How does it work?

Given legacy funds don't accept new members, they're only applicable to the people who are already within them — so if you're not already in, they're not going to be an option for you. For the rest of us with an accumulation style of fund, you should take the time to consider the different kinds of superannuation vehicles available and assess their features and benefits. For most people, doing this without seeking advice can be challenging but not impossible. If you seek personal financial planning advice from a financial planner, they will be able to assess offerings best suited to your needs. The challenge here is to find the right vehicle that helps you build your ‘why’. The vehicle needs to have the right level of features and benefits so you don't overpay for things you don't require. Equally, you don't want to get caught out by a fund that doesn't offer enough options, such as a reasonable range of investment choices.

When to do it?

The Superannuation Vehicle Strategy should be considered when you first start to receive super. Most people don't think about the superannuation vehicle they want to use, even though they probably have a choice (with the exception of some legacy funds).

It's often once people have entered their working lives and started to accumulate more funds that they start thinking about whether they're using the right vehicle. That's okay too, as you can look at this strategy at any time, provided you're still eligible to hold a super account.

Do

Do consider a Superannuation Vehicle Strategy:

• When you start your first job
• If you're concerned about the performance or management of your super fund
• If you're concerned about flexibility and taxation. Different super vehicles offer different levels of control on things like investment options, insurance providers and the ability to manage the income profile of your assets. Super itself is also a very tax-effective vehicle. You only pay 15 per cent tax compared to your marginal tax rate (personal rate of tax), which is usually quite a lot higher.
• If you wish to have greater control over the use of franking credits within your fund
• If you change jobs, develop your career or become self-employed
• If you've got more than one superannuation fund or need more than one superannuation fund.

Don't

Don't fall into these traps:

• Assuming all super funds are the same. They've all got different fees, asset types, investment offerings and features.
• Using the fund your employer offers without looking at it first — while it might not be a bad fund, it may not be the best fund for you and your ‘why’
• Exiting a legacy fund without first seeking financial advice. Leaving the fund could cost you tens of thousands of dollars.

Superannuation is like a car for your ‘life after work’ savings

Buying your first car is a milestone. It's something to celebrate as a young person moves to independence and adulthood. If you've ever bought a car, you'll know there's a lot to think about. There are different brands, different features and options, and different likely performance outcomes. There's also the colour to think about: do you want one in black, white, blue or red — or don't you mind what colour it is? You may spend a lot of time thinking about buying a car because it's a big purchase, and you're probably emotionally invested in it because it's exciting.

Selecting your superannuation vehicle is like buying a car in some ways. There are different brands, different features and options, and different likely performance outcomes. Yet, despite it being a more important investment than your car (which will cost you money, not make you money over time), selecting the right superannuation vehicle fails to inspire or excite.

It's also important to think about the right vehicle for your stage of life, too. A MySuper fund might be a low-cost option early in your career; however, you're likely to need something with more options and features at a later date.

Using the car analogy, you need to consider the broader features of the fund. That's like taking a car tyre into a car dealership and asking what car the tyre fits. You would never do that when you buy a car, but I have seen people do this when it comes time to choosing their super vehicle. You need to consider what's important to you and the features you need in a fund. If your existing fund doesn't offer access to listed shares and you want these in your fund, it doesn't really matter what it costs — it's not appropriate. If you would like to use exchange-traded funds but your fund doesn't allow them, you need to consider a fund that does — and so on.

Tradies drive utes for a reason — it suits the job. The same must go for your super vehicle. The vehicle you choose should contribute to your ‘why’ to ensure it's the most effective option.

How does it work?

The Consolidation Strategy works because you put all your super in one account, and review your overall fees and insurance costs — which focuses you on making decisions about your super and your ‘why’. Retirement might seem a lifetime away but the more time you have on your side, the longer you have to make it grow. Think about the value of half a per cent over 30 years — it may not be much this year, but over time it could be worth a lot more. Remember: think with the end in mind as it's a marathon, not a sprint.

Combining your superannuation accounts is a relatively pain-free process once you've decided which superannuation vehicle will be your main account going forward.

What do you need to get started?

Every superannuation account has a member number. Every super fund has a number too. It's called a Unique Superfund Identifier (USI). In some cases, if the fund is a self-managed super fund, the Australian Business Number (ABN) is what you need to look for. Just check and see what your fund needs for you to roll assets into it, as each fund is different.

You can consolidate your superannuation funds by completing the roll in (or consolidation) form from your preferred superannuation provider using these identifying numbers. Some funds allow you to do this online or over the phone too, which might save you some paperwork and a trip to the post office.

When to do it?

A Consolidation Strategy should be considered when you have multiple superannuation accounts, aren't really across your super, want to reduce super paperwork, want to take it easier, and want to focus on and take control of your retirement savings. Another good time to review your super holdings is at the end of the financial year (if you haven't already done so) as the fund you are in normally sends out an end of year summary or report. This is a good time to find out what you have in your super; you can also search for ‘lost super’ on the Australian Taxation Office (ATO) website if you think you may be missing some fund information. Some funds even offer a consolidation service when you open a new account.

A useful point to note is that the government has decided to cancel any insurance within an existing fund where the fund has not been directed to maintain it or you have not made a contribution to the fund in the last 16 months. Whether this applies to you or not, it's important to know what insurance your super funds have. If you need to keep your insurance within a superannuation fund, you need to act fast to ensure that it isn't cancelled (before the super fund cancels it for you). We'll talk more about Wealth Protection Strategies in Chapter 13.

It might not be a good idea to consolidate all your super funds either, depending on what you hold. For example, you might have a fund with insurance that covers a medical condition you experienced after you opened that account, whereas it may be a pre-existing condition that's excluded from later super insurance policies. This situation might not affect you if you're fit and well, but it is worth your while to investigate the possibility before you roll into another fund. Once a super account is closed, the insurance cover disappears and you can't get it back. Never roll-over a fund until you have medically underwritten cover in place, because you can bet as soon as you move your super something will happen. Murphy's law never helped anyone — we all know that to be true!

What to look for in a super fund to consolidate your accounts will depend on your ‘why’. Consider the Super Vehicle Strategy here. Features of your new super fund might include:

• Wide investment options
• Control over income and franking credits
• Access to exchange-traded funds and index-based holdings
• An ongoing admin cost of around 0.5 per cent
• Cost-effective Indirect Cost Ratio (ICR) — this is the cost of the investment option(s) you select.

Do

Do consider a Consolidation Strategy:

• When you have had multiple jobs and have accumulated multiple funds
• If you want to review and understand super fees and insurance premiums
• If you want to make it easier to manage your superannuation
• If you want to check you have selected the right superannuation vehicle to take your retirement savings forward. The selected fund gives you all the investment options you need (or may need) in the future.

Don't

Don't fall into these traps:

• Forgetting to look at insurance cover issues if you think there's a concern
• Deciding to consolidate into your first super fund or your last super fund just because it was the first or the last one you had
• Selecting a super fund on fees alone. Cheap can mean good value, but it can also mean nasty. Sometimes you do get what you pay for, even with super funds. Also, consider the fund's features and long-term performance.
• Assuming that the investment option you're moving into is the same as the one you just left. ‘Balanced’ can mean many different things, so check the underlying asset allocation and sector-specific weightings — don't just check that the name is the same.

Grandad only ever had two jobs

Grandad was solid when it came to his job. He started work when he was 14 and only changed jobs once over his working life before retiring. He's like most of his peers — you had job security, and part-time work really didn't exist. Superannuation only came into existence later in his working life. He and his generation also never had to worry about multiple super accounts.

How things have changed. Young Australians are now likely to have more than 10 jobs before they turn 40. It may be even more for millennials and generation Z, and some of those jobs will be in different occupations. Part-time and casual work is increasing, and some people have multiple jobs at a single point in time. It's not surprising then that we're likely to see an increase in the number of super funds we have.

For many, though, super is dull. Despite it being the biggest investment they're ever likely to have outside their home, their super accounts will go wanting for a little love and attention. It's a symptom of our ability not to plan for the long term and the modern need to focus on instant results.

The effort you put into something often determines what you get out of it. The same goes for your super.

How does it work?

The Contribution Strategies can work in a number of different ways depending on how the contribution is made. Let's take a look at the different kinds of contributions. They all boost your super account balance and that's reason enough, but there are other reasons why you might make extra contributions (see table 11.1).

If a tax deduction is claimed by your employer or yourself, the super contribution is taxed at 15 per cent once it goes into your super account. The 15 per cent tax rate is very favourable, given most people pay a lot more than this on their take-home pay (which is impacted by your total income each year).

Given tax deductions are lovely things to have, it's not surprising that the government has set a limit on the amount of your super contributions that can claim a tax deduction. The amount is $27 500 a year and it's called a personal concessional contributions cap. This applies only to contributions where a tax deduction has been claimed by yourself or by your employer.

If a tax deduction is not claimed on a super contribution (that is, it's a personal non-concessional contribution), then you're not taxed on that contribution once it goes into your super account. There are some provisions on this: your superannuation account balance needs to be less than $1.7 million, and the contributions need to be no more than $110 000 a year (that covers most people). In some circumstances, however, you can use a bring-forward rule to contribute more — for example, from an inheritance or the sale of a business. A bring-forward rule allows you to contribute more using the next three years’ contributions maximum (or $330 000 in a single transaction). You need to check your total super balance prior to making large contributions as there are specific thresholds to consider.

When to do it?

Given the different contribution types, it can get a little complicated working out when to do it (see table 11.2, overleaf).

You might use more than one contribution type depending on your situation. Of course, all strategies have the benefit of increasing your superannuation balance, which is the main objective.

Do

Do consider a Contribution Strategy:

• When you're looking to live a more comfortable retirement and do a little more a little sooner
• If you've got savings capacity and are prepared to lock away the money until you reach retirement age
• If you have saved to your offset account all year and the end of the financial year is approaching
• As part of looking at an Appropriate Tax in Super Strategy (covered later in this chapter)
• If you receive an inheritance or sell a business or personal asset.

Don't

Don't fall into these traps:

• Taking for granted that your employer is paying into super for you. Check that your contributions are actually getting received into your superannuation account.
• Forgetting that saving to your super means you generally can't access the money until retirement age. There are some exceptions, however, for severe financial hardship.
• Forgetting about the concessional contributions cap. Only $27 500 worth of superannuation contributions can have a tax deduction claimed (both yours and your employers). If you contribute above the cap, you'll pay more tax when you do your return.
• Forgetting about the cap on non-concessional contributions — use the bring-forward rule when you need to.

Remember: your money must be cleared and in your super fund prior to 30 June each financial year if you want to maximise your deductions. A payment made prior but not cleared in time will count in the following financial year, so you may miss out on your deduction in the current year. Don't leave it too late!

You can lead a horse to water, but you can't make it drink

If you play competitive sport, you'll go to training and may have a coach or trainer to push you that little bit further. Even the best of the best have coaches to keep them motivated and focused. What you put into something often determines what you get out of it.

The same goes for your superannuation. With the ability to claim a 100 per cent tax deduction for a personal concessional contribution to your super, the choice to contribute to super has never been so compelling. You can pay more tax to the government or save to your retirement savings and pay less tax. The choice is yours. The only limit on you reaching your goals is you. Perhaps you need a financial planner to be your coach — or perhaps this book is enough to get you started.

Doing a little more now is easier than having to make large contributions later, which can have a real impact on lifestyle that you may not enjoy — especially if you know you have to because retirement is fast approaching. I've never worked with anyone that has told me they have too much super! Starting early with a small portion of your income may also reduce the impact of an increase in the future and be more sustainable.

How does it work?

How might you use your unused concessional contributions to increase the balance of your superannuation account? Let's consider an example.

Paulo earned $80 000. Paulo's employer paid employer contributions of 10.5 per cent or $8400 (0.105 × $80 000) to Paulo's super account.

Paulo also makes a salary sacrifice contribution each week of $50, which equates to $2600 over the year ($50 × 52).

Over the year, Paulo has a total of $11 000 in concessional contributions ($8400 + $2600). These are contributions where a tax deduction has been claimed.

However, Paulo could have used up to $27 500 of concessional contributions in a year. That means he has an unused concessional contribution amount. The unused amount is $16 500 ($27 500 – $11 000). In the next year, Paulo has the opportunity to use $44 000 ($16 500 + $27 500) in total as a concessional contribution.

As the name of the strategy suggests and the example shows, the strategy allows you to ‘catch up’ on unused concessional contributions. I believe this is one of the best pieces of legislation passed in the last 10 years and is great for the following people:

• Young people that come into money
• Parents wanting to add to super for their kids
• Mums and dads returning to the workforce after taking time out to be at home with the kids
• People who have gone from part-time to full-time work
• People finishing study who want to build their super quickly
• Contractors, whose income can vary significantly
• Employees that receive bonus payments.

When to do it?

The Contribution Catch-up Strategy can be used when you have unused concessional superannuation contributions. It provides you with the opportunity to make personal concessional contributions and receive a greater tax deduction. The tax deduction applies in the year you use the strategy. You can make a personal contribution or salary sacrifice to achieve the contribution and your taxable income would be reduced in the year the contribution is made.

What are the rules?

• You must have a super balance of less than $500 000 at the end of 30 June of the previous financial year.
• You can only roll the unused cap space for a maximum of five years from the 2019 financial year. The emphasis here is on unused space, which means the difference between the concessional limit and the amount you added to super in that 12 month period.

Do

Do consider the Contribution Catch-up Strategy:

• When you're looking to live a more comfortable retirement
• When you've got savings capacity and are prepared to lock away the money until you reach retirement age
• If you're selling a taxable asset and want to maximise your deductions in the year the asset is sold (for example, an investment property)
• If your income has increased in recent years and you want to add that extra cash to your super and lower your taxable income
• As part of looking at an Appropriate Tax in Super Strategy (covered later in this chapter)
• If you receive an inheritance or have had a large bonus payment.

Don't

Don't fall into these traps:

• Forgetting that saving to your super means you generally can't access the money until retirement age. There are some exceptions, however, for severe financial hardship.
• Forgetting that going above your contributions cap using the Contribution Catch-up Strategy also means you'll pay more tax when you complete your tax return
• Forgetting that your salary sacrifice contributions, like personal concessional contributions and employer contributions, all count towards the $27 500 cap you have in each year
• Forgetting that you've only got five years to use your unused concessional contributions. Once they're gone, they're gone forever.

Sometimes you have to play catch-up — and that's okay

We've probably all had times in our adult lives where we've let things slide and had to play catch-up. It might be due to work commitments, family commitments or simply running late for one appointment, which then cascades to every other appointment during the day. Those days are so frustrating.

It's okay to play catch-up. It doesn't mean you've failed; it just means there aren't enough hours in the day sometimes to achieve everything you'd like to do. It's a great opportunity to be able to play catch-up with your super.

It's also a great way to limit the tax on the sale of an asset and reduce the potential capital gains associated with it as you have increased your tax deductions by using this strategy. By holding off your contributions because you know the sale is coming, you may be able to use some of the sale proceeds from the asset, or cash, to increase your deductions in the year of sale. Again, thinking with the end in mind can provide huge taxation savings and help you build retirement assets — maximising the return on your property investment and superannuation balance at the same time.

You may wish to start a pension to gain access to capital that could be used to make additional contributions to superannuation and take advantage of available concessional cap space, therefore lowering your taxable income in the year the contribution is made. Starting a pension (provided you are able to do so) would be suitable if you don't have access to money either in an offset account or bank account.

How does it work?

Let's take a look at the Super Splitting Strategy in action in three different scenarios.

When to do it?

The Super Splitting Strategy is something to consider when you're looking to boost the super of your partner, you wish to withdraw a larger amount from super before you turn 60, you have a partner who is older than 60 and would like to fund retirement costs tax-free, or you're looking to increase your Centrelink entitlements. It really is a case-by-case scenario as every couple's ‘why’ is different.

The Super Splitting Strategy is something that needs medium- to long-term planning. The benefit of time helps build up the other partner's superannuation account before you need to access the funds. Super splitting can only be completed once a year, and most superannuation funds have a form to complete.

You must split contributions each year after the end of the financial year and after your personal Notices of Intent to claim a deduction has been lodged with your respective superannuation funds. If you wish to use this strategy, you need to complete the admin every year. It's not something you can set up to keep going automatically.

Do

Do consider a Super Splitting Strategy:

• When you're looking to boost your spouse's superannuation balance over time after time out of the workforce
• If there is a difference in age between spouses
• If you want to build a capital base to help the younger spouse reduce their work hours or retire if the older spouse ceases work
• To increase the amount of capital you can access on a tax-free basis from age 60 to pay off debts
• If you're concerned about not being eligible for all your Centrelink entitlements
• If you're comfortable making a contribution to your spouse's super, which means it's locked away until they reach retirement age and it legally becomes their money.

Don't

Don't fall into these traps:

• Making decisions without running your own numbers, or asking a financial planner to run the numbers. Amending your actions can be hard or sometimes even impossible to take back.
• Forgetting about the limits you can contribute to super through concessional contributions. If you contribute above the limit of $27 500 a year, you'll pay more tax.
• Forgetting to stay on top of your admin. If you don't split one year that option is gone for that year, it's not cumulative — it must be done each year or the opportunity for that year is lost. If you forget to do it one year, you can come back and do it for the next year.
• Forgetting you can only split 85 per cent of your concessional (deductible) contributions.
• Forgetting you can't split non-concessional contributions.

Nothing says ‘I love you’ like super splitting

Roses are red, violets are blue. Nothing says love, like super splitting with you. I bet you didn't expect that (and I can see my wife rolling her eyes while reading this).

But couples make gestures of love all the time and in different ways. It might be something as simple as cooking dinner or taking out the rubbish; some gestures are grander, like a dozen red roses and dinner at your favourite restaurant. But can something like making a mortgage repayment or splitting super be considered romantic? After all, it's about achieving your mutual ‘why’ — what's most important to you both — so what could be more romantic that that? I am yet to find a younger spouse that does not want to retire at the same time as their partner, or have the option of reducing their work hours to do the things they enjoy.

There's nothing more powerful than a couple pursing their goals together and supporting each other through the journey. It's just a pity more couples don't take the time to explore what they want and get onto the same page as each other. Nothing is more frustrating than getting advice at 60 and finding out that you missed out on 10 years or more of this strategy that can make life-changing differences.

How does it work?

Spouse contributions can be made for spouses who earn up to $40 000 a year. The partner making the contribution can claim the maximum tax offset of $540 (a tax deduction) when they contribute $3000 from their take-home pay to their superannuation if their spouse earns less than $37 000 a year. The more the spouse earns above $37 000, the less the tax offset will be, reaching zero once their spouse earns $40 000 a year. Of course, you can contribute more than $3000 a year to your spouse's super; however, you won't receive any tax benefit for doing so if the contribution is made as a spouse contribution.

When to do it?

The Spouse Contribution Strategy is something to consider when you're looking to boost the super of your partner, and it can be done before the end of the financial year. It's also a useful strategy to look at if your spouse is taking a career break, undertaking part-time work, or is a stay-at-home parent who is raising the kids.

Do

Do consider a Spouse Contribution Strategy:

• When you're looking to boost your spouse's superannuation balance
• As part of considering an Appropriate Tax in Super Strategy (covered later in this chapter)
• If you're comfortable making a contribution to your spouse's super, which means it's locked away until they reach retirement age and it legally becomes their money.

Don't

Don't fall into these traps:

• Making decisions without running your own numbers, or asking a financial planner to run the numbers. Once you make and implement a spouse contribution decision, it's very hard to undo.
• Forgetting about the limits to the amounts you can contribute to super. In the case of a spouse contribution, the contribution is considered to be a non-concessional contribution — that is, from after-tax money.

Working together brings better outcomes

Superannuation is a great investment for focused couples. Those who work together can deliver themselves better retirement outcomes than if they only looked at their own super. It's sometimes hard to have conversations about money though, because they're usually conversations about going over a budget or not being able to spend. In my experience, the couples that look at investment using the term ‘we’ in place of ‘I’ can maximise strategies and accelerate their collective wealth a lot faster. Good cash flow and the ability to save can be the basis for using more strategies in the future.

Finding something positive for both parties is often a good way to start a conversation about money. A Spouse Contribution Strategy might be one topic. You'd be surprised how often I sit across from couples who are retiring from work who, for the first time in their lives, have a conversation about money. They're also the kind of clients that say to me, ‘Gee, I wish someone had told us about that before now.’ By that stage, they've missed numerous strategy stacking opportunities and are behind on where they could have been if they had done some longer-term planning.

It's not what you do, it's the consistency of what you do over time that brings the greatest rewards.

How does it work?

To be eligible for a government co-contribution, you must earn less than $57 016 (at the time of writing). You must also make a non-concessional contribution to your superannuation account — that is, a contribution where no tax deduction is claimed. If a tax deduction has been claimed, you won't be eligible.

The maximum amount of a government co-contribution that you can receive is $500, which is available to people who make a non-concessional contribution to their super of $1000 and earn $42 016 or less.

If your income is between $42 016 and $57 016, your maximum government co-contribution will reduce as your income rises.

When to do it?

If eligible, you need to make a personal non-concessional contribution to your super before the end of the financial year and then complete your tax return after the end of the financial year. Once your tax return has been completed and your eligibility has been assessed, the government will make the co-contribution to the nominated superannuation fund (the one that received your personal contribution).

Do

Do consider a Contribution Strategy:

• When you're in your first job; that is, you start work for the first time
• If you've got a part-time job and earn less than the cut-off threshold
• If you have kids or a partner earning less than $57 016. Why not gift them money so they can make an additional contribution to their retirement savings and receive the government co-contribution as well?

Don't

Don't fall into these traps:

• Forgetting about the eligibility criteria and income thresholds. These can change, so please seek advice or visit the ATO website to confirm your eligibility.
• Making a concessional contribution to your super and expecting to receive a tax deduction as well as a government co-contribution. Government co-contributions only apply when you meet the criteria, which includes making a non-concessional contribution to your super fund.

Every bit helps

Small gestures repeated often make a big difference. Let's say for 20 years of your adult life you're eligible for the maximum government contribution — that's $1500 a year, with your $1000 contribution and the government's $500 co-contribution. Over 20 years that adds up to $30 000 ($1500 × 20) without any investment earnings added. I'm sure there's a lot you could do with an extra $30 000.

The same principle goes for your everyday saving. A little bit here and a little bit there all adds up when you've got the benefit of time on your side. It's a pity that the government co-contribution only applies to super!

I also encourage parents to use the idea of co-contribution from time to time (not necessarily to superannuation) with their teenagers and young adult kids when they're saving for something. Perhaps they're saving for their first car or an overseas trip. If they put in, you put in. If they don't, then you don't. It helps reward good behaviour and helps them achieve their goal without completely relying on you.

How does it work?

Let's take a look at two examples to see the Re-contribution Strategy in action.

When to do it?

The Re-contribution Strategy is something to consider when you're able to access your superannuation (you have met a condition of release) but you have not started a pension from your accumulated superannuation. Where you are under the age of 60 and have met a condition of release (met the age that you can access your superannuation), you could start a pension from your superannuation; however, increasing the tax-free percentage of your total fund would maximise the tax-free status of any pension income that you draw prior to 60 as you would have added to the tax-free components of your superannuation by making a re-contribution.

Controlling the estate planning impact of your superannuation and pension accounts is important to limit the tax impact on the transfer of assets. You should also consider the trading and tax implications of selling assets within your superannuation fund as capital gains tax may apply. If you have to sell assets to take money out of superannuation to undertake the Re-contribution Strategy, you need to consider the trading costs as well as any associated capital gains on the assets being sold before pulling the trigger.

From a strategy perspective, it may be worth Amir starting a pension, selling his high-tax assets (as a pension account is free from capital gains tax) and withdrawing the proceeds of the sale of the asset to add back to Zara's super fund. This could help avoid unnecessary capital gains tax as part of his broader strategy.

Do

Do consider a Re-contribution Strategy:

• As part of looking at an Appropriate Tax in Super Strategy (covered later in this chapter) and an Estate Planning Strategy (Chapter 14)
• When your Centrelink benefits will help you live a more comfortable retirement
• If you're comfortable with making a contribution to your spouse's super, which means it's locked away until they reach retirement age and it legally becomes their money
• If you intend to start a pension from your superannuation when you are under the age of 60 and wish to limit the tax impact on your income stream.

Don't

Don't fall into these traps:

• Forgetting that saving to your super means you generally cannot access the money until retirement age. This especially applies if you're making a re-contribution to your spouse.
• Forgetting that the withdrawal must come out in the same proportion of your existing superannuation fund so you may have to draw out more than you need on a percentage basis to reduce your taxable component
• Forgetting to consider the tax implications when selling assets to fund the re-contribution
• Losing track of your non-concessional contributions. If you have already used your non-concessional limit, you may be unable to get all the funds back into superannuation. Check what has been happening in relation to non-concessional contributions in your super over the last three years.

Knowing the rules helps you play the game better

This strategy might seem a bit silly — you're taking something out just to put it back in. At no point in this book do I suggest that the rules aren't without their problems — or that they always make sense.

The art of strategy, regardless of the situation, is about knowing the rules of the game and when to use them. It could be going for that field goal or shooting a hoop just before the siren signals full-time. It could also be having set plays during key points of the match. The same goes for your financial strategies, yet most people let opportunities pass them by because they never spent any time learning the rules of the game or seeking advice from someone who did.

The basis of most people's ‘why’ is to maximise their overall position both now and in the future (through your children and your estate planning). Seeking financial advice can make a significant contribution to your financial life over your lifetime; it can also help the next generation on their journey, too.

How does it work?

The first step to reviewing the fees you pay to run your superannuation is to understand what fees you're paying. Let's take a look at the typical fees you're likely to pay, depending on the structure that you're in (see table 11.3).

On the subject of fees, and regardless of which type of superannuation structure you choose, you might also pay a financial planner to help you make the most of your super strategies. A good adviser will deliver more value to your retirement over the long term than the fees they charge. You may also discover things about your super and other investments that you didn't even know about. After all, ‘you don't know what you don't know’.

When to do it?

The Appropriate Super Fees Strategy is something to consider before you commit to a superannuation fund and as part of your overall superannuation strategy. It's also important to review once in a while to make sure you're still getting value for money.

Do

Do consider the Appropriate Super Fees Strategy:

• When you're selecting a new superannuation fund or joining a new employer that has a default fund
• When you commit to growing your super for the first time
• If you're concerned about the fees you're paying on your superannuation
• When you review your superannuation investment and fund performance
• If you wish to invest in exchange-traded funds, individually listed shares or specialised managed funds within your preferred risk profile.
• If you wish to maintain direct property as part of your asset allocation (in which case, an SMSF may be the right fund for you).

Don't

Don't fall into these traps:

• Making decisions on fees alone. Some structures, like self-managed superannuation funds, cost more because they offer you functionality that you can't get with other superannuation types. (Also remember that super is long term and you should consider the future value of your fund over a specific time frame. Moving and moving and moving could result in additional entry and exit fees being incurred.)
• Discounting the value of accounting and financial planning advice to simply save money. Superannuation is complicated and the rules often change. Making decisions without advice means you are taking a risk: ‘You don't know what you don't know.’ A wrong decision could cost you more than you realise.
• Assuming that the ICR is the only investment cost for an industry fund. Check all the associated fees and charges, which will require you to hunt through the PDS. You must compare apples with apples.

The cheapest isn't necessarily the best

Superannuation funds charge fees to cover the costs of operating their funds. They have staff wages and operating costs and there's quite a lot to do. Activities include receiving employer contributions and reporting to employers, opening and operating your account, buying and selling investments, receiving the contributions you make, managing and paying tax, reporting to you about the performance of the fund through statements and online portals, managing insurance and death claims, managing hardship and other payments, auditing costs … and the list goes on. It's much more complicated than a bank account.

Price shouldn't be the only criteria upon which you select a superannuation product for your retirement savings. There's a real difference in features from fund to fund — investment options is one of the big ones, along with the quality of the insurance available. Some of the cheaper funds may have very limited investment options, so while you might save on fees, investment performance over the long term might not be up to scratch.

I always say to my clients that they need to lift up the hood of the vehicle and see what they're actually paying for before deciding if they have the right superannuation vehicle that works for them. The engine and features of a BMW costing $100 000 aren't going to be available in a $20 000 Kia, so check your options before you move.

How does it work?

The first step to understanding the Appropriate Tax in Super Strategy is to understand what tax applies to super and when.

Most people pay tax at a rate of 32.5 per cent or more on their income when their income is in excess of around $45 000. Superannuation, however, has a much lower tax rate, which is why it's so tax-effective.

Let's take a look at the typical taxes you pay on your super, and when you pay them (see table 11.4). The type of fund that you maintain can also have an impact on when the tax is taken from the account.

There are a couple of special issues to note here:

• Low income earners benefit from the low income superannuation tax offset. This means that if you earn $37 000 or less, the tax you pay on superannuation contributions will be contributed back to your superannuation account, up to $500.
• High income earners, however, will pay an additional Division 293 tax. This is an extra 15 per cent tax that's charged if your adjusted taxable income is above $250 000.

When to do it?

You might consider an Appropriate Tax in Super Strategy as a part of your overall retirement savings plan (Chapter 12) as well as your estate planning plan (Chapter 14). You should also consider how funds are going to be invested as this can impact the tax payable within the fund. The use of franking credits can help to mitigate future liabilities, so don't forget about them either — they are very powerful. As you can see, there are a number of things to consider when selecting a fund — it's not just about the fees (or indeed tax).

Do

Do consider an Appropriate Tax in Super Strategy:

• As part of your overall superannuation strategy from the outset
• As part of your income tax planning, given that superannuation offers more favourable tax rates to save for your retirement
• As part of a superannuation review
• As part of a broader tax planning strategy in conjunction with your accountant
• When using your Estate Planning Strategies (Chapter 14) to control the distribution of funds in the event of your death
• If you're considering the Contribution Catch-up Strategy from earlier in this chapter as part of your broader tax planning strategies.

Don't

Don't fall into these traps:

• Forgetting that even if you get a tax deduction for a superannuation contribution, you generally can't access that money again until you reach retirement age
• Forgetting to keep an eye on your contribution limits. If you make excess contributions, you could incur penalty tax.
• Making decisions without understanding the consequences of your decisions
• Making a contribution because your friends do — have a plan yourself and a strategy prior to actioning the contribution.

Managing your tax position in super

If you have a personal or an industry super fund then, as part of the fees you pay, the trustee will manage the tax outcomes for their members. This is part of the ongoing administration fee that you pay, and it's not something that you actively have to think about. Superannuation trustees have a legal obligation to act in the best interest of their members.

If you have a self-managed super fund, however, and you are a trustee of that fund, you also have the obligation to act in the best interest of the fund's members, and this includes managing tax. This is why most trustees of these kinds of funds pay financial planners and accountants to help them with this activity. It's specialist work, and unless you have relevant expertise it's probably something you won't be able to manage by yourself. Get advice, don't leave it to chance.

How does it work?

The Downsizing Contribution Strategy works when you're 60 or over and want to sell the family home. You might find yourselves rattling around with too much to clean and too much lawn to mow now that the kids have grown up and moved out. So, you make the decision to move into something smaller.

To use this strategy, you need to make sure you meet the government's eligibility criteria first. To be eligible, you must answer ‘yes’ to all the following questions (correct at the time of writing):

• (From 1 July 2022), will you be aged 60 or more at the time you wish to make your downsizer contribution to your superannuation account?
• Was the sale contract on your home exchanged on or after 1 July 2018?
• Was your home owned by you or your spouse for 10 years or more prior to selling your home?
• Is your home a house in Australia and not a caravan, houseboat or mobile home?
• Is the capital gain or loss from the sale of the home either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would you be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset? In other words, is your primary home being sold?
• Have you completed the ‘Downsizer contribution into superannuation’ form either before or by the time you plan to make your downsizing contribution to your super fund?
• Is the downsizer contribution you intend to make $300 000 or less as an individual? (Your spouse, if you have one, can also make a contribution of $300 000 or less to their super fund.)
• Will you make the downsizer contribution to your super fund and complete the paperwork within 90 days of the date of the settlement of the sale of your home?
• Can you confirm you have not made another downsizer contribution to your super fund from the sale of another home? (Reminder: this is a one-off opportunity.)

What if you have a spouse but only one partner owns the home? Under the downsizer contribution rules, so long as you have a spouse, you can make a downsizer contribution too provided all the requirements are met. This isn't just an opportunity for the homeowner; their partner gets the benefits, too.

You can't use your downsizer contribution to claim a tax deduction, like you can with other personal deductible contributions to your super fund. It also doesn't count towards your personal contribution limit to super either. It will, however, be taken into account when considering your eligibility for Centrelink age pension benefits as the capital added to superannuation would be included in your asset test and therefore your deemed income rate.

The downsizing contribution can also be made where you are in excess of the transfer balance cap (the total amount of money you can have in super — $1.7 million); however, the capital added to your superannuation can't be used to start a tax-free income stream as the earnings within the fund would be taxed at 15 per cent.

As you can see, downsizing is complicated. You need to consider your wider situation when making this contribution, including any Centrelink impacts. Seek financial planning advice if you need assistance.

When to do it?

The Downsizing Contribution Strategy allows you to use a superannuation vehicle to help fund your life in retirement using the proceeds of the sale of the family home.

The strategy could be considered when you (and your spouse, if applicable) are over 60 and you're looking to downsize your home for something smaller. You might move from a family home into a unit, a smaller house, a retirement village or a villa by the sea. It doesn't matter what kind of property you move into — you just need to meet the eligibility criteria.

You don't have to put all the sale proceeds into a downsizer contribution. For example, let's say Linda and Charles sell their family home for $850 000. They meet the eligibility requirements and want to use the Downsizing Contribution Strategy. They want to use $450 000 to buy a unit on the coast, which means they'll have $400 000 left. They decide to split the remaining $400 000 between them, contributing $200 000 to each of their superannuation funds. They can then use that money to generate additional income (which may be tax-free within their pension account).

Do

Do consider a Downsizing Contribution Strategy:

• If you want to downsize your home in retirement for something smaller and invest the surplus within your super
• If there's a large amount of capital tied up in your home and it may be better used to create the lifestyle you want to have in retirement
• If your partner doesn't have much super. You might put more in one partner's account, if the other partner already has a good super balance.

Don't

Don't fall into these traps:

• Forgetting to make sure you meet all the criteria and complete the paperwork within the required time frames. Seeking professional advice before you act is always wise.
• Thinking you can claim a tax deduction for this type of super contribution — you can't
• Forgetting about the transfer balance cap. It's the limit on the amount of super you can turn into a pension, which is currently $1.7 million for each person. That limit might influence how much of a downsizer contribution you are able to make.
• Forgetting about the Centrelink age pension implications. The money from the sale of your family home will be considered when determining your entitlements. (Your new home, however, is exempt from consideration once you've purchased it and it becomes your primary home.)
• Making the downsizer contribution without considering other contribution options first — this could limit the amount of money you get to put into superannuation
• Forgetting to consider the implications of the strategy in terms of your needs and goals.

Rising home prices have made many Australians wealthy

Over the last 30 years in Australia, we have seen home prices go up and up. It's made many Australians see the value of their wealth ‘on paper’ skyrocket! A home in 1970 might have been bought for $40 000, yet in 2020 it could be worth $900 000. That's quite a good capital return, you'd have to agree. But what it means for many Australians is that their wealth is locked up in their primary home.

Just because you're retiring, it doesn't mean that you give up on your life goals. Retirement is when you actually have the time to do what you want to do, without the hassle of work. Retirement today looks different to our parents’ idea of retirement (and certainly our grandparents’ generation). We now see OPALs everywhere (older people, with active lifestyles) as well as Grey Nomads touring the country, following the sun and the seasons.

When thinking about how you'll fund your own retirement adventures, don't forget the Downsizing Contribution Strategy. You might be able unlock the value of your home to buy something smaller and fund the things you'd like to do. This strategy, in conjunction with a part-time hustle/job or contract work, could really bolster your cash flow. Remember, just because you retire, it doesn't mean that you can't work on a part-time basis doing something you enjoy — after all, is that really work?

How does it work?

Let's take a look at the relevant Superannuation Strategies in this chapter in table 11.8 (overleaf), considering the two distinct types of superannuation structures: industry and retail super funds, and self-managed super funds (SMSFs).

Despite industry and retail super funds having some limits to the Investment Strategies available, most of them offer a wide enough range of asset classes with reasonable fees and costs to operate your super account.

There are a couple of additional special issues to note here too.

When to do it?

Consider your superannuation investment strategy as often as you would your non-super investment strategy. Superannuation investment isn't a set-and-forget investment.

Do

Do consider an Additional Super Investment Strategy:

• At the point you start your superannuation
• Annually, as part of a superannuation performance and investment review
• At the time you do your tax return, and plan forward your asset allocation, asset selection and investment strategy for the coming period.

Don't

Don't fall into these traps:

• Setting and forgetting your superannuation investment strategy — although it's a long-term investment, your risk assessment might change over time
• Forgetting that if you have a self-managed superannuation fund, you need to have your investment strategy documented as part of the fund's administration
• Making superannuation investment decisions without understanding the consequences of your decisions; seek advice if you need to.

Long-term goals deserve progress celebrations

Long-term outcomes (like enjoying your superannuation benefits in retirement) are hard to focus on. They're so far away that it seems like there's no benefit to spending time on them now. But that's not the case with superannuation. If you don't set any goals and take action, you could end up costing yourself tens of thousands of dollars (if not more) over the long term.

Every goal, even superannuation retirement balance ones, can be broken down into a series of smaller steps and milestones. Having goals along the way can bring you a great sense of achievement and confirm that you're on track. Perhaps your first goal is $25 000, then $75 000, then $100 000. Perhaps you have a goal of a $50 000 increase after that. And then, just like the other financial goals you achieve, remember to celebrate achieving each goal. Crack open the champagne every $100 000 or do something else you'll enjoy. Most people wait until they retire to buy a new watch or crack a champagne bottle with friends. That approach seems too little, too late when you stop and think about it. It's much more fun to celebrate your progress towards your long-term goals at stages along the way.

Staying engaged in the goal is vital. If you need a short-term and medium-term reward, set the appropriate targets, hit them and then reward yourself, but don't go stupid — the reward should be tied to the size of the goal.