Super guide: for your 40s

Twenty years is a much more realistic time horizon than when you were in your 20s and tying your money up for 35 years plus was a big ask. But Sue Merriman, head of technical at BT Financial Services, warns that it is still a long time and you cannot be sure the government won't change the rules again.

In May this year, the government introduced a swag of new superannuation measures. The upshot is that you now can't just bulk up your superannuation savings in the years immediately before you retire. Caps on both deductible and undeducted contributions mean that you really need to adopt a steady-as-she-goes philosophy and build your super up over time. And the carrot for adopting such a stance is that all monies drawn down from super once you reach 60 will be tax-free.

While this offers a powerful argument to siphon as much money as you can into super, some would say that in your 40s the focus should still be on paying off your mortgage. According to Andrew Lawless, head of technical at MLC, you should probably only put about half of your spare money into super and leave the rest outside to fund such things as your children's tertiary education.

Andrew Heaven of WealthPartners Financial Solutions observes that super is just another type of mortgage, albeit a mortgage on your future. There are a number of super strategies you can pursue in your 40s.

Life insurance

With a family and a mortgage, the 40s are when you most need life insurance in case something were to happen to you. One of the most tax effective forms of life insurance is through superannuation. Many super funds have accompanying life policies, with premiums paid from pre-tax dollars. The argument is even more compelling for life insurance as the latest changes allow all death benefits paid to tax dependents to be tax-free.

Transition to retirement

Transition to retirement clicks in at preservation age. It allows you to draw down funds from your super while salary sacrificing more of your income into super. The favourable tax treatment of funds drawn down from your super after 60 can make this a very worthwhile strategy. But it is also a key reason you should be looking to build up your super in your 40s to have sufficient funds to implement this strategy once you reach preservation age.

Co-contributions

If your spouse has recently returned to the workforce on a part-time basis, consider co-contributions. If you are earning less than $58,000 a year, you can make a personal contribution of $1000 and the government will match it with a contribution up to $1500.

Spouse contributions

While spouse contributions are now less appealing because a spouse no longer has to meet the work test to make a contribution to super, there can be tax advantages, albeit small. If your spouse earns less than $10,800 a year, then making a spouse contribution of up to $3000 from your after-tax income means you can claim an 18-percent tax rebate. But even without the tax offset, you can still contribute up to the $150,000 undeducted cap on behalf of your spouse, which effectively allows you to contribute $300,000 a year as a couple or $900,000 over three years.

Super splitting

If you have any worries about the Federal Government further changing the super rules, then splitting your super with your spouse might prove a helpful strategy. Each of you would then have your own income in retirement, which this might prove more cost effective if the rules were to change down the track.

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