Planning financially for a career break

A pause in super contributions can have long-lasting effects. Here's how to plan ahead for super breaks.

.

There’s a host of reasons why people take career breaks.

Having and raising children, or taking an extended holiday or sabbatical, are the most common reasons.

Vanguard’s 2023 How Australia Retires study, based on a survey of more than 1,800 working and retired Australians, found that 2 in 5 current working-age Australians (40%) expected to take some form of extended break from work during their career, probably between their twenties and fifties.

Of those surveyed, 1 in 2 people under 35 years old expected to take parental leave, especially in their thirties.

Of course, in most cases, stopping work is likely to have some financial consequences. In the context of retirement specifically, taking a career break will probably result in reduced or paused employer superannuation contributions during that time and the same for personal super contributions.

However below are six steps that could be used to lessen the impact of a career break on a super balance. They could be taken beforehand, afterwards or both.

1. Make pre-tax contributions

All working Australians can contribute up to $27,500 per financial year into their super at a concessional tax rate of 15%. This includes employer and concessional personal contributions. An effective way to make extra contributions into your super is by setting up a salary sacrificing arrangement with your employer so extra payments are deducted from your pre-tax earnings.

2. Make after-tax contributions

If you’ve come into some extra money where the tax has already been paid, such as from an asset sale, you may be able to take advantage of after-tax contributions. The government allows non-concessional contributions of up to $110,000 each financial year. Also, under what’s known as the “bring-forward” rule, you may be able to make a non-concessional contribution of up to $330,000 in one financial year. This prevents any further non-concessional contributions for the next three financial years.

3. Make super catch-ups

You may be able to take advantage of unused pre-tax contributions you have from previous financial years, on a five-year rolling basis. This means you could potentially contribute more than the annual $27,500 concessional contributions limit in a single financial year. However, to do so, you would need to make concessional contributions in a financial year that exceed the annual limit, and your total super balance must be below $500,000 as at 30 June of the previous financial year.

4. Receive a government co-contribution

If you make a personal super contribution, you may be eligible for a matching contribution from the federal government of up to $500. For more information, check the Australian Tax Office’s (ATO) website.

5. Receive a low income super tax offset

The Low Income Superannuation Tax Offset, or LISTO, assists eligible workers earning $37,000 a year or less. It can be worth up to $500 per year and is paid automatically by the ATO into your super fund account.

6. Split superannuation with your spouse

The ATO allows couples to split up to 85% of their annual employer concessional contributions, as well as additional salary sacrifice and personal super contributions. The full guidelines around splitting, including eligibility and the application form that needs to be completed, are also available on the ATO’s website.

Superannuation and retirement planning is a complex area.

Take care to understand the contributions types and limits carefully as there are significant tax penalties for exceeding the applicable contributions caps.

If you’re unsure about your options and need some advice on how to maximise your retirement nest egg, consider consulting a licensed financial adviser who can provide you with personalised advice.

 

 

 

 

February 2024
Tony Kaye, Senior Personal Finance Writer
vanguard.com.au

Want to know more?

Do you have a question about something you've read in this article? Need more information? Want to book an appointment? Simply let us know below and we'll get back to you ASAP.

General Disclaimer

The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.

Dr John Tickell is a registered Medical Doctor, who graduated at the University of Melbourne, Australia. Dr John has spent several decades travelling and researching the eating and living habits of the longest living, healthiest people on our planet.

The author may give opinions and make general or particular statements in this literature regarding potential changes of lifestyle habits based on experience and research. You are strongly advised not to make any changes or take any action as a result of reading or listening to this material without specific advice from your doctor, physician or registered Health Professional.

The author, the Publisher, the Editor and their respective employees or agents do not accept any responsibility for the actions of any person, or injury, loss or damage occasioned - actions which are in any way related to information contained herein.

Opinions and statements in this literature are based on verified research and experiences by the authors and are to be regarded as health and wellness advice.

Privacy Policy

What Personal Information Do We Collect?

The personal information that we collect will depend on your relationship with us and the service(s) you or your organisation have engaged us to provide or are interested in. It may include:

Name and contact information (including telephone and mobile number, email address and residential and postal address);

Individual information (including racial or ethnic origin(s), language(s) spoken, religious belief(s) and affiliation(s), date of birth, age, place of birth, gender(s), occupation(s), employment and qualification details, financial records, income details, asset listings, taxation records, bank account details, insurance policies, medical history, disability status, criminal record and Court records);

Payment and transactional information (including banking and credit card details);

Other personal or sensitive information (including information contained in communications or documents, any information required due to the nature of your matter, or information we are required to or permitted to collect by law).

Collecting Personal Information

HOW WE COLLECT PERSONAL INFORMATION

We may collect your personal information directly from you or in the course of our dealings with you. For example, we collect personal information from you or about you from:

Correspondence between you and us;

Meetings and interviews with us, telephone calls with us, the instructions you provide to us;

Visits to and submissions you make on our website;

Your interactions with our electronic direct mail and/or emails from our marketing campaigns (such as clicks on links included in these emails); and

Registration and forms you may fill in for our marketing-related activities and events.

WHY WE COLLECT, HOLD AND USE PERSONAL INFORMATION

We collect and hold your personal information for a variety of purposes, and you permit us to use it:

To provide you with our services and carry out our business functions;

For purposes related to the provision of our services such as , educational briefings, seminars and coaching and other service offering updates, conducting client satisfaction surveys and feedback requests, statistical collation and website traffic analysis;

Where you have consented to its use or disclosure;

Where we reasonably believe that use or disclosure is necessary to lessen or prevent a serious, immediate threat to someone's health or safety or the public's health or safety;

Where we reasonably suspect that unlawful activity has been, is being or may be engaged in and the use or disclosure is a necessary part of our investigation or in reporting the matter to the relevant authorities;

Where such use or disclosure is required under or authorised by law (for example, to comply with a subpoena, a warrant or other order of a court or legal process);

Where we reasonably believe that use or disclosure is necessary for the prevention, investigation, prosecution and punishment of crimes or wrongdoings or the preparation for, or conduct of, proceedings before any court or tribunal (or the implementation of orders of a court or tribunal or on behalf of an enforcement body);

To develop and improve our business, products and services; and

For any lawful purpose.

Where we wish to use or disclose your personal information for other purposes, we will obtain your consent.

HOW WE HOLD AND STORE PERSONAL INFORMATION

Your personal information is held and stored on paper, by electronic means or both. We have physical, electronic and procedural safeguards in place for personal information and take reasonable steps to ensure that your personal information is protected from misuse, interference, loss and unauthorised access, modification and disclosure:

Data held and stored on paper is stored in a secure premises.

Data held and stored electronically is protected by internal and external firewalls, high encryption and all access to electronic data including databases requires password access

Access to personal information is restricted to staff and contractors whose job description requires access. Our employees and contractors are contractually obliged to maintain the confidentiality of any personal information held by us.

We undertake regular data backups, with the data copied and backed up to multiple locations for redundancy purposes.

Our staff receive regular training on privacy procedures.