Understanding the Basics
Have you ever felt that it shouldn't be so hard to figure out the inner workings and basics of your superannuation? We offer the following guide to help you develop a better understanding of your super. As a result, you can start to take a more engaged role in strengthening your super from today onward.
What exactly is superannuation?
Super, which is more formally known as superannuation, refers to a long-term savings plan the Australian government put into practice to help provide people with income after they retired from careers in the workforce. Many Australians today acknowledge that the super is how they will primarily derive income in their retirement.
Here are the basics of the super. When you work during your regular career, you put in periodic contributions with each payment you receive to your superannuation fund. The earnings that you get from the process are invested, which means the value adds up over time. The funds that you contribute to your personal super are usually required to stay in there until you hit retirement or when you start to transition into retirement.
Both can occur after you reach a particular minimum age. Because the contributions that you make to your superannuation fund as well as the earnings that occur within the fund are typically taxed at a 15 per cent rate, the super fund is generally considered to be one of the most efficient investments you can make from a tax standpoint.
How does the super fund work?
To understand the workings of a super, it is necessary to remember that the superannuation is essentially a framework, or shell, for managing investment assets. That is to say, the super itself is not an investment, but a holder of investments. There are a wide range of options available for investments through super funds, and there are also lots of asset classes. Some of these classes of assets include fixed interest, property, cash, and shares.
When you deposit your money into a superannuation fund and decide among a myriad of options for investments, what you are really doing is buying units that are part of these funds. This is, of course, if the superannuation you are working with is made up of units. The total count of units that you get will naturally depend on the unit price of the day, and this price will vary depending on the changes that occur in the market.
You can put money into your superannuation fund personally and directly, or through your spouse, your employer, or the federal government. In many situations, if you are working for someone else, your employer is the one who will contribute a minimum of 9 per cent of your weekly or monthly salary toward your superannuation.
The term for this is compulsory superannuation. The rate at which your employer contributes money from your salary into your super is scheduled to increase to allow for funding in the future from the current 9 per cent minimum rate to 12 per cent by 2020.
What kinds of super funds exist right now?
There are a range of superannuation funds, but the primary ones are staff, employer, or corporate funds, personal funds, industry funds, and self-managed super funds. Employer funds are the typical funds that most people have, which are put together by employers so their staff may benefit.
The second common kind are personal funds, which, as implied by their names, are funds that people join as individuals through the help and facilitation of super providers. There are many such funds available and the majority of them will allow you to choose liberally when it comes to investments and other things.
The third common kind are industry funds. Industry super funds were set up in the beginning for people who worked in particular industries, such as people who worked as builders or workers in health-care. Today, however, a lot of these are openly available to anyone in the public.
Finally, self-managed super funds are yet another kind commonly pursued by people. These are also referred to as do it yourself funds. You can add up to four different members on these funds and they are typically used by people who have more money set up in their supers or by groups of families.
Can I pull out the money I've invested in my super?
In most cases, you aren't going to be allowed to pull out the money that you have in super until you reach the age of preservation, which is somewhat like your retirement age. It is typically based on when you were born and is somewhere between 55 and 60. There are very specific conditions under which you might be able to get your super funds based on compassionate grounds, but this won't happen very often.
When can I get the money from my super?
You can typically only get the money from your super when you make it to the preservation age. The reason for this is to keep your super savings available and away from your immediate impulses until you've reached the age of retirement. There are four conditions necessary for super access; you only need to met one of them.
First, you can reach the age of preservation and retire. Alternatively, you could keep on working at that age. You could also reach 65, or change jobs when you reach 60 or after that point.
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