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Investing outside superannuation

gold leaf and coins in hands investing outside superannuation

Australia’s superannuation system is currently the most effective way to secure a tax-advantaged retirement income stream, but recent changes to the regulations may make one wonder how long the advantages will last.

In response to these changes, most financial experts advise securing investments outside of super as a supplementary or replacement source of income for pension or early retirement.

While super funds currently allow for a tax-free income stream for retirees who have reached pension age, most investment structures are taxed. However, it is still a good advice to consider both options as a source of extra income and for the sake of diversification.

Will super be enough to cover retirement years?

The answer to that depends on the person’s current age, income, health, lifestyle, life expectancy, the type of retirement aimed for, how much their contributions are and the type of investments in the fund.


To put it simply, even if a person maximises the allowable contributions for super, it’s difficult to say for sure how much is enough when medical conditions, inflation and unforeseen circumstances come into play.

Unless a person owns their company to ensure job security and doesn’t plan on ever being in a relationship and have kids, they will have expenses to cover throughout their working life. A super will not be able to help with those.

When push comes to shove, they may end up being allowed access to their super contribution because of some serious financial issues. However, those circumstances are limited to situations that no one would wish to be in.

The best way to ensure that super contributions stay intact is to set up an investment or two outside of superannuation.

What are my investment choices?

There are many investments to choose from depending on a person’s objectives, risk tolerance and willingness to keep track of their investments.

Some popular investment options to consider are:

  • Managed funds
  • Cash
  • Insurance bonds
  • Shares
  • Investment properties

Managed funds
This is the easiest type of investment because investment fund managers do most of the heavy lifting. Professionals are the ones responsible for diversifying the investment portfolio and selecting individual investments (shares, bonds, etc.) in exchange for management fees.

Some may be tempted to just stash their cash in the bank, but doing so would only make them more vulnerable to the effects of inflation.

For those who must keep their money in cash form, consider depositing it in a high-interest savings account or a certificate of deposit, also known as term deposit (TD). This way, extra money is still accessible even as they continue to earn interest.

Bonds are money that investors lend to companies and institutions in exchange for regular interest payments and a full return of the principal investment upon maturity.

The most highly rated bonds are government-issued bonds. Risk-averse individuals may want to consider Exchange-traded Treasury Bonds (eTBs) and Exchange-traded Treasury Indexed Bonds (eTIBs) in their portfolios.

Insurance bonds
Some experts recommend insurance bonds to supplement super since it comes in the form of life insurance combined with fund-managed investments.

Also called bond investments, insurance bonds offer a taxation system that investors can benefit from if they don’t intend to make any withdrawals. Any income from the investment is only taxed within the investment and are not required to be reported in the individual’s tax return.

An investor is also allowed to top up their investment by up to 125 per cent of their previous year’s contribution and any withdrawals made after the 10th year of investment are tax-free.

Shares can give investors higher returns, but they are also more exposed to market risks.

When an investor owns shares, they actually own a portion of the businesses they invest in. They can vote on company matters as well as receive dividends from the company’s profits.

Shares are good short and long-term liquid investments because they can be traded (buy/sell) as long as the share market, such as the Australian Securities Exchange (ASX), is open.

Investment properties
Even if properties can be good investments, much of its value gained through appreciation or depreciation will depend on its location, the real estate market’s condition and the owner’s ability to manage it—thus may not be beneficial for all investors.

Investors should also consider the cost of maintenance, repairs and taxes and the fact that properties are most probably the most illiquid form of investment.

Which investment would best supplement my super?

All forms of investment products available in the market have risks. Financial managers highly recommend that investors own a balanced and diversified investment portfolio.

Since one person’s circumstance differs from another, it’s best to discuss options with a professional who can help create the most effective portfolio.

This information has been sourced from Nest Egg.

Investing outside superannuation
gold leaf and coins in hands investing outside superannuation
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