Superannuation is not an investment in its own right but rather a specific environment in which to grow funds earmarked for your retirement.

What is superannuation?

Superannuation is designed specifically to fund your retirement. In general terms, under current legislation, it works like this:

  • During your working life, your super is built up through compulsory contributions made by your employer (concessional contributions) or after-tax money from your own pocket (non-concessional contributions). In some situations it may also be possible to receive additional pre-tax superannuation contributions in lieu of salary (salary sacrifice) or, if you are not an employee or recevice less than a certain percentage of your income from employment, you may be elible to make personal contributions and claim a tax deduction for those contributions.

  • As you near retirement, you can start to dip into your super through what’s called a ‘transition to retirement’ pension, which is an income stream, not a lump sum withdrawal.

  • Then, from age 60, and assuming certain conditions are met, your super can be withdrawn tax free. Or you may be able to leave your super within the superannuation environment and draw on it gradually as an income stream.

Super is locked away

One of the pluses (or minuses, depending on your perspective) of the superannuation environment is that we can’t normally access our super until we reach preservation age or retire from the workforce. This is a good thing from a retirement incomes perspective as it helps to ensure you will have the funds to support your retirement goals. It does mean though that you need to factor this limitation on accessibility into your investment decision making.

Next: Administering your portfolio

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