Are you a Super Hero?

That is – are you a Superannuation Hero?

(For those outside Australia, we are talking about our mandatory retirement plan, so yours will have a different name – like a 401K plan in the USA.)

Superannuation Heros leap tall buildings with a  single bound…………

When you’re self employed, it is up to YOU to contribute to your Super fund.  If you’re an employee earning more than $450 per month, then your employer will contribute 9.25% of your gross salary (increasing to 12% by July 2019) to your superannuation fund.  When you’re an employee you don’t have to be a Super hero, because the system looks after you somewhat.

The tall buildings that self employed Super Heros leap, are the contributions they choose to make to Superannuation.  They must take the initiative to do this, and channel a portion of their business profits into this.  No-one is forcing them, so they need to be motivated to do it themselves.

It’s often easier to just comply with the rules, than to take the initiative to get out and do something ourselves isn’t it?

In a recent  research publication dated September 2012 *,  the current status of Superannuation held by self employed people is this: “Currently, around 29 percent of the self-employed have nil superannuation”.    And of those self employed people who DO have superannuation, 62% have a balance amount is in the low category. Why DONT a lot of self employed people have a Superannuation fund?  Here are some of the reasons: They don’t have to, so they just don’t get around to it. They figure that their business IS their Superannuation fund. (They’ll sell it one day and use the proceeds for their retirement.) They are struggling to make enough profits to keep the business and themselves going, so putting some aside for Superannuation is very low on their list of priorities. They don’t think about the future, or what retirement will hold. If you are self employed and have no Superannuation, I’d love to hear from you by reply to this post, regarding your reason!  (Click the underlined title of this post, and leave a reply in the box at the bottom.)

 

So you may be wondering – especially if you are self employed with no superannuation –

is this a problem for me?

To answer this, just think about when you might want or need to stop working one day.  How much money would you like to have coming in – without earning it by your own exertion?   Where is that going to come from?

In Australia, at the moment we have an age pension which we are eligible for when we reach the official retirement age.  For a long time this has been 65.  It is changing, and depending on when you were born, it may be a little higher for you.   So when we reach this age, we can get the pension.  (If we have to finish work before this age for some reason, we can’t get the pension until we reach this age.)

 

The current maximum pension amounts are:

if you are single	for a couple
$733.70 per fortnight	$1,106.20 per fortnight
$19,076.20 per year	$28,761.20 per year

 

If you are happy to live on this much, and know you will want to work, and be able to work til retirement age – then you don’t have a problem.

Otherwise – you DO have a problem

– and you will need an alternate source of income

 

For most Australians this is their Superannuation.

For many retired people, the income generated by their Superannuation SUPPLEMENTS what they get from the pension.  This helps to get them above the poverty line.

There are a certain amount of assets that can be held, or income that can be earned, before the amount of pension you receive reduces.  This conversation begins getting a bit complex and tricky now, because the amounts depend on whether you are single, or one of a couple, and whether you own your own home.

To give you an idea though, let’s assume you are single, and you don’t own your own home.

In this case, you could have assets (and this could be Superannuation) of up to $339,250, and income of up to  $156 per fortnight. ($4056 per year) **  before your pension is reduced.

In reality – if you had assets of $339,250 earning 5%, that would be an extra $16, 952 per year of income, or $652 per fortnight.   And of course then you would be getting a bit less of the pension…….

So…………to simplify the bottom line here…………if you had this much  ($339,250) in your superannuation fund, you might have an extra $10,000 or so per year (taking the reduced pension into account in a rough sort of way) to live on.

So for our single non-home owner, this means living on something like $29,000 per year rather than $19,000.   

Even though these numbers are still modest – the difference that Superannuation makes is significant!

Now if you are planning to sell your business and use the proceeds to fund your retirement – that is a great idea, and the topic for another blog post.  There are two main issues:  one is how to set your business up for a successful sale, and the other is what to do with the sale proceeds, to make it as tax effective as possible – that is – keep as much of it in YOUR pocket for your retirement . In fact – that is a topic bigger than a blog post, and I think I’ll put together a training video on it. Let me know by reply to this post, whether you’d like to learn more about this.

 

So if you are not already – it would be a good idea to consider becoming a Super Hero, and being amongst those 71% of self employed people who DO contribute to superannuation.  When you understand what a difference it will make to your last 20 to 30 years, to be regularly tipping money into a superannuation fund NOW, you will be motivated to leap tall buildings and find that extra cash!!!

And while you’re at at – develop your x-ray vision and contribute at a high enough rate to build up a significant amount, so that you can continue doing Super things while you are not working!

Wishing you loads of Money Success,

Glenda.

 

*  Equity and superannuation – the real issues.   Ross Clare, The Association of Superannuation Funds of Australia Limited.

** Guide to Australian Governments Payments