7 myths of superannuation – understanding them and taking control
Many common misconceptions exist for superannuation – from considering it be a taxation structure to having no control over it. No matter how old you are or at what stage you may be in your working life, you need to ensure you have a solid plan in place to achieve your retirement goals.
Your super fund will most likely be the primary vehicle for achieving your retirement goals since it is a very attractive investment – primarily due to its high tax effectiveness, which improves your ability to accumulate wealth. Before you start using super, it is important to understand the myths surrounding it and taking control of it is essential.
1. It is an investment not a tax structure
A super fund is a trust which is subject to special rules on the taxation and preservation of your accumulated benefits; and can invest into a range of investments and asset classes. Regardless of age, your super is an investment where you can actively choose your investments based on the level of risk and how they fit with your other investments. Remember, it is not just a structure which offers taxation advantages.
2. My money is locked up
Your super is a lifetime investment project starting when you first enter the workforce until death. Even though your account is not accessible until you reach age 65 or a condition of release (eg retirement, death or invalidity), you still have control.
3. I don’t have control
You do have control over your super since it is your money. Some people may choose to have a Self Managed Super Fund (SMSF) in order to have more control over where their funds are invested
4. It will provide for me in retirement
Yes, super will provide for your retirement. However, you need to ask yourself these questions:
• What will be my required level of income in retirement; and
• Will I have sufficient super balance at my planned retirement date?
Knowing that you have enough super at retirement will depend upon your own personal circumstances and seeking financial advice to construct a comprehensive retirement planning strategy is essential.
5. It’s not my money until I retire
This is most definitely not true. Changing the way that you view your super is essential. It is your money and you do have control over even though you CANNOT spend it at the moment.
6. I don’t need to worry about it until I am 50 or older
It is important to know that the longer you plan for your retirement the better chance you will have in achieving your retirement goal/s. You may also want to consider making contributions from a younger age because it will be harder for people (over the age of 50) to tax-effectively contribute large sums of monies into super due to recent legislative changes.
7. Insurance through super is inappropriate
Whilst Life and Total & Permanent Disability (TPD) insurance through super have traditionally been a popular tax effective choice, it is also common to have income protection within super. Structuring your insurance within super can provide distinct advantages even though it can be complicated. Your employer super contributions can pay for the insurance cover but this can reduce your eventual retirement savings. This can be alleviated by making additional pre and post tax contributions into super or even qualifying for the co-contribution.
To find out more about these myths, contact Chan & Naylor Financial Planning on 1300 99 77 34
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