:COVID-19 Withdrawing super: What to consider