Should You Contribute Extra to Super?

Whether you should contribute more to super is an important question to consider.

If you’re an employee, your employer is legally obliged to pay 9.5% of your ordinary time earnings into superannuation. This payment is known as the superannuation guarantee. It’s currently 9.5% of your ordinary time earnings, but this percentage is scheduled to progressively increase to 12% by 1 July 2025, as indicated in the table below.

Dates Super guarantee percentage (%)
1 July 2014 to 30 June 2021 9.5
1 July 2021 to 30 June 2022 10
1 July 2022 to 30 June 2023 10.5
1 July 2023 to 30 June 2024 11
1 July 2024 to 30 June 2025 11.5
1 July 2025 to 30 June 2026 12

Source: Australian Taxation Office

Will the super guarantee be enough for you to live the lifestyle you want in retirement? The answer to that depends on a range of factors, including:

  • the type of lifestyle that you want to lead in retirement, and
  • your earnings during your working life. The more you’ve earned, the more your employer will have paid into super on your behalf.
  • how long you’ll live. None of us knows that for sure, but medical advances mean that average life expectancy rates are increasing.

When can you access your super?

You can access your super if you retire as long as you’ve also reached your ‘preservation age’. The preservation age in Australia is between 55 and 60, depending on your date of birth, as shown in the table below.

Date of birth Preservation age
Before 1 July 1960 55
Between 1 July 1960 and 30 June 1961 56
Between 1 July 1961 and 30 June 1962 57
Between 1 July 1962 and 30 June 1963 58
Between 1 July 1963 and 30 June 1964 59
From 1 July 1964 60

Source: Australian Taxation Office

You can currently access either a full or part age pension once you turn 66, as long as you also pass the age pension income and assets tests. The age pension eligibility age will increase to 66 years and six months on 1 July 2021, and to 67 for everyone by 1 July 2023.

How much super do you need to retire?

There’s no point retiring if you can’t afford to live the lifestyle you want.

The table below gives you an indication of how much annual income you’ll need to live both modest and comfortable lifestyles, assuming that you already own your own home and you’re fairly healthy.

Lifestyle Single Couple
Modest $27,814 $40,054
Comfortable $43,601 $61,522

Source: Association of Superannuation Funds of Australia (ASFA)

A modest lifestyle would allow you to have a better standard of living than you could afford by relying solely on the age pension. A comfortable lifestyle is one where you could afford a range of additional household goods and services, as well as more recreational activities.

Generating your income in retirement might mean accessing your super, sourcing the age pension if you’re eligible, or a combination of both. Current life expectancy rates in Australia are 84 years for men and 87 for women. So if you retire at 60, you could spend well over 20 years in retirement.

According to ASFA, single people will need $545,000 in super to retire and live a comfortable lifestyle, and couples will need $640,000 (assuming average life expectancy rates). If it looks like you’ll fall short of this figure, you should seriously consider boosting your super as soon as possible. The government provides significant tax incentives for you to do that.

How to boost your super

The most effective way to both boost your super and save tax as you head towards retirement is by salary sacrificing. Pre-tax super contributions are taxed at the concessional rate of just 15% in Australia, which is lower than even the lowest marginal tax rate.

How we can help

At Qi Wealth, our experienced, expert team of superannuation advisers can help you to build and protect your retirement nest egg. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice. We develop long-term, trusted relationships with our clients.

Contact us today to find out how we can help you!