Topping up your super can boost your retirement savings, but with so many competing financial priorities, how do you know when it's the right time to contribute?
According to ASIC's Moneysmart, a 30-year-old contributing an extra $20 per week could be $50,000 better off in retirement — and there can be tax savings from making extra super contributions, too.
But finding money to save isn't easy, especially in the current economic environment, and adding extra to super isn't always the right move.
We spoke to two experts to explore when this strategy makes sense and help you understand the potential benefits and drawbacks.
First, cover the basics
Kate McCallum is a financial adviser and co-author of The Joy of Money.
If you're in your 20s, 30s or 40s, you're likely to face pressing financial demands, Ms McCallum says. These might include rent payments, saving for a house, mortgages, education costs and general living expenses.
If you have consumer debts such as credit cards or personal loans, paying them down is a higher priority than adding to your super.
That's because the interest rates on these products are high and paying them off provides a guaranteed return.
It's also a good idea to have an emergency fund — ideally enough to cover at least three months of living expenses.
On top of the peace of mind it brings, it can help avoid the need to take on debt for unexpected expenses.
Why younger people should think carefully before adding extra to super
Ms McCallum says it's important to consider your overall financial situation and goals before considering topping up your super.
Importantly, most people can't access their superannuation until they reach their preservation age, which is between 55 and 60, depending on when they were born.
So, if you're 30, and you make a voluntary contribution to your super, you could be locking up your money for 30 years or more.
For those reasons, Ms McCallum says voluntary super contributions are generally more practical for people aged over 45, who won't need to wait as long to access their funds.
Instead, she suggests younger people focus on other priorities and rely on mandatory super contributions from employers.
"If you're in your 20s or 30s, maybe even your early 40s … then it makes sense to just allow … the super guarantee to do its job and use the surplus cashflow elsewhere so that you've got more flexibility," she says.
If you want to invest, while still having access to your money, you can always do it outside of your superannuation. For example, you might decide to use the money to invest in a managed fund or exchange-traded fund (ETF) instead.
Or if you have a mortgage, you could keep the money in an offset or redraw account instead.
How voluntary super contributions can help you save on tax
You can make a "concessional contribution" to your super account by entering a salary sacrificing agreement with your employer or making a direct deposit to your super fund and claiming a tax deduction.
The strategy can be attractive because these contributions are only taxed at 15 per cent, which is much less than the 30 per cent paid by someone earning an average wage in Australia.
For that reason, as you earn more income, it's more attractive to top up your super, as the tax benefit will be larger.
Should you add to super when you're taking time away from work?
If you're taking time out of the workforce because you've had a child or are caring for someone, you might be worried about your super balance and wondering if you should top it up.
While you can still top up your super during these periods, you'll likely be earning less, which could reduce the potential tax benefits from concessional contributions.
If you are earning under $40,000 and have a spouse, they can contribute to your super on your behalf and claim a tax rebate of up to $540.
Another strategy some couples use is what's known as contribution splitting, which involves one partner diverting some of their super contributions to their spouse.
How adding to super can help you save for your first home
While most people can't withdraw from their super until they're in their 60s, there are some exceptions.
The First Home Super Saver (FHSS) scheme allows first home buyers to withdraw up to $50,000 of voluntary contributions, as well as earnings from those contributions, to put towards a deposit.
The scheme has complex rules, including around withdrawals, which is one reason it hasn't been popular. But independent financial adviser Jacie Taylor says it can be a helpful strategy for people who are saving for a deposit.
"It's such a wonderful scheme that not enough people know about," Ms Taylor says.
Keep in mind that there are tax penalties if you decide not to purchase a property after releasing funds from the scheme.
You may be able to boost your super without extra contributions
Even if you're not able to make extra contributions, there are other ways to keep your super working hard for you.
Ms Taylor says it's important to look at how your super is invested, and the fees you are paying.
If you're younger, Ms Taylor says you could look into having your super in higher growth investment options, as they typically provide higher returns over the long term.
"That makes such a difference for young people," she says.
If you're unsure if a voluntary super contribution strategy is right for you, it can help to seek the advice of a financial adviser or planner.
This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
