Superannuation And Tax, What You Need To Know
Saving for your retirement is one of the most important things you can in you working life. With life expectancy growing and growing it is not strange for a person to reach late 80’s to mid 90’s and even people in their hundreds are becoming more and more common. Typical retirement ages are still around sixty to sixty five depending your type of employment, gender and country, which leaves you up to thirty years after retiring. To this one must add the fact that the population is becoming older and older and there are less people in working age to pay for the pensions of retired workers.
All of these factors make it very important for all of us to make the most of our pension fund. It is not only a matter of surviving during your retirement but having enough spare cash to travel, some of the little luxuries of life or just buy some presents for the grandchildren. Unless you are independently wealthy the only way you are going to have to save the old fashioned way, that is, early and often in order to have enough for when you retire.
A significant amount of your super contributions will go toward tax so it makes sense to work out how much you are going to pay towards tax, how to pay it and how to minimize your tax costs.
Paying the tax on superannuation is a relatively easy operation as most of the steps are automated by the system. There are three main factors that determine how much tax you will be obliged to pay.
You will need to know:
1) What part of your super payout is taxable and what is tax free.
This will depend on where you work and what type of accounts you have paid into to build up your super. If you have worked for the government you might have received tax free super contributions. You might also have received tax free payments or payments where the tax has already been paid if you have been a member of a different super or pension fund. Whatever the case you can find out by asking your super fund managers what component of your super is still taxable.
2) The age at which you receive the super payout.
The whole purpose of a super is to help you save for your retirement not earlier. The older you are and especially if you are in pensionable age will determine (among other factors) how much tax you pay.
3) The payment type you choose.
When you receive a super payment you can choose to get the lump sum and invest it / use it as you wish or receive it as a monthly payments just like a regular pension. If you choose to receive it regularly you allow the super fund to continue investing your pending lump sum reducing the tax rate you will have to pay.