A little bit today got be your nest egg tomorrow

nest eggAre you saving enough for your retirement? The question makes most of us anxious. I know I am, and I’m a millennial. I have this mental picture of myself approaching the milestone of retirement, a milestone that took a lifetime to reach – a lifetime of plans made and groundwork laid. I see myself looking back at all I will be leaving behind, and embracing what lies ahead, discovering what I can in my future permanent sabbatical. I picture a bright, worry-free retirement because I know I deserve it, as you (yes, YOU!) do, too.

It’s the “now” that has me worried, but hey, when it comes to the topic of retirement, everything is about delayed gratification. Here are several strategies that can help you to secure your nest egg early or to catch up financially to make sure your golden years are as stress free as possible.

HOW TO TOP UP YOUR SUPER

Grow your super quicker by adding extra for your retirement. Investment earnings are taxed at a maximum rate of just 15%.

  • Salary Sacrificing

Salary sacrificing (concessional contribution) involves giving up some of your before-tax pay which your employer will redirect into your super fund and get taxed at the special rate of 15%. The concessional cap for most people is up to $30,000 including the employer’s 9.5% super guarantee contribution, and $35,000 including the employer’s 9.5% for people aged closer to retirement (people aged 50 and over).

Salary sacrificing is ideal for higher income earners due to their higher marginal tax rate.

For more details see the ATO’s information on key superannuation rates and thresholds and salary sacrifice arrangement for employees.

  • After-tax Contributions

A personal or non-concessional contribution can come from your take home pay, extra savings or an inheritance. What makes it great:not taxed on entry into super, and their earnings are taxed at a maximum of only 15% (whereas investments outside of super are taxed at your marginal tax rate which could be as high as 46.5%). As of 1 July 2015 the contribution cap is:

Under 65 years – $180,000 per year or $540,000 over a 3 year period

65 or more years – $180,000 per year

  • Government co-contributions

If you earn less than $50,454 per year before tax, the Government may add to the contributions you make from your after-tax pay.

If your earn less than $35,454, you can make up to a 50% return on your co-contributions. Get this, the government co-contributes $0.50 for every $1 you contribute – that’s a maximum co-contribution of $500.

To find out how much “free money” you are entitled, use this super co-contribution calculator.

  • Tax offsets from spouse contributions

If your spouse’s assessable income is less than $10,800 a year and you make an after-tax contribution of $3,000 into your their super, you will receive a maximum tax offset of $540, and you will be eligible for a partial tax offset until your spouse’s income exceeds $13,800.

BONUS TIPS

  • Invest your windfalls – If you’ve gotten an unexpected bonus, tax refund, gift or inheritance, it may be tempting to use some or all of it to splurge on something. Calm down, shopaholic. If you can’t help yourself, set aside 10 percent of the windfall to pamper yourself.
  • Give it a test run – Budget plans are easy to make but hard to follow. If you’re approaching the golden years, you may have already pulled together a projected budget you plan to stick to in retirement (don’t be hard on yourself, include your bucket list items!). It’s a good idea to take a year to test it out. See if your lifestyle plan is a realistic goal by adhering to it for a set period of time. If not, you may need to top up your super.

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