In life, change is the constant. Our personal circumstances change, unexpected surprises crop up and our priorities shift. With this in mind, it’s no surprise that a common concern about making additional super contributions is the reduced financial flexibility it may cause. Finding the right balance between super and outside investments is an important and very personal decision.

At a basic level, the choice between prioritising super or external investments is about weighing up the benefits of having access to your money in the moment—to fuel your current lifestyle or business goals— and being prepared to take the hit of paying a higher rate of tax, versus taking advantage of a lower tax structure, knowing you can’t have immediate access to these funds. At Ulton Wealth, our thinking is a little more nuanced.

What are the benefits of shifting wealth inside my superannuation?

The most obvious benefit is the tax environment. For high-earning individuals, super offers a drastically lower tax environment. If you’re paying a high marginal tax rate of 47%, the benefits of super contributions are hard to ignore: only a 15% tax rate on contributions while you’re in the wealth accumulation phase of life, and a tax-free income stream once you turn 60.

The fact that successive governments keep changing the rules on super can leave some of our clients a little wary. Feeling apprehensive about investing in something that lacks absolute certainty is easy to understand particularly when you’re locking that money away for decades. While there’s no guarantees on what the future holds, we can take guidance from the fact that while there have been a lot of changes to the super environment over the past 30 years, it has consistently been the best place to hold your long term assets from a tax perspective.

On top of the tax benefits, there are often-overlooked benefits that link two topics people typically don’t enjoy focusing on: bankruptcy and estate planning.

For business owners, as long as you’ve been making consistent contributions for a number of years, superannuation is generally considered exempt from bankruptcy creditors and unlikely to be unwound. The key here is the regular pattern—if you dump a large sum into your super when business is looking shaky, this won’t withstand creditors’ scrutiny.

Estate planning can be notoriously complex, particularly when heightened emotions are involved. For individuals with a large portfolio of wealth to manage, a binding death nomination through super gives security that your wishes will be honoured, even in complicated family arrangements.

“My business is my super—I’d rather invest in that.”

We support a number of highly successful business owners who have invested significant time and resources into establishing a thriving and profitable business. We’ve heard the stance “my business is my super” more times than we can count. For many, their plans do come to fruition and when retirement comes knocking, they have a successful sale with a substantial return. But this is a high-risk strategy with the potential to cause unnecessary stress in a phase of life where you’re looking to ease back.

Unfortunately, it does happen that some owners find themselves approaching retirement with a business that is not saleable or no longer attracts high-value buyers. Price falls, industry challenges and legislation changes can impact your business’s value, while health issues can occur at the wrong time, forcing your hand in an undesirable market. For business owners who have been contributing regularly to their super fund, the sale of their business is a bonus, not their sole source of retirement income.

The benefits of keeping wealth outside superannuation

The most consistent argument we hear against investing additional funds into super is accessibility. Investing in super means that money is locked up for years, depending on your age. In some phases of our lives, the practical benefits of easier access to our funds outweigh the tax benefits. If you have a desire to reduce personal or business debt, are caring for a growing family, or facing cash flow concerns in your business, these factors will always be a consideration in your investment structure.

Retirement goals are also critical. An individual looking to retire young has a larger gap to finance between their paid career and accessing their super, so assets must be balanced in a way that offers an income stream before they can tap into super.

Your super balance also dictates how you structure your investment contributions. If your super balance is approaching $1.9 million, you need to carefully consider your next moves. Once your super balance is above that threshold, you can’t make any additional non-concessional contributions. This is where personalised advice is essential to maximise the tax benefits of your final contributions.

Wealth diversification

When we talk about diversification of your wealth strategy, we’re not just talking about the nature of your investments—diversifying your tax structures is equally important. As you progress through your career or as your business grows, many people might look to add trusts and companies to your overall structure to maximise your tax benefits. Often, super is dismissed, even when it provides the lowest tax environment for your long term investments.

It’s something of a misconception that there’s no flexibility within the superannuation structure. Often business owners use environments outside super to invest in property or other holdings, but it’s possible to invest in almost anything through super, and you attract the benefits of making those investments in a much more attractive tax structure.

Integrating your superannuation with your other wealth strategies can facilitate creative opportunities, such as using the income from your broader investment portfolio outside super to make tax-deductible contributions, rather than using your personal income.

Balancing risk between assets

It’s also important not to look at your super investments and their risk profiles in isolation from everything else—super is another building block in your broader financial strategy. If you’re considering taking on greater financial risk in other areas of your life, you might like to reduce your exposure within your super to provide balance and stability.

Consider this person’s scenario—let’s call him John:

John was operating a business in a changing sector. He was implementing a high risk, high reward strategy. John had a large appetite for risk, but the possibility of substantial losses if his transition strategy didn’t pay off was a source of significant stress.

Once we had a clear understanding of the situation, we advised him to move his assets to a more conservative, balanced super portfolio rather than high growth. This small shift gave him the stability and peace of mind he needed to move forward with confidence.

Fortunately for John, his high risk approach worked. Two years later, he had built up a more secure, stable foundation, and was comfortable taking on more risk, so reverted to a high growth portfolio.

Connecting the dots

Your financial advisor can help you evaluate the personal value of having access to your money now, in a higher tax environment, versus the much lower tax structure that super offers in the long term.

When we work with new clients, our priority is to understand your financial objectives, family situation, and vision for the future. Together with you, we plot the course not just for now but for years to come, so that you can enjoy the life you’ve worked hard to achieve.

Regardless of what the right balance is for you at this moment, the most important takeaway is to consistently contribute to your super.

Part of our role in the Wealth Management team is to help turn intentions into achievement—to make sure you put your financial plans into practice, so you can enjoy the rewards later in life. I can confidently say that in all my years of advising clients, no one has ever told me they regret contributing extra to their super. In fact, it’s usually the opposite.

We’re here to help

To learn more about how we can help you find the right balance for your future, please get in touch with our wealth management team for a confidential discussion.

Related Articles

Wealth Wealth Management
14 min read

Life events and financial planning: Adapting strategies to changing circumstances

Financial planning is innately future-focused. It’s in the name—planning—which means to make arrangements in advance.

Wealth Wealth Management
17 min read

The Ultimate Guide to Family Office Wealth Management

In 2013, the number of family offices in Australia was 800.

Wealth
13 min read

The Ultimate Guide to Private Wealth Management in Brisbane

In recent years, Brisbane’s growth story has captured the nation’s attention. Since March 2020, the value of residential...