Retirement Planning Learning Centre

What is Superannuation?

Superannuation (or "super") is Australia's compulsory retirement savings system, established to help Australians save for retirement. Your employer is required by law to contribute a percentage of your salary into a super fund.

Superannuation Guarantee (SG)

For the 2024–25 financial year, the Superannuation Guarantee rate is 11.5% of your ordinary time earnings. This rate is legislated to increase to 12% by 2025–26.

Important: Your SG contributions are made on top of your salary — they're not taken out of your pay (unless your employer has a different arrangement).

How Super is Invested

Your super fund invests your money in various asset classes:

• Cash — lowest risk, lowest return
• Bonds/fixed income — moderate risk and return
• Property — medium-high risk and return
• Shares (equities) — highest risk but historically highest long-term returns

Most Australians are in a "balanced" or "growth" option, which aims for 7–8% p.a. returns over the long term.

When Can You Access Super?

You can access your super when you reach your preservation age (currently 60 for those born after 1/7/1964) AND:

• Retire from the workforce, OR
• Turn 65 (regardless of employment status)

You can also access super under certain other conditions like permanent incapacity or terminal illness.

Tax on Super

Super is one of the most tax-effective investment vehicles in Australia:

• Contributions tax: Concessional (pre-tax) contributions are taxed at 15% inside your fund (vs your marginal tax rate)
• Earnings tax: Investment earnings inside super are taxed at 15% during accumulation phase
• Retirement phase: Zero tax on earnings AND withdrawals after age 60 from a taxed fund

Concessional Contributions (Pre-Tax)

Concessional contributions are made from pre-tax income and include:

• Employer Superannuation Guarantee contributions (11.5%)
• Salary sacrifice contributions
• Employer additional voluntary contributions
• Personal contributions you claim a tax deduction for

2024–25 Cap: $30,000 per year

These contributions are taxed at 15% inside your super fund. If your income plus concessional contributions exceed $250,000, you pay an extra 15% (Division 293 tax).

Carry-Forward Contributions

If your Total Super Balance (TSB) is under $500,000 at 30 June of the previous year, you can carry forward unused concessional cap amounts from up to 5 prior years (from 2018–19).

Non-Concessional Contributions (After-Tax)

Non-concessional contributions are made from after-tax income and include:

• Personal contributions where you don't claim a tax deduction
• Spouse contributions

2024–25 Cap: $120,000 per year

No additional tax is charged on these contributions inside super (you've already paid tax).

Bring-Forward Rule

If you're under 75, you may be able to contribute up to 3 × $120,000 = $360,000 over 3 years using the bring-forward rule, subject to your TSB.

Which Should You Use?

Generally, salary sacrifice (concessional) is the most tax-efficient for most working Australians. The tax saving is the difference between your marginal tax rate and the 15% contributions tax.

Example: If you earn $120,000, your marginal rate is 37%. Salary sacrificing $10,000 saves you $3,700 - $1,500 = $2,200 in tax per year.

Who is Eligible?

To receive the Age Pension you must:

• Be age 67 or over
• Be an Australian resident for at least 10 years
• Pass the assets test AND income test
• Satisfy residency requirements

The Assets Test

Centrelink assesses all assets except your primary home. The more assets you have, the lower your pension.

2024–25 Thresholds (homeowners):

For every $1,000 of assets over the lower threshold, your fortnightly pension reduces by $3.

The Income Test

Income is assessed using deeming rates applied to financial assets (super, shares, bank accounts, etc.).

Deeming rates (2024–25):

• First $60,400 (single) / $100,800 (couple): 0.25% p.a.
• Above that: 2.25% p.a.

This deemed income is added to any other assessable income (e.g. rental income, employment).

Your pension reduces by 50 cents for every $1 of income over the free areas ($204/fn single, $360/fn couple).

The Work Bonus

If you're eligible for the pension and you work, $300 per fortnight of employment income is excluded from the income test. Unused Work Bonus accumulates up to $11,800.

Result

The lower of the assets test pension and income test pension is your actual Age Pension.

Full pension 2024–25:

• Single: $1,116.30 per fortnight ($29,024/yr)
• Couple combined: $1,682.80 per fortnight ($43,753/yr)

The pension is indexed in March and September each year.

What is Negative Gearing?

A property is negatively geared when your deductible costs (mortgage interest, rates, strata, management fees, repairs, depreciation) exceed your rental income. The resulting loss can be offset against your other income, reducing your tax.

Example:

• Rental income: $26,000/yr
• Mortgage interest: $28,000/yr
• Other costs: $8,000/yr
• Net loss: -$10,000/yr
• Tax saving (at 32.5% marginal rate): $3,250/yr

Depreciation

Building depreciation (Division 43) and plant & equipment depreciation (Division 40) can significantly increase your deductible losses. A depreciation schedule from a quantity surveyor typically costs $500–$800 but can save thousands in tax.

When Does It Turn Positive?

As rents increase over time and your mortgage balance reduces, most negatively geared properties eventually become positively geared. This transition is important for retirement planning as:

1. Rental income becomes a positive cash flow stream

2. You'll pay tax on the net rental income

3. The property contributes positively to your retirement income

Capital Gains Tax

When you sell an investment property, the profit is added to your income in that year. If you've held it for over 12 months, you get a 50% CGT discount — meaning you only pay tax on half the gain.

In retirement, your lower income may mean a lower CGT rate. Strategic timing of property sales can minimise your tax.

Property vs Super

Investment property and super both have merits:

• Property: Leverage, tangible asset, negative gearing benefit
• Super: Tax-effective earnings in accumulation (15%), tax-free in retirement, no CGT

A balanced approach using both is typically recommended.

What is the ASFA Retirement Standard?

The Association of Superannuation Funds of Australia (ASFA) publishes a quarterly budget guide showing what Australians need to fund different retirement lifestyles. These figures are for retirees aged 65–85.

Current Figures (2024–25)

Modest Lifestyle (covering essentials, limited leisure):

• Single: $33,134/yr
• Couple: $47,387/yr

Comfortable Lifestyle (good standard, some travel, dining out, new car):

• Single: $51,805/yr
• Couple: $72,663/yr

What Does Comfortable Include?

The ASFA Comfortable standard assumes you can:

• Maintain good health with private health insurance
• Own a reasonable car, replacing it every 10 years
• Take a domestic holiday once a year and one international trip every 7 years
• Eat out regularly and enjoy leisure activities
• Purchase brand-name goods occasionally
• Have home repairs done by professionals

What Does Modest Include?

The Modest standard is better than the Age Pension alone but still quite limited:

• Basic health care (no private health insurance)
• An older car
• Only local holidays
• Limited leisure and social activities

How Much Super Do You Need?

ASFA estimates the lump sum at retirement needed to fund a comfortable lifestyle:

• Single: ~$595,000 in super (plus part Age Pension)
• Couple: ~$690,000 combined (plus part Age Pension)

Note: These are 2024 estimates assuming a 20-year retirement. Longer retirement = more needed.

What is a Transition to Retirement (TTR)?

Once you reach your preservation age (60), you can start a TTR pension — drawing income from your super while still working.

How the TTR Strategy Works

The classic TTR strategy involves:

1. Start a TTR pension to draw 4–10% of your super balance as income

2. Increase your salary sacrifice contributions by the same amount

3. Net result: same take-home pay, but more of your income is in the super tax environment

Why does this save tax?

• Salary sacrifice is taxed at 15% instead of your marginal rate
• TTR pension earnings are taxed at 15% (same as accumulation)
• Pension withdrawals after age 60 from a taxed fund are tax-free

Example

Sarah (age 60) earns $100,000, has $400,000 in super.

Without TTR:

• Tax on $100k salary: ~$26,497 + Medicare = ~$28,497

With TTR:

• Sacrifice $20,000 more into super (total $31,500 concessional)
• Start TTR pension drawing $20,000/yr tax-free (after 60)
• Same take-home pay, but tax saving of ~$3,400/yr
• Plus: super balance grows faster due to lower tax on contributions

Important Changes Since 2017

From 1 July 2017, TTR pension earnings are taxed at 15% (not 0% as previously). This reduced the benefit of TTR for high-balance accounts, but the strategy still has merit for many people.

Is TTR Right for You?

TTR works best when:

• You're aged 60–67 (pre-retirement age)
• Your marginal tax rate is 32.5% or above
• You have significant super to draw from
• You're still working full-time or part-time

What is Salary Sacrifice?

Salary sacrifice is an arrangement between you and your employer where you agree to give up part of your pre-tax salary in exchange for your employer making additional super contributions on your behalf.

The Tax Saving

The core benefit is the difference between your marginal tax rate and the 15% contributions tax in super.

Note: If income + concessional contributions exceed $250,000, Division 293 tax adds another 15% on contributions.

The 2024–25 Concessional Cap

Total concessional contributions (SG + salary sacrifice + any personal deductible) cannot exceed $30,000/yr.

First check how much room you have:

1. SG contribution = Salary × 11.5%

2. Room = $30,000 – SG contribution

3. This is your maximum salary sacrifice

Effect on Take-Home Pay

Salary sacrifice reduces your taxable income, so:

• Your income tax decreases
• Your Medicare levy decreases
• Your disposable income decreases, but by less than the sacrificed amount

Example: Sacrifice $10,000/yr on a $100k salary:

• Pre-tax: $100,000 → net ~$73,503
• Post sacrifice: $90,000 → net ~$66,403
• Net pay reduction: $7,100
• Super gained: $8,500 (after 15% tax)
• Net benefit: $1,400/yr + super compounding

Who Benefits Most?

Salary sacrifice benefits highest earners most (higher marginal rate = bigger saving). However, anyone with a marginal rate above 19% gets a benefit.

Low income earners (under $37,000) may be better off with after-tax (non-concessional) contributions and claiming the government co-contribution.

What is an SMSF?

A Self-Managed Super Fund (SMSF) is a private super fund that you manage yourself. You can have up to 6 members (usually family members). The trustee (you) is responsible for all investment decisions and compliance.

Advantages of an SMSF

• Investment flexibility: Direct shares, commercial property, residential property (subject to rules), unlisted investments, collectibles
• Control: You decide how your money is invested
• Estate planning: SMSFs offer flexible estate planning strategies
• Potentially lower fees: At high balances, percentage-based industry fund fees can exceed SMSF running costs
• Business real property: You can hold your business premises inside your SMSF

Disadvantages and Risks

• Compliance burden: Annual audit, tax return, and compliance with SIS Act and ATO regulations. Breaches can be costly.
• Cost: Running costs of $3,000–$5,000+/yr for accounting, audit, and advice
• Time: Requires ongoing time and attention to manage properly
• No CSLR protection: Unlike retail super funds, SMSF members are not covered by the Compensation Scheme of Last Resort for fraud
• Advice requirement: You're personally liable for investment decisions

The Break-Even Balance

Most financial advisers suggest an SMSF is cost-effective at around $400,000–$500,000 combined balance. Below this, the fixed costs outweigh the benefits.

Key Rules

• Cannot lend money to members or relatives
• Cannot acquire assets from members (with some exceptions)
• Investments must be on arm's-length terms
• Must maintain an investment strategy
• Annual audit by an approved SMSF auditor

Should You Get an SMSF?

Consider an SMSF if:

• Your combined super exceeds $400,000
• You want to hold specific assets (business property, direct shares)
• You're prepared to engage a specialist SMSF accountant/auditor
• You have the time and interest to be engaged in managing your investments

Avoid SMSF if you want a simple, set-and-forget approach.

What is the Downsizer Contribution?

The Downsizer Contribution allows Australians aged 55 or over to make a one-off contribution into super from the proceeds of selling their home — outside the normal non-concessional cap.

How Much Can You Contribute?

• Up to $300,000 per person
• Up to $600,000 per couple (even if only one owns the home)
• Must be within 90 days of settlement

Eligibility Requirements

1. You must be 55 or older at the time of contribution

2. You (or your spouse) must have owned the home for at least 10 years

3. The home must be in Australia and eligible for the main residence CGT exemption (full or partial)

4. You must not have previously used the downsizer contribution

5. The contribution cannot exceed the proceeds received from the sale

Key Features

• No age limit: Unlike regular contributions, there's no age restriction on the upper end
• No work test: You don't need to be working to make a downsizer contribution
• No TSB restriction: Your Total Super Balance doesn't affect your eligibility
• Not a concessional contribution: No contributions tax applies to downsizer contributions
• Age Pension: Downsizer contributions count towards your assessable assets for Centrelink

Tax Treatment

Downsizer contributions are a special type of non-concessional contribution:

• No 15% contributions tax
• No non-concessional cap counting
• Once in super, earnings are taxed at 15% (or 0% in retirement phase)

Practical Example

John (63) and Mary (61) sell their home for $1.2M and downsize to a $700,000 apartment.

• Net proceeds: $500,000
• John contributes: $300,000 to his super
• Mary contributes: $200,000 to her super
• Total: $500,000 boosted into the super system tax-effectively

Super Withdrawals (After Age 60)

Lump sums and pension payments from a taxed super fund are completely tax-free once you turn 60. This is one of the most significant tax benefits available to retirees.

Note: If you have "untaxed" super (some defined benefit schemes), tax rules differ.

Age Pension

The Age Pension is assessable income for income tax purposes. However, because the amounts are relatively modest, most age pensioners don't pay income tax due to:

• Low Income Tax Offset (LITO): up to $700
• Seniors and Pensioners Tax Offset (SAPTO): up to $2,230 (single) or $1,602 each (couple)
• These offsets effectively raise the tax-free threshold to around $33,000 for singles receiving the pension

Investment Income

If you have investment properties or shares outside super, any net income remains fully taxable:

• Rental income (net of deductions): taxed at marginal rates
• Dividends: taxed (but franking credits can offset some or all tax)
• Capital gains: taxed with 50% discount if asset held 12+ months

Medicare Levy

The Medicare Levy of 2% applies to taxable income above $26,000 (2024–25). It applies to investment income and the Age Pension, but not to tax-free super withdrawals.

Seniors and Pensioners Tax Offset (SAPTO)

SAPTO is a tax offset for people who receive the Age Pension or meet certain criteria. For 2024–25:

• Single: up to $2,230
• Each member of a couple: up to $1,602
• Unused SAPTO can be transferred between spouses

SAPTO effectively allows eligible seniors to have taxable incomes of around $33,000 (single) or $28,000 each (couple) without paying income tax.

Low Income Tax Offset (LITO)

LITO provides a tax offset of up to $700 for incomes below $37,500, tapering to zero at $66,667. Available to all taxpayers including retirees.

Practical Example: Tax in Retirement

Scenario: Retired couple, both age 70, own their home. John receives partial Age Pension, both withdraw from super.

Both pay zero income tax despite a combined household income of over $113,000.