Push the super pedal down in your 50s

17 March, 202112 March, 2021 Updated on12 March, 2021 Education, Retirement, Superannuation

If 50 really is the new 40, then life has just begun. The kids are gaining independence or may have left home, and the mortgage could be a thing of the past. Bliss. But galloping towards you is… retirement!

Here are some ways to boost your retirement savings.

Increase your pre-tax contributions
You can ask your employer to reduce your take-home pay and make larger contributions to your super fund. If you are self-employed, you can increase your level of tax-deductible contributions. This strategy is commonly known as ‘salary sacrifice’.

If you are earning between $120,001 and $180,000 per year, any income between those limits is taxed at 39%. Salary sacrifice contributions to your superannuation fund are only taxed at 15%.

Sacrificing just $1,000 per month to super will, over the course of a year, see you better off by $2,880 on the tax differences alone. Plus, the earnings on those super contributions will be taxed at only 15%, compared to investment earnings outside of super being taxed at your marginal rate.

Don’t overdo it though. If your salary sacrifice plus superannuation guarantee contributions add up to more than $25,000 this year, the excess is added to your assessable income and taxed at your marginal tax rate.

Retiring slowly
Once you reach your preservation age you might start a ‘transition to retirement’ (TTR) pension from your superannuation fund. The idea is to allow people to reduce working hours without reducing their income.

Keep your money working
There is a tendency to opt for more secure, but lower-return investments as we approach retirement. However, even at retirement your investment horizon may still be decades. With cash and fixed interest producing some of their lowest returns in history, it may be beneficial to keep a significant portion of your portfolio invested in growth assets.

Insurance and death benefits
With the mortgage paid off or much diminished and a growing investment pool, your insurance needs have probably changed. This is a good time to review your insurance cover to ensure it continues to be a match for your changing circumstances.

It’s also a good idea to check the death benefit nomination with your super fund. By making a binding nomination you can ensure that your death benefit goes to the beneficiaries of your choice, and may mean they receive the money more quickly.

Get a plan!
Superannuation provides many opportunities for boosting your retirement wealth. However, it is a complex area and strategies that benefit some people may harm others. Good advice is absolutely essential, and the sooner you sit down with a licensed financial adviser, the better your chances of having more when you reach the finishing line. Contact us today to get started.

The information provided in this article is general in nature only and does not constitute personal financial advice.

Who gets your super?

29 September, 20216 October, 2021 Updated on6 October, 2021 Superannuation

Who decides what happens to your superannuation savings when you die? You may think that you do, but that isn’t always the case. The ultimate decision may be made by someone you don’t even know – the trustee of your superannuation fund. Let’s look at how you can have greater control. Binding death benefit nominations The most certain way to direct payment of your superannuation death benefit is by making a binding death benefit nomination. The nominated beneficiaries must be ’dependants’ – a spouse, de facto spouse, child or financial dependant – or a legal personal representative (i.e. the executor or administrator of a deceased estate.) If the nomination has been properly signed and witnessed, and is still current at the date of death, then the trustees of the superannuation fund must pay the death benefit to the nominated beneficiaries. Unlike Wills, valid binding superannuation nominations are unlikely to be overturned by a court, so they provide great certainty. It is up to the trustees of each superannuation fund to decide whether or not to allow binding nominations, so they aren’t available to everyone. Although some funds offer non-lapsing binding death benefit nominations, most are only valid for three years, so it’s important to check yours and ensure it remains up-to-date. Trustee’s discretion The trustee is under a legal obligation to pay a death benefit to the member’s dependants, and in most cases, benefits will be paid in a way that is consistent with the wishes of the deceased member. However, it is possible the trustee may recognise a wider range of dependants than the member would have liked – including a separated spouse. In some cases, the member’s preferred beneficiary may not meet the legal definition of a dependant. This may apply to parents. In the absence of any dependants and a legal personal representative, the trustee may exercise their discretion, and pay the benefit to a non-dependant. While dependants receive lump-sum death benefits tax free, the rate of tax payable by non-dependants can vary from nil to 30% depending on the components of the superannuation payment. Superannuation pensions The situation is a little different if the member has already retired and is drawing a superannuation pension. With pensions, it is common to nominate a surviving spouse as a reversionary beneficiary. This means the pension payments will continue to be paid to the nominee, either until their death, or until the funds run out. If the reversionary beneficiary dies, any remaining balance is then paid out as a lump sum death benefit according to the type of nomination they have made. Good advice required Increasing levels of wealth being held via superannuation and the nomination of beneficiaries should be made in the context of a comprehensive estate plan. This includes taking into account the way superannuation death benefits are taxed when paid to different types of beneficiaries. We can help you make the right decision. The information provided in this article is general in nature only and does not constitute personal financial advice.

What to consider when withdrawing your super early

17 June, 202021 December, 2020 Updated on21 December, 2020 Finance

[fsn_row][fsn_column width=”12″][fsn_text] As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus. One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year. For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be. Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation. Taking the maxMuch depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal. At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal. But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87. Reducing the riskOn the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension. There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution. COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, speak to us. The information provided in this article is general in nature only and does not constitute personal financial advice. [/fsn_text][/fsn_column][/fsn_row]

Economic Update: April-June 2021

21 July, 202114 July, 2021 Updated on14 July, 2021 COVID-19, Economy

Employment surprise JobKeeper was a cornerstone of Australia’s response to the coronavirus pandemic. It provided millions of Australians with an ongoing income and kept thousands of businesses afloat, so when it came to an end in March expectations were that there would be a sharp spike in unemployment. One estimate was that 150,000 workers would lose their jobs. Happily, that wasn’t what happened. From March to April the unemployment rate dropped from 5.7% to 5.5%, then fell to just 5.1% in May. That’s below the 5.2% that applied in January 2020 before the pandemic hit, and an amazing outcome given the damage that COVID-19 continues to inflict on a virus-weary world. Housing continued to sizzle… Aspiring homeowners and upsizers endured another quarter of woe as home prices continued to soar. Nationally, dwelling prices were up 6.1% for the quarter and 13.5% for the year, with houses outperforming units. Of course, on the other side of the equation are homeowners, many of whom are delighted by the significant boost to their wealth. Continuing low interest rates remain the key driver, but other issues have played a part, including stamp duty discounts and households redirecting the cash they would otherwise have spent on overseas holidays. Lockdowns last year also affected the normal supply of property leading to pent-up demand. As subsidies are rolled back, supply and demand normalise and if population growth remains low, property price growth may well come back to ‘normal’ levels. And despite the RBA not expecting to raise interest rates until at least 2024, some economists are pointing to the low unemployment figures to predict that interest rates may begin to rise by the end of 2022. There is also growing speculation that the RBA and APRA will lift lending standards (e.g. requiring lower loan to valuation ratios) in order to rein in galloping price growth. …as did share markets Global markets performed strongly over the quarter with many setting record highs. Locally the S&P/ASX200 rose 7.7%, beating the MSCI All-Country World Equity Index, which was up 6.9%. Tech shares were back in the lead with the NASDAQ gaining 11.2%, while the S&P500 rose steadily to gain 8.6%. The Aussie dollar fell slightly against the major currencies weakening late in the quarter following talk that the next move in US interest rates may be up. Also… – Workers receiving the minimum wage will see a boost to their pay packets from July, with the minimum wage rising by 2.5% to $772.60 per week or $20.33 per hour. – Most people will see the superannuation guarantee (SG) payment from their employers rise by 0.5% to 10% of normal wages. This is one step on the path to raising the SG to 12% by 2025. – According to Credit Suisse, nearly one in ten Australians are now millionaires. Twenty years ago the figure was less than 1%. Of course a million dollars today doesn’t have the buying power it did 20 years ago, but only Switzerland has more millionaires per capita than we do. – Massive infrastructure projects and home renovation booms have caused a global shortage of building materials. An indicator, perhaps, that some COVID-19 stimulus measures have been a tad overdone? The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: July-September 2022

12 October, 202212 October, 2022 Economy, Finance

As geo-political tensions tighten in Ukraine, economies around the world are reeling from mounting energy prices, soaring costs of living and in a desperate attempt to bring down inflation, higher interest rates. The US economy appears certain to fall into recession. Markets have suddenly become volatile as shares are sold in preference to holding funds in defensive assets such as cash. This in turn is reaping havoc on world currency markets. Funds are flooding into US dollar denominated investments and in doing so, are sending the value of the greenback sky high against other currencies. Speculation is mounting that the British pound may fall to historic lows in coming months and may even reach parity with the US dollar, driven by the newly elected Prime Minister Liz Truss, implementing a big borrowing, low taxing budget. This controversial attempt to boost the British economy comes at a time when central banks around the world, including the Bank of England, are lifting interest rates in order to reduce economic activity and so, dramatically slow the rate of inflation. The Organisation of Economic Co-operation and Development is now forecasting economic growth will slow from 2.8 to 2.2 per cent during the next twelve months as the United States, China and Europe all cut back on economic activity. While Australia is not spared from this global slowdown, with the OECD forecasting domestic growth will tumble from 2.5 to 2 per cent during the coming year, it should survive this turbulent period better than most. Much will depend on this month’s Federal Budget. The first by the newly elected Albanese Government, it will tread a line between its reform agenda including much talk about tax cuts and trying to slow the economy and so reduce inflation. Although the employment rate across the nation remains high, spiralling prices for basic foodstuffs and other essentials is putting enormous pressure on the Government to provide relief to those struggling to get by. In the meantime, petrol prices are set to bounce higher as the Federal Government restores the fuel excise tax, adding 23 cents a litre to both petrol and diesel sold in Australia. In addition, the Reserve Bank has made it clear it will continue to lift the domestic cash rate and with it most other local interest rates, until it has clawed back the rate of inflation from an expected high of 7 per cent, to less than 3 per cent. Higher interest rates are already impacting homebuyers. Five rate rises since May, mean a couple earning $92,000 each, can now borrow $264,000 less than they could in April according to analysis by the research house, Canstar. So even with a 20 per cent deposit, a couple’s maximum budget has dropped from more than $1.63 million to $1.37 million and this in turn is being reflected by prices in the property market. As buyer’s budgets have fallen, so too have property prices. CoreLogic Home Value Index shows house prices in Sydney have dropped by 7.6 per cent this year while Melbourne prices have fallen by 4.6 per cent. With the Reserve Bank determined to force even higher interest rates on the economy in order to defeat inflation, there is no end in sight to higher interest rates and further property price falls. The information provided in this article is general in nature only and does not constitute personal financial advice.

Financial Education for a Successful Future

30 August, 202329 August, 2023 Updated on29 August, 2023 Education, Finance

Think back to when you got your first job and that sweet taste of financial independence. Regardless of what age you started working, it’s unlikely you knew how to manage that first paycheck. Let’s face it; our world isn’t particularly adept at teaching financial literacy to the younger generation. I don’t know about you, but when I was in school, we learned trigonometry (SOH-CAH-TOA is still permanently etched in my brain), which has been helpful for all the times I’ve needed to solve the missing sides and angles of a right triangle, but not so much for managing my financial affairs as an adult. It’s time we change that narrative by sparking open, honest discussions about money and giving our young adults the financial tools they need to flourish. The Need for Open Discussions About Finance Money talk has often been cloaked in secrecy, even considered taboo in some households. This needs to change. Parents can play an integral role in setting their children up for financial success by fostering an environment where money conversations flow freely. Open dialogue demystifies the world of finance and empowers young adults to make informed decisions. Using Positive Language As we foster an environment of open discussions around money, it’s important to remember that the language we use significantly impacts the subconscious beliefs and attitudes our children will develop. Just as negativity can breed fear and anxiety, positive language can cultivate a healthy relationship with money. Instead of saying, “We can’t afford this,” try saying, “Let’s work out how we can save for this.” This small shift in dialogue encourages a mindset of abundance and possibility rather than scarcity. It helps young adults view financial challenges as opportunities for growth, aiding them in building a positive and proactive belief system around money. Financial Goal Setting Goals give us direction and purpose. Whether saving for a first car, paying off a student loan, or investing in their first property, encouraging young adults to set and work towards financial goals from an early age is a great way to help them build discipline and a future focussed mindset. It’s equally important to celebrate milestones, no matter how small. This positive reinforcement nurtures a sense of achievement and motivation, propelling them further on their financial journey. The Essentials of Budgeting Ever heard of the saying, “Failing to plan is planning to fail”? That’s precisely why budgeting is so important. Budgeting is not about limiting yourself; it’s about making your money work for you. The 50/30/20 rule, where 50% of your income goes towards needs, 30% towards wants, and 20% towards savings, is a great place to start for young adults because it’s simple and gets them in the habit of saving from an early age. Understanding and Practicing Responsible Spending Managing your money doesn’t mean you have to miss out on the things you enjoy. It’s all about responsible spending. Need versus want is a timeless debate, but helping young adults to understand the difference is key. Impulse spending is something that can often sabotage budgeting and saving efforts. A great tip for young adults to help them avoid impulse spending is to implement a 48-hour waiting period for non-essential spending. This allows time to consider whether the purchase is within their budget and aligned with their financial goals. We’re not just equipping our young adults with financial knowledge but empowering them to build a successful financial future. So, let’s keep the money conversations flowing and start helping our young adults build habits that will set them up for financial success. The narrative changes today!   The information provided in this article is general in nature only and does not constitute personal financial advice.  

6 steps to a Happy New Financial Year

15 July, 202431 July, 2024 Updated on31 July, 2024 Budgeting, Education

The new financial year provides an opportunity for a fresh start for your finances. Make this the financial year you get on top of yours… for good! We’ve broken it down into six bite-sized, manageable steps for you to tackle over six months, because real change takes time! The below is a suggested path to a New Financial You, however, you can choose your preferred order and pace. July: Goal Setting What is it that you want? I mean REALLY want? As with any goal, your financial goals should be SMART – Specific, Measurable, Achievable, Relevant, Timely. Whether you’re wanting to build an emergency fund, get out of debt, or save for a specific goal, write down your goals in detail and then revisit these regularly to remind yourself of what you’re working towards. August: Set your Budget A budget helps you see what’s coming in, what’s going out and most importantly how much you have to allocate towards your goals. There are plenty of free templates online so find one that works for you and add in your personal income and expenses. Tip – Go through your last three months’ bank statements to get details of your spending. September: Set up a Savings Plan You can do this by working out how much money you need for a particular savings goal and by when, then breaking it down into regular amounts to be set aside. Example – If you want to save $2,000 for Christmas by December 1st, you’ll need to set aside $154/week from September 1st. Tip – Automate savings by setting up a regular transfer. October: Super Check It’s time to health check your superannuation: Make sure your contact details are up to date to ensure you’re not missing out on important correspondence. Do you have a current beneficiary nomination in place? A valid beneficiary nomination will direct your super fund on how you would like your super benefits to be paid, if you were to pass away. How much is your super costing future you? There are a whole range of fees that might be funded from your super, including administration, investment, and adviser service fees, all of which will have an impact on your retirement savings. Do you know how you’re super is invested? Is it Conservative or Growth? How well has it performed over the long term? Some important things to consider when choosing an investment option include your life stage, investment horizon and comfort for risk. November: Insurance Review There are a range of insurances that offer financial security for you and your family, including: This month, get to know your current insurances and consider whether the types and amounts are suitable for your needs. December: Estate Planning Estate Planning involves documenting what you want to happen in the event you pass away or become incapacitated. It might include Wills, Powers of Attorney, Health Directives and Guardianship nominations. If you don’t have these in place already, it’s time to build out your Estate Plan. If you do, it’s time to dig these out for a review. Congratulations, you made it! If you’d like some extra support on your journey, reach out to your Financial Adviser today for help with achieving your financial goals! The information provided in this article is general in nature only and does not constitute personal financial advice. 

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