Why super is such a good idea
Most Australians hate super. Typically, they don’t understand it, they’ve had it forced upon them and most will tell you they have this feeling in the pit of their stomach that they know someone is making a lot of money from their super, it’s just not them.
They also feel they have no control over it. For most, their sole engagement with their super is once a year when they receive a statement, which if they’re lucky will show they have made money during the year and if they aren’t, well for some reason the balance has fallen.
This is really unfortunate as after paying off the mortgage on your own home, I believe putting money into super is your next best financial decision, particularly for those close to or nearing retirement age or if you dislike paying tax and let’s face it that is most of us.
This is because while you are still in the workforce and contributing to superannuation, your savings and the income generated by those savings are taxed at the relatively benign rate of 15 per cent or less.
For most Australians, this is well below their marginal tax rate, so this provides you with an instant benefit. The money you have in your super account will almost certainly be taxed at a lesser rate than if you held these funds outside of super.
More importantly, once you do retire and we set up your own private income stream supported by your superannuation savings, everything becomes tax free. That is both the capital gains made by your investments and the income generated by those investments and in addition, the income paid to you is also paid tax free in your hands.
It is like your own private tax haven.
In fact, if we set your finances up correctly, that you own your own house and have all your remaining assets in super supporting your own income stream then you will never need lodge a tax return again. Ever.
For most Australians, that usually means living up to 30 years or more without paying any income tax.
As a wealth creation strategy, I think super beats all others including buying an investment property as it is so simple and for most people it is also fool proof, and the financial gains can be equal if not greater.
The challenge for most people though is to get as much money as possible into super and this is where it always pays to put any spare money you might have along the way into super. Even if it’s just a few extra dollars a week, it will build up over the future decades.
Yes, there are some clever contributions we can utilize if you have reached the end of your working life and need to quickly boost your overall super savings, but nothing beats slowly contributing to super as you move through your career.