We’re nearly retired, but worry our super is too low. How can we boost it?

My partner and I are both in our early 60s and plan to retire in the next few years. We’re concerned our super balances won’t be enough to support the lifestyle we want in retirement. We’ve heard about salary sacrificing as a way to boost super, but we’re not sure how it works or whether it’s worthwhile at our age. Can you explain how it works and whether it’s a good idea for people like us?

Salary sacrifice is one of the most effective wealth-building strategies you can employ. It simply means that instead of taking your entire pay packet in full, you reduce your gross pay in exchange for pre-tax contributions of the same amount made by your employer to your super fund.

Nest egg looking a little light on? There are strategies you can use to super-charge it.Credit:

Think about a person aged 40 on a salary of $150,000 a year, whose employer would be paying $18,000 in superannuation after 30 June. They now have space to contribute an extra $12,000 to superannuation to top them up to the $30,000 concessional contributions cap. They reduce their gross pay by $12,000 a year and instead have the employer contribute that $12,000 to superannuation.

Their take-home pay would reduce by $7,320 after allowing for tax. The amount they contribute to superannuation would become $10,200 after the 15 per cent contribution tax. They are already $2,880 ahead.

The best part is that they don’t miss what is deducted from their pay and so are practising the principle of making investment the first spending they do each payday, and not something they try to do with what’s left over.

If they kept this until age 65 and their superannuation averaged 8 per cent per annum, the superannuation would be boosted by $750,000. This number makes no allowance for the increased superannuation contributions which would happen as their salary increased.

Is it widely known that Westpac restricts SMSFs from accessing bank accounts offering more than 1 per cent interest — currently limiting them to just 0.75 per cent? I was with St George, which had a good account, but then they recently closed it. It feels like they’re trying to force me to keep all my super with them. Is that fair — and is there any way to challenge it without the hassle of changing banks?

A Westpac spokesperson tells me there are a range of SMSF-specific products available across the company currently offering a variable rate of 0.75 per cent. However, their SMSF clients are not limited to these options.

They also have access to a broader range of products, including savings accounts and fixed term deposits. For example, their SMSF clients can take advantage of a term deposit special offer rate of 4 per cent for 11 months when opening or renewing a term deposit online.

This may be a wake-up call to look at other options available. For instance, index funds are currently offering around 4 per cent, mainly franked, which is a much better net yield than a term deposit.

And depending on your personal circumstances, you may find holding some money in your own name outside super may get you better products.

I’ve been considering cancelling my life insurance. I took out the policy around 25 years ago when I was a single mum of two. It provides a benefit of $50,000. I’m now 63 and have been remarried for 20 years. The premiums are becoming increasingly expensive as I get older, and I’ve been thinking of simply opening a savings account and contributing $100 per fortnight instead. That would give me $50,000 in 20 years, but I’d also have access to the money if I needed it. I’d really appreciate your advice.

The purpose of life insurance is mainly to protect your dependants in the event of your being unable to do so. As you point out, you’re in a situation where the insurance is no longer necessary, and I agree with your proposed strategy of contributing $100 a fortnight to an investment plan.

If you are still working, the most effective way to do this is through tax-deductible contributions to super.

I am on the age pension. Can I gift $30,000 to my children in one lump sum?

The gifting rules allow you to give $10,000 per financial year with a maximum of $30,000 over five years. However, if you want to hand over $30,000 now, you could give $10,000 this financial year and structure the $20,000 as a loan which is assessable for age pension purposes.

After 30 June you could forgive $10,000, with the loan balance of $10,000 being assessable until the following financial year when you again forgive the loan in full. This strategy allows you to hand over $30,000 immediately and still stay within the guidelines.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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