An effective method of increasing your retirement savings and multiplying your investment returns is to take advantage of the government co-contributions to super available for low income earners.
Currently, if you are earning less than $34,488 per annum and you contribute $1,000 towards your superannuation fund, you may be eligible for a government co-contribution of $500.
If you earn over this amount, any co-contribution will be reduced by 33c for every dollar over and above, up until you reach the higher income threshold of $49,488.
To be eligible for the super co-contribution you must be able to satisfy five key requirements:
- Your total income is less than the higher threshold of $49,488 and 10% or more of your income comes from employment related activities, carrying on a business, or both.
- You must have made one or more eligible contributions to your super fund during the financial year
- You must be less than 71 years old at the end of the financial year
- You must not have had a temporary visa at any time during the financial year (unless you are a citizen of New Zealand or it was a prescribed visa)
- You must have lodged a tax return for the relevant financial year
Are There Any Downsides?
As with all investments made into super, the main disadvantage is the fact that you have your investment locked up in an environment where you cannot access it unless you are eligible. Given that many super funds give you control over where your money is invested, the only real difference between holding your money inside super vs holding it outside super is the access you have to the money.
What Else Can I Do?
It’s great to have good strategies for boosting your retirement savings, and even if you are earning above the thresholds for super co-contributions you may find that other strategies such as salary sacrifice into super, investing in insurance bonds or even simple strategies like consolidating your super funds may be a great help in helping you to have a well planned retirement.
The sooner you start putting in place effective strategies, the sooner you can benefit from the powerful effects of compound returns. You may think that you don’t need to plan when you have just started work, but an extra $50 per month can make an enormous difference to your ability to retire with a good standard of living.