How To Replenish Post Withdrawal From Super

By Fran Hughes is a Certified Financial Planner and Head of Financial Solutions at Nexia Perth www.nexia.com.au

For many working Australians effected by the economic fallout of COVID-19, the government’s early release of super scheme has been a lifesaver, with the money accessed from retirement savings helping provide additional support at a time of financial uncertainty. How do you replenish? My top 5 ways to rebuild your superannuation balance without breaking the bank.

Early estimates by Treasury[1] indicated that 1.6 million Australians would access their super early, however current figures from APRA[2], show that 3.1 million have applied and received funds with an average payout of $7,686, a staggering total of $31.7 billion in payments.

Perhaps you were one of the 3 million that withdrew funds and now find yourself back on your feet with the economy starting to pick up.

If so, here are my top 5 ways to rebuild your superannuation balance without breaking the bank.

Salary sacrifice bite size amounts

Modelling by Betashares[3] suggested a $10,000 withdrawal today by a 35-year-old out of their super could result in a $70,400 deficit in 40 years, using an annual growth rate of 5 per cent plus CPI.

To make up for this shortfall, consider deducting (salary sacrifice) $75 from your fortnightly pay into your superannuation. Over five years and with the power of compounding interest, this would see close to $10,000 return to your superannuation. As the deducted amount is small enough to digest (represents the cost of a cup of coffee a day), chances are it will not break the bank in the short term whilst rebuilding your super for the long term. The added bonus, receiving a tax break for your efforts.

Check out the MoneySmart’s Superannuation calculator www.moneysmart.gov.au to find out more about the amount that works for you.

Contribute a lump sum into super

Maybe you find yourself having built up savings in the bank, funds that would otherwise be spent on holidays. Or if staying home has encouraged you to take time for an early spring clean you might like to sell off unwanted items and contribute the proceeds into your superannuation.

This financial year is the second year that the Government has introduced the ability to contribute more than the maximum $25,000 per annum into super by utilising the unused concessional carry forward top up, if your superannuation balance is less than $500,000.

Take John for example, who’s employer pays $11,400 each year as part of superannuation guarantee contribution. As John has accrued an unused super cap of $13,600 for each financial year, he is able to tip $20,000 of his savings into his super account in this financial year.  The benefit? John replenishes his super and receives a tax deduction.

Make a spouse super contribution

If your spouse (husband, wife, or de facto) earns less than $37,000 per annum or not working, you may claim an 18 per cent tax offset if you make a personal contribution of up to $3,000 into their super. To be entitled to this tax offset, eligibility rules apply, and the receiving spouse must be under the age of 67, or if they’re aged 67 to 74, they must meet the work test or work test exemption requirements.

Maximise the Government’s co-contribution

Consider tipping $1,000 of savings or unused funds back into your superannuation as a personal contribution. This amount becomes quite rewarding if it is boosted by the Government’s co-contribution of $500. That is, for your $1,000 contribution into super, the government will top it up with an additional $500. To be eligible, you must be under age 71, earn less than $38,564 in the current financial year with a super balance less than $1.6m.

Utilise Government incentives

Did you know that if you earn $37,000 or less a year, and you (or your employer) make concessional super contributions, the government may refund the tax you paid on those contributions back into your super account, up to a maximum of $500 per year?

If you’re eligible for the low-income super tax offset, it will be automatically calculated by the ATO and deposited in your super account after you lodge your tax return.