Explained: How the spouse contribution strategy can boost your retirement income

Financial adviser Luke Smith tells how the spouse contribution strategy can help you grow your wealth and protect your financial future in this extract from his book Smart Money Strategy.

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The spouse contribution strategy can allow you to plan improved retirement outcomes for you and your partner. As the name of the strategy suggests, you make a contribution to your spouse’s superannuation.

How does it work?

Spouse contributions can be made for spouses who earn up to $40,000 a year. The partner making the contribution can claim the maximum tax offset of $540 (a tax deduction) when they contribute $3000 from their take-home pay to their superannuation if their spouse earns less than $37,000 a year. The more the spouse earns above $37,000, the less the tax offset will be, reaching zero once the spouse earns $40,000 a year. Of course, you can contribute more than $3000 a year to your spouse’s super; however, you won’t receive any tax benefit for doing so if the contribution is made as a spouse contribution.

When to do it?

The spouse contribution strategy is something to consider when you’re looking to boost the super of your partner, and it can be done before the end of the financial year. It’s also a useful strategy to look if your spouse is taking a career break, undertaking part-time work, or is a stay-at-home parent raising the kids.

Do consider a spouse contribution strategy:

• when you’re looking to boost your spouse’s superannuation balance
• as part of considering an appropriate tax in super strategy
• if you’re comfortable making a contribution to your spouse’s super, which means it’s locked away until they reach retirement age and it legally becomes their money.

Don’t fall into these traps:

• making decisions without running your own numbers, or asking a financial planner to run the numbers. Once you make and implement a spouse contribution decision, it’s very hard to undo
• forgetting about the limits to the amounts you can contribute to super. In the case of a spouse contribution, the contribution is considered to be a non-concessional contribution – that is, from after-tax money.

Working together brings better outcomes

Superannuation is a great investment for focused couples. Those who work together can deliver themselves better retirement outcomes than if they only looked at their own super. It’s sometimes hard to have conversations about money though, because they’re usually conversations about going over a budget or not being able to spend. In my experience, the couples that look at investment using the term ‘we’ in place of ‘I’ can maximise strategies and accelerate their collective wealth a lot faster.

Good cash flow and the ability to save can be the basis for using more strategies in the future.

Finding something positive for both parties is often a good way to start a conversation about money. A spouse contribution strategy might be one topic.

You’d be surprised how often I sit across from couples who are retiring from work who, for the first time in their lives, have a conversation about money. They’re also the kind of clients who say to me, ‘Gee, I wish someone had told us about that before now.’

By that stage, they’ve missed numerous strategy stacking opportunities and are behind on where they could have been if they had done some longer-term planning.

It’s not what you do, it’s the consistency of what you do over time that brings the greatest rewards.

Have you used the spouse contribution strategy? Do you agree with Luke’s statement about money conversations? Why not share your thoughts in the comments section below?

Also read: Surprising ways retirees waste their money

Luke Smith is also a licensed financial planner and the director of Envision Financial, a financial planning advice business he founded in 2016 in Canberra. He says we have become a society of haves and have-nots and believes the key to closing the gap is financial planning education.