Although retirement may seem far off, time has a way of getting away from you and, before you know it, life happens and you're celebrating your last day of work. Before reaching that monumental milestone, you'll want to plan on adding to what little Social Security funds you will receive. Superannuation retirement and retirement funds are two ways to consider bulking up your savings for the future.
There are not too many differences between the two, but learning about them is a good start to finding the right approach for you and your retirement.
Read More: Difference Between Pension and Retirement Plan
When someone refers to superannuation, it is an Australian term referencing a pension plan. A pension plan is something that is established by an employer to help get you set up for retirement. The employer alone can contribute to it, or both the employer and the employee can contribute to it in order for it to grow. (In Australia, an employer is lawfully required to contribute 10 percent of your earnings to the superannuation for your retirement.)
It matures at the time of retirement for the individual and creates a steady income for the remainder of their days.
How a Superannuation Fund Is Managed
There are superannuation organizations that manage the funds (also known as superannuation guarantee, SG, contributions) placed into the account. Typically, the funds will be invested in other places so the money grows. Your employer usually chooses the company that manages their supers, but you have the option of picking the investments. If you choose not to pick the investments, the company will do it for you as a default.
Important Things to Know About Managing Your Superannuation
There are several things to know about a superannuation fund. The superannuation organizations charge fees for managing the funds. When you leave an employer for a new employer, be sure to tell them the name of the organization that holds your super fund from the previous employer; this way, you'll pay less fees. In addition, it is important to learn the taxes that apply to the funds both pre- and post-retirement.
You can access your funds as early as ages 60-64 only if you are retired. If you are not retired, you must wait until 65 or over to pull funds from the superannuation.
Retirement and How It Differs From Superannuation
Retirement is considered the point at which you leave your career or stop working. It is not the same for everyone and depends on how much money you make within a certain amount of time. For example, if you start a business and make several million dollars in a short amount of time, you can retire and be financially sound.
Superannuation requires that you reach a certain age, usually determined by your government. In the United States, you can access retirement funds such as Social Security starting at 65 or 67. In addition, Social Security superannuation requires that an individual work at least 10 years before claiming it. So even if you make a million dollars and can stop working, you may still not be able to access superannuation funds.
Read More: Social Security and Retirement Age
Retire in a Good Financial Position
Whether you invest in a retirement account or rely entirely on superannuation or a pension, it is good to plan ahead. If you don't want to invest in retirement funds, be sure you can live debt-free on retirement funds from the government.
Pay off your home, car and loans before you retire and live simply. Extra things such as travel, new vehicles and events will need extra funds especially as inflation drives the cost of groceries and gas higher. Better to prepare than to find out in retirement that you can't live on what you have.
With over seven years of freelance writing experience across a variety of genres, I have quite a bit of education and research to share with those looking for financial guidance. My personal experiences, including two house purchases, two paid off car loans, home refinance, and a Home Equity Line of Credit process, give me the practical knowledge to assist with large financial decisions. Meanwhile, budgeting everyday necessities for a family of seven focuses my expertise on daily savings. In addition, I have written financial articles for a top ranking finance site, Go Banking Rates.