Many people have a love-hate relationship with superannuation. So it is worth considering whether super should still be a major focus of your wealth accumulation strategies.
Let’s explore some of the advantages and disadvantages of superannuation.
– Superannuation forces you to take a long-term investment view, as the funds cannot be accessed until you reach preservation age. This helps your investments to maximise the compounding benefits. You can read more about compounding by clicking here.
– Regular contributions help you dollar-cost average (i.e. buy small parcels of investments over time). This can help you minimise market-timing risk, i.e. buying at a time when the share market is about to decline.
– Super is still (one of) the most tax-effective investment vehicle(s), both in terms of contributions tax and tax on investment earnings particularly in pension phase where the tax rate is potentially 0%;
– You can take advantage of smart planning strategies such as salary sacrifice and transition to retirement, to actively build wealth and reduce income tax.
– As mentioned before, access to capital is restricted and the preservation age may continue to be increased in the future, which restricts your options to retire early.
– Superannuation has become less attractive for high-income earners such as doctors and other white-collar professionals and executives – if your income is over $300,000 you may be subject to the Division 293 tax – super contributions will be taxed at 30% rather than 15%.
– The contribution limits are quite low compared to a few years ago – this limits your option to contribute funds tax-effectively. You may have to start planning earlier to maximise your super.
– Superannuation is likely to be subject to further legislative changes, which will reduce its attractiveness and tax-effectiveness. This uncertainty will continue to put people off building their super.
There is no doubt that superannuation should form part of your wealth accumulation strategy.
However, for many of my high net worth clients, such as doctors, lawyers and engineers, we are using additional non-superannuation strategies to actively build wealth. We ensure the strategies are complementary and provide more flexible access than super, but are still very tax-effective.
If you would like to review your superannuation benefits and strategies, and explore other wealth creation options, please call me on 08 9381 2704 for a free initial consultation.
Disclaimer: Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313. The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.