Opinion
The simple super move that could make you $500 richer this EOFY
Nicole Pedersen-McKinnon
Money contributorAt the stroke of midnight on Sunday, we will tick over to a new financial year.
We don’t normally stay up for midnight on this New Year … or mark it with anything other than vague interest (maybe a rush to do your tax return if you think you’re getting a refund).
Not only is this free money from the government, but by the time you retire it could mean up to an extra $60,000 in your pocket.Credit: Louie Douvis
But there is a simple super move that could net you a free $500 from the government in your fund this financial year. If that hasn’t arrested your attention, consider the following: for someone aged 30 today, that $500 – at an 8 per cent investment return – would become $5468 by retirement at age 60.
So, to the $500 you are given, you’d add a bonus further $4968.
But this isn’t even a one-off opportunity; it’s possible you have missed that $500 free is available to eligible Australians every 12 months starting on July 1.
Say you snare it from age 30 all the way to 60 – the government will have gifted you a welcome $15,000. But it’s the investment earnings on that, over that large amount of time, that take the strategy stratospheric.
A new financial year is also a tremendous trigger for a super health check.
You could add a total $61,673 for the government’s trouble, with earnings of possibly $46,173. But you do – personally – have to pay in that little bit extra too.
If you haven’t heard of it, this is the government’s superannuation co-contribution scheme. To qualify for the free $500, you need to pay in $1000 after tax in that same year.
Now I know times are extremely tight (and that inflation reading last week puts further interest rate hikes on the cards), but we are all also about to get a tax cut.
That tax cut will add $18 a week (or $929 a year) to the pay packet of someone earning $50,000 a year. That $18 a week almost adds perfectly up to $1000 over the course of a year – the amount needed to make the most of this government handout.
That freebie is also means tested: this new tax year, you will automatically receive the full $500 on incomes up to and including $45,400; it then phases down and runs out when you hit $60,400.
Note that the word ‘earning’ is also key – you need to be in some kind of paid employment to avail yourself of the $500 super opportunity.
But on the numbers above – that potential free $61,673 at 60 for doing nothing, really – it could be well worth it.
Of course, your own additional $1000 yearly contribution (this will be net of 15 per cent contributions tax when you pay it in) will be worth an even prettier extra penny.
A new financial year is also a tremendous trigger for a super health check to make sure your retirement savings are on track. And for that, you need to be in the right fund.
We won’t have finalised financial year super returns for a while yet, but the last official figures, for May, were solid.
Equities stabilised and, in fact, the median balanced fund returned more than 1 per cent to investors after April’s 1.6 per cent fall, says superannuation research house SuperRatings. And June has been a respectable month for market returns, even if the day-to-day has been volatile.
“Funds will be seeking to consolidate the strong returns over the [first] … 11 months,” Kirby Rappell, executive director of SuperRatings said.
Your rate-your-super-fund benchmark for the year for a balanced fund (60 to 76 per cent in equities) looks to be headed for about 9.5 per cent, which is extremely good.
For a growth fund – which is more heavily invested in equities (77 to 90 per cent) – that number is an even more impressive 11.5 per cent.
Of course, key is not to take on too much investment risk for your circumstances. Generally, the younger you are, the more you can afford to hold in equities as you have more time to recover any losses.
But get your fund mix right and you stand the best chance of maximising your contributions over time – and maximising any bonus ones. Here’s to a super Happy New Year.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter or Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.