While superannuation is important at every age, when you’re in your 40s there’s other financial issues to sort before you can start really paying attention to growing your superannuation fund with extra contributions and clever investment moves. During this decade, your focus should be on paying down your debts – your mortgage being top priority along with your car and personal loans – because you’re coming into the pointy end of your working career.
With the kids no doubt in high school, almost ready to fly the nest, you’re getting closer to being free of financial dependants. A little hard work now will put you in a good position to turn the superannuation savings dial up to high speed when you hit your 50s .
This is your game plan for these 10 years…
Make a savings plan, stick to it
You’re probably in your peak earning years right now so you should make the most of it by saving as much as you can. You can use this money to boost super but Claire Mackay of Quantum Financial says paying down your mortgage should take priority. Jonathan Philpot, of HLB Mann Judd Sydney, agrees, saying you shouldn’t worry about making contributions to super until your mortgage is less than 50 per cent of your home value.
Think about what investment risks you can take
The next 10 years are crucial, says Chris Smith of VISIS Private Wealth. You need to decide whether you want all your money still in a growth option or whether you want to start taking a more conservative approach and moving some of it to a balanced option. A lot will depend on your attitude to risk and the time frame you have in mind for retirement. If you’re not sure, you might consider seeking financial advice.
If you’re earning big dollars, top up super by salary sacrificing
Jonathan says you should consider using salary sacrifice to boost your concessional contributions (those made before your income tax is taken out) up to your $25,000 annual limit if your salary level is $100,000 and your mortgage is less than 50 per cent of your home value.
Nominate who will get your super if you pass away
Morbid? Yes. Important? YES INDEEDY. You need to remember that your super is not treated the same way as the rest of your estate, so if there is someone in particular you want to get your super when you die make sure you set up a binding nomination. You will have to update this every three years for it to be valid.
Why not look into contribution splitting?
This can be a good way to boost the super balance of a partner with a low income or low super balance – for example, when one partner has taken time out of the workforce to have a baby or to look after children.
You can only split concessional (before-tax) contributions and there are limits. Also not all funds allow splitting, so you need to check first.
Review your super insurance
“Protect yourself by reviewing the insurance you hold in super,” recommends Mackay. “The default coverage may not be adequate for your family’s situation.”
When deciding on the level of insurance, a rule of thumb is 10 times your annual salary. But it’s a good idea to have at least enough to pay off any debts, cover funeral costs and leave your family enough for ongoing cash flow. There are online calculators that can help.
Consider a family trust if you’re reluctant about locking savings away
Philpot says another strategy worth considering is building wealth in a family trust, especially if you’re hesitant about locking away all your savings in super.
“Often additional contributions, together with a savings plan either in the lower income earner’s name or in a family trust, can provide a good tax outcome while providing the accessibility that super does not have,” he says.
Give your super a health check
You’ve got to treat that super right! Give your fund a regular health check to see if it’s still performing well, if the fees are still reasonable and if you’re in the right investment option…
If not, consider switching to another fund that better suits your needs.
