Many countries have systems in place to give people an income after they have stopped working. They include public or private pensions, employer pension funds and personal savings.
It is common for retirement incomes to be funded through a pension system, but these systems can be different from country to country.
In China, for example, retirement is funded through a mix of government pension, employer pension funds, and family support. Japan has a well developed employer-sponsored super fund system. Family support for older people is common in many Asian countries, although this seems to be changing.
European countries mostly rely on government pensions as the primary source of retirement income. For example, in the UK, retirees will receive a means-tested government pension that may be supplemented by an employer-sponsored pension. In some European countries, like Switzerland, pensions are based on average lifetime earnings.
Retirees in the USA rely on income from personal savings, private (401K) pension plans and a government benefit based on lifetime earnings.
In Australia, retirement income is funded through a mix of personal savings, a government pension and superannuation (super).
Super is made up of employer contributions, your own personal contributions and sometimes additional Government contributions. Money deposited into your super fund is invested by the fund’s trustee, who aims to grow your account balance while you are still working.
When you have reached retirement age and stop working, your super fund is usually converted to a pension that will give you money to live on. See how super works for more information.
Video: Why is super important to you?
Superannuation can make a big difference to your lifestyle in retirement. Watch people explain why superannuation is important to them.
While you are working, your employer must put an amount equal to 9.5% of your regular wage or salary, as a minimum, into your super fund. This is an extra payment on top of your wages or salary. This is known as the super guarantee contribution (SGC), see employer contributions for more details
Most employees can choose the super fund their employers must pay into. There are many different types of super funds but if you don’t choose one yourself, your employer will choose one for you. This is known as their default fund and it must have a MySuper account.
If your employer has chosen a fund for you, you can change this at any time by giving your employer the account details of your preferred fund.
You can top up your super savings by making personal contributions to your super fund. If you are on a low income you may also be eligible for government contributions. See super contributions for more details.
Combine multiple funds
If you have more than one super fund, think about consolidating your money into a single fund. You’ll save on fees and charges and it will be easier to keep track of.
The fund you have the most money in is not necessarily the best fund for you. Take the time to compare all your super funds to help you decide which one to keep.
Consolidating super funds is easy. You can use MyGov, if you have a MyGov account, or you can contact your preferred super fund and they will process the transfer for you. Before you consolidate, make sure you’ve found all your lost super and that you’re not going to lose any benefits, such as insurance, that you cannot replace in your chosen fund. See keeping track and lost super and consolidating super funds for more information.
Choose an investment option
Once you’ve settled on a fund, you can choose how your money is invested. Super investment options explains how to make investment choices and how your money will be invested if you don’t make a choice.
When choosing an investment option, consider your investment timeframe as well as the level of risk you are comfortable with. If you want high returns and retirement is a long way off, you may be happy to accept a higher level of risk. If you are more cautious or are closer to retirement you may choose to protect your capital by choosing a more conservative option.
Sort out your insurance
Most MySuper accounts will automatically give you a basic level of insurance including life, total and permanent disability and income protection. Consider what level of cover you need and adjust the level of cover to suit you. See insurance through super for a more information.
You cannot withdraw your super until you reach preservation age. This is between 55 and 60, depending on when you were born. You must also either be transitioning to retirement or retiring completely to legally access these funds. See getting your super for more details.
Severe financial hardship
In very limited circumstances you may be able to access your super early if you are experiencing severe financial hardship. The Australian Taxation Office has some useful information on the early release of superannuation.
When you reach retirement you can take your super as a lump sum, roll it over into an income stream, or a combination of both. Most people choose to have their income from super paid to them in some form of income stream to give them the sort of regular income they were used to when they were working.
You may supplement your super payments with income from other sources.
It’s important to know how super works in Australia because it is likely to be your main source of income when you retire.