Maximising your income and and investing in your future is an important part of life, and should be a priority for all income earners, no matter their field. This is especially true for medical professionals however, because they spend more time completing their education, and therefore enter the workforce much later than most other workers.
It is never too late to make a start on your super plan, so don’t worry if you are a bit late to the party. That being said, the sooner you start, the better your return on your efforts will be.
We have outlined the key points to focus on, when identifying the right investment strategies for you, as well as the money saving opportunities that will simplify your superannuation process.
Taxation of Super:
Understanding the way that superannuation is taxed is the first step towards implementing a long-term superannuation investment strategy. The key thing to know is that money that is paid into your super fund is usually taxed at a far lower rate than the income tax that comes out of your paycheck week to week.
Tax rates on super contributions are currently 15%, which is comparable to the tax rate of income earners in the tax bracket – $18,000 to $37,000 which is approx 19%. While qualified medical professionals are going to be well above this tax bracket, you can effectively reduce your tax contributions by regularly depositing some of your income into super.
Note: There is an additional 15% taxation rate increase for those exceeding $300,000 in income and super contributions per year. (Division 293 tax)
Salary Sacrificing & Super Contribution Cap:
By salary sacrificing a percentage of your paycheck to make an additional contribution to your super, you will only be taxed for the contributions at a rate of 15% . This means that you not only pay less tax on your income, but you are saving more for your retirement.
Salary sacrificing agreements are generally made between yourself and your place of employment. Most institutions that employee medical professionals or organisations with high-income earners will already have some sort of salary sacrificing model in place for their employees.
The annual threshold on what you can contribute into super via salary sacrificing is $25,000 per year for all age groups for the 2017/18 year. As the superannuation landscape is constantly changing, it is advisable to contact your accountant or financial planner will be able to tell you what your current entitlements are.
Diversify your Portfolio:
As your financial planner or any astute investor will tell you, diversifying your investments is the safest and most reliable way to maximise your returns. If done correctly, by the time you retire your super fund will be a robust mecha of property, shares, bonds and more.
Diversifying your portfolio is another win-win situation, as it not only allows you to test what works best for your particular situation, but it also lowers the risk associated with these investments. If one aspect of your portfolio is lacking, the others will supplement it.
Your financial future is important. Don’t put all of your nest egg in one basket, or even two, diversify.
Self-Managed super funds also lend themselves to a wide range of options for you to invest, providing you with tips on the best way to optimise returns. These naturally lean towards diversification of investments, however the choice is yours at the end of the day. Take advice from professionals, and trust your advisors.
A high income is one of the unique benefits for medical professionals, if you play your cards right you can set yourself up for a very comfortable retirement.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation. Contact us now for a no obligations discussion about your needs