Are you wondering how in the world you’re supposed to get your super fund large enough to retire on?
It’s something that might feel out of reach when you’re on the front end of the process. Your employer’s contributions might not be enough to get your super to where it needs to be before you hit retirement age. And it’s challenging to think about making voluntary contributions.
We get it. That said, there are several ways that you can make halal contributions to your super and retire at the right age. We’re going to explore some tips on retirement investment today, giving you a little insight into how you can grow your nest egg.
Read on to get started.
1. Understand Concessional Contributions
There are two primary ways that you can make contributions to your super when it comes to taxes.
Concessional contributions are those that go into your account before taxes. These tend to be contributions that are made by your employer or arranged with your paycheck to go directly into your super before taxes.
Your employer’s superannuation guarantee is a concessional contribution, and the total amount goes into the account without being taxed. You can also work out a salary sacrifice with your employer to direct money from your paycheck directly into your retirement fund.
Another way to make a concessional contribution is to put money into your account to write it off in your taxes. These are called personal deductible contributions.
The annual maximum for concessional contributions is $25,000. That said, this figure will increase by 10 per cent in July of 2021. That will bump the maximum up to $27,500 per year.
At the point of withdrawal, concessional contributions won’t be taxed more than 15 per cent. There’s a good chance it will be taxed less than that as well.
This is far more appealing than the marginal tax rate that could be as high as 47 per cent if you weren’t to use a concessional contribution. It’s a great way to increase the money in your account and avoid paying high taxes on your paycheck if you have it sent right into your super.
These are contributions made from you that come after taxes.
In other words, they’re the funds that you pitch into your retirement from different areas in your life. Maybe you save some money here and there to contribute each month, or perhaps you’re someone who likes to throw all of the extra money they have toward retirement.
You can also explore different saving or investing options that help make you money, only to put them into your super account as a non-concessional contribution.
The cap for non-concessional investments is $100,000, but it will soon be bumped up 10 per cent as well.
2. Make Sure Contributions are Coming
One massive piece of the health of your super is whether or not your employer is making contributions.
They’re required to contribute to your super regardless of how much they pay you now. Up until the last few months, the deal was that employers had to make super contributions only if they paid an employee $450 per month or more.
Now, however, the rule is that they pay contributions for all employees. This is a big step for many people who work multiple jobs and don’t wind up making significant sums from particular employees. This change will help many people with low incomes who would otherwise not get matched super contributions.
The rate employers have to pay is 9.5 per cent of your salary. The tricky thing, though, is that it’s hard for the government to monitor whether or not you’re being paid. It’s on you to look at your account and make sure the contributions are going through.
If your employer is refusing to pay, then you can get in touch with the authorities. First things first, though, you have to check on your account and ensure that your getting the appropriate contributions.
3. Consolidate Various Super Accounts
If you’re a person who works multiple jobs or has worked a number of jobs in the past, there’s a good chance that you have a few super accounts under your name.
It’s not always the case that your employer will put the money into the account that you used with your previous job. So, even if you’ve long since quit your old job, it’s important to go back and figure out where that money is sitting.
You were getting contributions if you made more than $450 per month, and that money might have grown a fair amount if you lost that job a long time ago. There are a number of options you can use to transfer that money into one super.
That said, there might be tax penalties or fees that you’re faced with paying if you do so. So, it’s always better to have a grasp on the state of your super and discuss the particulars with each new employer so that they know where to send your money.
Doing so will save you a headache as well as keep your funds tightly in one place.
4. Appreciate The Nature of Super Growth
If you’re just starting out with a retirement account, you might feel like it’s not worth it to start investing now. You might also wonder how in the world all of those little contributions are going to be enough.
The thing about retirement investing is small contributions early turn into massive sums later. This occurs through the process of compound interest.
Under a certain amount, you won’t see your super growing all that much. Even within the first ten years or so, those figures will remain roughly where they are. You’ll see a little growth, but it won’t be anything that knocks your socks off.
After that, though, you’ll start to see that the size of your super grows exponentially. Each year, you might see a rise from ten thousand, to fifteen thousand, to thirty thousand, and so on. Soon, that figure will go from eight hundred thousand to one million, to one point five million.
So, it might feel like a big pain to kick a little money into your super every month, but you’ll thank yourself later. Those minor contributions are, in the big picture, actually worth a lot more than they seem.
5. Make Contributions Early
If you’re wondering how to invest for retirement, our best trick is to start with small contributions as soon as you can.
The idea that you have to put a lot of money toward retirement is a myth. You let the power of interest and time work for you. The tricky part is getting that sum to the critical point where it starts to turn over and make you huge sums of money.
The higher you go, the more you’ll see that process start to unfold. When you’re still in your 20s, your goal might be to see growth that exceeds your initial non-concessional contributions.
For example, let’s say that you started out by putting $40 into your super each week. It will take a while before the value you gain is noticeable. That said, you’ll have contributed around $10,000 after five years.
Each week, that $10,000 will generate much more interest than your initial $40 contribution. All of that money might be in your super account, and your income might not have changed any, but your investment will be growing at a higher rate.
At this point, you can calculate whether you can reduce your weekly contribution and still retire on time.
5. Know The Safest Retirement Investment Options
Your super account will offer flexibility on the kind of investments that you can work with. That might mean that you’re choosing where your money goes, being as aggressive or cautious with it as you want to be.
It’s important to have a good idea of how retirement investment options work, though, and whether you’re making smart decisions with your hard-earned money. It’s wise to invest a good portion of your super into a relatively safe place.
The interest rate might be low, but there’s little risk of you waking up one morning to find that all of your nest egg is gone. It can also be smart to take bits and pieces and put them into risky investments.
That said, the best investments for retirement are safe investments that will stay safe for long periods of time. The best way to learn investment strategies and place your money wisely is to work with professionals.
Professionals can help you understand and manage your money in a way that will best set you up to retire and live out your golden years with financial freedom.
Need Help Finding a Halal Super Fund?
If you’re trying to figure out the ins and outs of retirement investment, we’re here to help. We’re also here to offer you Australia’s only Islamic super fund, ensuring that you can reach financial freedom without conflicting with your beliefs.
Contact us or explore our site for more insight into halal super contributions, financial freedom, and more
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Islamic Money Expert
Fatma currently leads Crescent Wealth’s Operations, including strategic business planning, project management of major projects and management of key stakeholders.