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Superannuation–or ‘super’ as most us Aussies refer to it–really is quite super, when you look at what it makes possible for you, and the unnecessary tax it helps you avoid.

In this article we’ll explain why, whether you’re a business owner or an employee, superannuation is an opportunity too good not to take advantage of.

Super complacent?

If superannuation is such a great opportunity, why don’t more Australians proactively manage their super and stay on top of their super strategy?

In our experience working with thousands of clients over almost 5 decades:

• many business owners think of their business (and the eventual sale of it) as their ‘surrogate super’ to fund their retirement, and
• many employees pick a retail or industry fund and then adopt a ‘set and forget’ approach to their super.

Both approaches can work out very costly.

Let’s look at how you can make super work best for you, and save literally tens or even hundreds of thousands of dollars in the process.

The train is leaving the station, now

Author and speaker Jim Rohn once said, “We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.”

Have you ever experienced regret about something you failed to do, or do soon enough? It hurts. For many things in life, there’s no do-over, no travelling back in a time machine to make things right. And making (or failing to make!) investment decisions is certainly one of those areas in life.

To create the income and lifestyle you want for the future requires making good decisions now, not in the years to come. Now is the time to learn how to fund an abundant retirement.

Abundant vs comfortable lifestyle

You will have heard a lot over the years about planning for a ‘comfortable’ retirement. But is comfortable what you really want? Paying the bills and getting by?

The fact you’re reading this probably means you want more than ‘comfortable’; you want an abundant lifestyle with more choices over how you live, ways you can support your family, how often and where you travel, and generally reap just rewards for your many decades of hard work.

The official definition of a comfortable standard of retirement doesn’t provide too many lifestyle choices. The Association of Superannuation Funds of Australia (AFSA), the advocacy body for Australia’s superannuation industry, publishes The AFSA Comfortable Standard for health, vitality and connection in retirement. You can read the explainer and a summary infographic on their website here.

Under the ‘Connecting with family’ heading in the infographic you’ll see listed:

• One domestic flight per year
• One international flight every seven years 

You don’t have to be great with numbers to realise that there are not too many 7-year chunks of time left after retirement. On a ‘comfortable’ standard of retirement, you’ll be visiting your local club, taking day trips and watching streaming shows about travel, while those who have achieved an abundant retirement lifestyle will be on their way to the airport, again.

AFSA says the lump sums required for a comfortable retirement, assuming that the retiree(s) will draw down all their capital, and receive a part Age Pension are:

• $690,000 for a couple
• $595,000 for a single person

What’s scary for many Australians is that the average super balance at age 65 is $300,000. 

With that little super, you’ll be living more towards what they call a ‘modest’ lifestyle which AFSA describes as having, for example, a cheaper, older, more basic car, infrequent leisure activities, limited budget for home repairs, budget haircuts (eek!), limited dining out at inexpensive restaurants, infrequent home-delivery or take-away, limited budget to replace or update worn clothing and footwear, and only one domestic flight a year. No overseas travel.

That’s painting a bleak picture! And that’s not your future. Not if you make some specific decisions now, and then act on them.

How much super is enough for an abundant retirement?

That’s a really tough question to answer, because financial freedom is different for everyone. But in our experience, most people need 70% to 80% of their pre-retirement income to fund their retirement lifestyle.

Based on:

• super fund annual return of 8%, 
• an inflation rate of 2%, 
• wanting your income to last 25 years (e.g. live to 90 after retiring at 65), and 
• living on 75% of your current income…

…here’s how much you’ll need as your super balance at retirement:

How do you feel about your required retirement lump sum? Do you feel your super strategy and current balance are on track? Or off the rails?

How to know if you’re on track with your super

Whether you’re self-employed or working as an employee, take this quick quiz to see whether you’re on track with managing your superannuation and retirement plan.

Do you know:

1. how many super funds you have?
2. the name of your super fund(s)?
3. your current super balance?
4. your asset allocation?
5. the underlying investments?
6. the insurance cover included?
7. the annual tax savings you’re achieving with your current super strategy?

If you answered No to any of these questions, your super strategy is unlikely to be on track. If you answered No to 3 or more of them, your super strategy is most likely off the rails.

The good news is, we know how to keep it—or get it back on—track for you.

Why is superannuation so super?

Pop quiz: Is superannuation a great investment?

Answer: No.

Trick question, sorry! 

Superannuation is an investment structure, not an investment itself. It’s an investment vehicle through which you make investments.

So the more relevant question is, “Is superannuation a great investment structure?”

Answer: In most circumstances, absolutely.

Here are 10 advantages of superannuation over other investment structures:

1. Tax-Efficient Savings: The tax treatment of superannuation contributions, fund earnings, and benefit payments is generally more favourable than other forms of savings or investment, which can help grow your retirement savings faster.
2. Compulsory Employer Contributions: If you’re an employee, your employer is legally required to make regular contributions to your superannuation (the Superannuation Guarantee). As of July 2023, this is 11% of your salary. This will increase to 12% of your salary by July 2025.
3. Voluntary Contributions: You can contribute extra to your super fund, either from your pre-tax salary (concessional) or from after-tax money (non-concessional), which can help boost your retirement savings.
4. Compound Interest: The longer your money is in your super fund, the more opportunity it has to earn compound interest. This is where your money makes money for you. Compound interest significantly increases the total amount in your super fund over time.
5. Investment Options: Most super funds offer a range of investment options, allowing you to choose the risk level and potential return that suit your personal circumstances and retirement goals.
6. Insurance Benefits: Many superannuation funds offer insurance options for their members, such as life insurance, total and permanent disability insurance, and income protection insurance. This can simplify your life–having all this through one account–and often helps ease the cashflow burden for these important financial items.
7. Retirement Income Stream: Once you reach preservation age, you can use your super to start a regular income stream (self-funded pension) for your retirement.
8. Government Contributions: If you’re a low or middle-income earner and make after-tax contributions to your super, you may be eligible for government contributions to your super fund, which can help boost your retirement savings.
9. Spousal Contributions: If your spouse is a low-income earner or not working, you can make contributions to their super fund and may be eligible for a tax offset.
10. Asset Protection: Superannuation is generally protected from creditors if you become bankrupt. This can provide some security and peace of mind in unexpected circumstances.

Whichever way you look at it, superannuation is a great investment vehicle and most likely—pending tailored professional advice based on your circumstances—should be part of your investment mix whether you’re employed or self-employed.

Why do some people say they don’t like superannuation?

Like anything in life, it’s not all rainbows and unicorns. Superannuation has many benefits, but it’s not without some drawbacks.

Here are some of the commonly criticised aspects of superannuation:

1. Inaccessibility: Your money is typically locked away in a super fund until you reach your preservation age (60 if you were born on or after 1 July 1964), which can be a source of frustration if you need access to your funds earlier. However, this is really protecting you from yourself. Dipping into super early has a major impact on your ability to generate compound interest over the long term and will reduce your retirement income.
2. Investment Risks: Like any investment, superannuation comes with risk. The value of your super can rise and fall with market conditions, which may impact the final balance of your super at retirement.
3. Fees: All super funds charge fees, which vary depending on your fund and investment option. High fees can eat into your retirement savings, especially over the long term. And by the way, when you hear a super fund claim they don’t charge fees, that’s usually because they take the fees before they pay your return. There’s really no such thing as fee-free, it’s just “spin”.
4. Limited Control: While you can choose your fund and investment option, you often have limited control over the specific investments your money is placed in. Self-Managed Superannuation can overcome many of these limitations, but it’s not a good fit for many people. We can advise you on that, specific to your circumstances.
5. Regulatory Changes: Superannuation rules and regulations can and do change, often with each new federal government budget. This can affect your retirement planning and require you to frequently adjust your strategy.
6. Insurance Premiums: If you have insurance through your super fund, the premiums are deducted from your super balance, which can reduce your retirement savings over time. We often recommend taking this into account with your contribution strategy. 
7. Complexity: Superannuation can be complicated to understand, especially when it comes to tax, contributions, and choosing an investment option. This can be overwhelming and potentially lead to suboptimal decisions.
8. Tax on Withdrawals: While superannuation is tax-efficient in terms of contributions and fund earnings, you may have to pay tax when you withdraw your super, particularly if you access your super before you reach the age of 60.
9. Multiple Accounts: If you’ve changed jobs and didn’t specify your preferred super fund, you might end up with multiple super accounts, each charging fees. This can eat away at your savings.
10. Impact of Breaks in Work: Taking extended breaks from work, such as parental leave, can result in lower superannuation savings due to missed contributions during these periods.

Our financial advisers can help you mitigate against the effect of some of these issues such as excessive investment risks, high super fund fees, the regulatory changes and dealing with the complexity.

That last point leads to…

Why an annual review of your super is necessary

Superannuation can be complex and, as we mentioned above, it often changes when federal governments change.

Making prudent, informed choices about superannuation requires tailored advice from a professional because a lay person does not have the time to fully understand the following, and nor can a lay person easily work out which is relevant to them at a particular point in time:

• Salary sacrifice
• Deductible contributions
• Spouse contribution
• Government co-contribution
• Deductible insurance premiums
• Transition To Retirement (TTR)
• Tax free income in retirement
• Low tax/no tax on earnings
• Low tax/no tax on capital gains
• Small business CGT concessions

The good news is, we love this stuff. And we love getting and keeping our clients on track with their superannuation strategy.

An annual review of your super strategy is necessary because in addition to superannuation changes, your life changes and evolves from one year to the next, which can affect your choices around your risk profile, asset allocation and insurances required.

If you’ve read this far, we’ll assume you’re on board with:

• Superannuation is a great investment vehicle, and
• You need to review your super strategy each year with a professional adviser.

Let’s now look at some specific tips for business owners and employees, respectively…

• Super tips for business owners
• Super tips for employees

Superannuation and retirement planning tips for business owners

Many self-employed people invest in their business with the expectation it will provide financial freedom and a fantastic lifestyle in retirement. They’re entrepreneurs. They believe in themselves and they, quite literally, back themselves. And that’s brilliant.

They naturally intend to grow their business to a point where they can either:

• sell it for the best price possible or 
• earn an income from it for the rest of their life. 

All the eggs in one basket?

Back to the point that life is not always rainbows and unicorns, things don’t always work out as planned. We believe it’s wise to hope for the best, but plan for the worst. That’s called risk mitigation. You don’t just have Plan A. You have a Plan B. And probably a Plan C, too.

For example, what happens to a business owner and their family if:

• their business fails or
• just plods along financially or 
• doesn’t sell for what they expected or
• takes years longer to sell than anticipated?

Unfortunately, in the current economic climate we’re seeing the above scenarios more often.

Retiring owners are putting their businesses on the market, expecting them to sell within a few months, but instead are finding it takes years, and so they have no choice but to keep working.

Another concern is with the pace of technological change such as artificial intelligence and automation, we’re seeing not just businesses but entire industries become obsolete.

Change is rampant and it can be difficult to predict.

Financially prudent business owners understand they can’t afford to have their head in the sand about it. They know they need a Plan B beyond the Plan A of “our business is our super”.

Diversification will help you sleep better

One of the best ways to manage and mitigate risk for a business owner is by diversifying. The backup plan that diversification provides also greatly reduces your stress along the journey.

For funding an abundant retirement, we recommend building a combination of your:

1. 1. business value, 
   2. long-term savings, and
   3. superannuation

In addition to spreading your eggs across more than one basket to reduce your risk, the tax savings alone are worth including superannuation in your retirement planning.

Sadly, however, in working with many hundreds of business owners over the years, it’s superannuation that has often been neglected before they come to us for financial and business exit advice.

We get it. Running a business is demanding. It’s not surprising to have thoughts like:

• “I don’t have enough time.”
• “I’m too busy to think about it now.”
• “I’ll get to it later.”

But to delay taking action on your super is to deny yourself a solid backup plan for achieving your abundant retirement lifestyle.

Don’t be among the many Australian business owners who are underfunded when they reach their desired retirement age. Far too often we meet business owners who decide to get serious about their super a year or two from retirement. 

That’s too late. Sure, it’s better than doing nothing at all, but a little planning earlier on could have made a massive difference to their retirement income and lifestyle.

Small business CGT concessions are expensive to ignore

Consider this real-life example

• A couple came to us in their late 40’s.
• They were beginning the 18-month process of selling their business.
• They assumed they were doing everything they could to minimise their tax.
• Like many business owners, they hadn’t understood the small business Capital Gains Tax (CGT) concessions.
• We checked their eligibility and made sure their situation ‘ticked all the boxes’.
• The business ultimately sold for $2 million.

If we hadn’t checked their structure:

• Their tax bill upon the sale of their business would have been $250,000.
• Instead, as a result of our review of their structure and implementing changes, they paid no tax! Yes, $0.00 in tax.
• They were able to contribute $500,000 to their super, which is now tax-free and growing!

Outcomes like this—saving $250,000 in tax—are not uncommon when retiring business owners plan ahead.

Yes, there’s more than meets the eye to achieving this outcome, which is why professional advice is necessary. To be eligible for the small business CGT concession:

• Your net worth need to be less than $6 million, and
• You need to have at least 20% ownership in the business.

Then you must either:

• Re-invest the taxable gain into another business, or
• Put up to $1 million into super tax-free
• Or be over age 55

There are always exceptions and other details to consider of course, and in this case there’s also the small business 15-year exemption (if you have owned the business for more than 15 years) and the small business retirement exemption for business owners who meet certain requirements.

You can potentially pay no tax on the sale of your business BUT there is a long list of “ifs” and buts”. It’s a VERY technical and complex issue. Our advisers are across all of these and can guide you accordingly.

Superannuation and retirement planning tips for employees

Employees also have some great super strategies available to them.

For example, for someone approaching retirement age who wants to start working fewer hours without experiencing a drop in income, ‘transition to retirement’ (TTR) lets them access some of their super while still working.

Setting this up can be complicated, so talk to us for advice on implementing it, but the TTR basics are:

• If you’ve reached your superannuation preservation age (between 55 and 60) and 
• You are still working, then
• You can supplement your income if you reduce your work hours, or
• Boost your super and save on tax while you keep working full time.

You can start a TTR pension by transferring some of your super to an account-based pension. We can help you with this.

You also need to keep some money in your super account to continue to receive your employer’s compulsory contributions and/or any voluntary contributions you make.

Here are some superannuation practical tips for people of various ages:

For those in their 20’s and 30’s:

1. Start early: Time is the most valuable asset when it comes to superannuation. The earlier you start, the more your money will grow over time due to compounding.
2. Understand your investment options: Many superannuation funds offer a variety of investment options. Make sure you understand these and choose ones that align with your risk tolerance and long-term goals.
3. Consolidate your superannuation accounts: If you’ve had more than one job, it’s likely you have multiple super accounts. Consolidating them can save you money on fees and make managing your super easier.

For those in their 40’s:

1. Increase contributions: If possible, increase your super contributions beyond the compulsory amount. This could be through salary sacrificing or making non-concessional (after-tax) contributions. This will help grow your super balance faster.
2. Review your investment strategy: As you get closer to retirement, you may need to reassess your risk level and investment strategy to ensure it is still appropriate for your age and retirement goals. You don’t want a sudden share market crash just before you had planned to retire, to cause your super balance to take a dive, meaning you’ll have to work for more years than you’d planned.
3. Check your insurance: Superannuation funds often provide life, total and permanent disability (TPD), and income protection insurance. Ensure these policies provide sufficient coverage for your needs, especially if you have dependents.

For those in their 50’s and 60’s:

1. Start a transition to retirement (TTR) strategy: As we outlined earlier, this strategy can help you reduce your working hours while maintaining the same income, or continue to work full-time and boost your super at a lower tax rate.
2. Understand the Age Pension: Check your eligibility for the Age Pension and understand how it can supplement your superannuation income in retirement.
3. Seek professional advice: Retirement planning can be complex. Professional advice can be beneficial to ensure you’re on track and to help with decision making as you near retirement.
4. Plan for estate distribution: Ensure your superannuation fund has an updated binding nomination that aligns with your estate planning. This specifies who you’d like to receive your super benefits in the event of your death.

Keep in mind that these are general tips and individual circumstances vary. Always seek advice from a professional before making decisions about your superannuation.

Make a time today to review your super strategy

Whether you’re a small business owner or an individual employee, think of superannuation and retirement planning as your ticket to an abundant retirement.

A comfortable retirement sounds good, but an abundant one sounds better, doesn’t it?

Start today. Your future self will thank you for it.