Should I put more money into my super? What are the benefits and can I take it out before I retire if I need it?

Retirement has never been far from the headlines lately, as recently requested by the government views of the public about what the purpose of super should be.

The basic idea behind super is that you set aside a portion of your pay during your working life so that you can build a nest egg to get through your retirement years.

But what if you’re worried that you might not have enough super by the time you retire? Yes, you can now upgrade your super and watch the nest egg grow through the magic of compound return – but what are the disadvantages?

If you’re considering putting more money into your super and want to learn more about how the whole system works, here are the basics.

Read more: Tax-free super for the super rich is a bad deal for the rest of us – and Morrison said it first

What are the rules for putting more money into my super?

First, make sure you know where your pension actually is and how much you have so far. This page from the Australian Revenue Service explains how to search for a lost super.

The next thing you need to know is that there are boundaries how much you can contribute to your pension.

There are two types of super contributions you can make.

The first category is called “concessional contributions”. These are taxed at 15%, which may be lower than the tax you would otherwise have to pay on that money. So making these super top-ups can not only grow your nest egg but also save you taxes.

The amount of concessional contributions you can make is A$27,500 per annum. That figure includes any super that your employer puts into your super account and any additional contributions you make under a wage sacrifice scheme or when you claim income tax deductions.

The second category, known as “non-concessional contributions,” means money you pay into your super without claim tax deductions. This could be money from savings, an inheritance or a lottery win, for example.

There is a limit of $330,000 over three years (or $110,000 per year) for these contributions.

What are the benefits of topping up my super?

Two words: compounded returns.

With compound returns, you earn returns not only on the original investment you made, but also on any return on that investment. Like the government’s Money smart website says it, “you get interest on your interest”.

Over the years, this means you could earn a lot more than if you didn’t top up your super.

how much more? Well, it depends on the investment returns and costs of your fund.

But as an example, thanks to compound returns, an extra $100 a month can be put into your super from age 30 you mean retire with an additional $65,000 in your account (here I have assumed an investment return of 7.5%, cumulative inflation of 4% and salary inflation of 4%).

And the longer it’s there, the more it will grow – so starting to reload early can pay off.

This is especially important for women, whose super balances may look a bit weak as they take parental leave or cut back on their hours while raising a family.

Then there are the tax benefits of super top-ups. If you would normally pay a net tax rate of more than 15% on investments such as stocks, your money within retirement will grow faster than stocks.

You may also be eligible for government co-payments that add to your balance if you make a non-concession contribution during the year and your income is less than $57,016.

So what’s the downside? Can I have my pension before I retire?

Basically not. You must meet acondition of releasebefore accessing your pension.

The most common is retirement, defined as reaching age 65 or retiring after reaching the “conservation age” (60 for anyone born after July 1964).

There are a few special circumstances where you may have earlier access to your pension.

These are very limited and include serious financial problems or necessary medical treatment that cannot be funded in any other way.

Death or terminal illness also qualify for release.

Read more: Should I pay off the mortgage as soon as possible or top up my pension? 4 questions to ask yourself

But what if I need a down payment on a house?

This is a dilemma for non-homeowners. After mandatory deductions from the pension guarantee and HECS-HELP, it can be difficult to make a down payment.

One of the few circumstances in which you can get early access to your retirement is through the First Home Super Savers Scheme.

If you make voluntary contributions, you may be able to withdraw these contributions for a deposit on your home.

However, this arrangement is very tightly regulated. You can read more about the rules for this scheme here.

So… should I put more money into my super?

It depends. If you do, make sure you understand that you won’t have access to that money until you retire.

If you own your own home (or plan to rent until retirement), you may want to put more into your retirement for as long as you can afford it, knowing that it contributes to a secure retirement.

But if homeownership is your goal, you should think carefully about choosing between retirement and saving for a home deposit.

Note: The premium caps and rates used in this article are for the year ending June 30, 2023.