Finance

What to consider when withdrawing your super early

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

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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 max
Much 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 risk
On 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.

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Super success for women

2 December, 202017 September, 2021 Updated on17 September, 2021 Retirement, Superannuation

While women earn less and spend less time in the workforce than men, sharply reducing their super contributions throughout their working lives, there are some simple steps women can take to boost their retirement savings. The Simple Facts This inequality is simply due to women earning and working less. Women in full-time work earn on average 18 per cent less than men, while almost half of all women in the workforce work part-time with an estimated 220,000 women missing out on any super contributions each year simply because they earn less than $450 a month – the lower threshold for super guarantee contributions. Women also miss out on super contributions because they are often absent from the workforce for extended periods while on maternity leave or looking after loved ones, be they children or other family relatives. When they do return to the workforce, it is frequently in casual positions or working for themselves, where the need to make super contributions is so often overlooked. Check your super fund fees and charges The solution lies with women taking control of their super and choosing the best possible super fund, which typically means low fees and good, low-risk investment options. Regularly check what, if any, personal insurance premiums are paid from your precious super savings. While insurance is essential while you are raising a family, as you get older, you might find your need for insurance diminishes. You may be able to reduce your coverage and with it the cost of premiums from your super. (Remember to always check with your adviser before cancelling any insurances.) Make sure you take the time to consolidate your super accounts into one low cost super fund. Visit the Australian Tax Office website to consolidate your super or ask your adviser to do this for you. Wherever possible, ensure you continue to make contributions throughout your working life, starting as early as possible and not neglecting your superannuation during periods when you are out of the workforce, working on a part-time basis or self-employed. Maximise Your Contributions Make sure you speak to your adviser to maximise your contributions, and in doing so, minimise your tax bill at the end of the financial year. If you expect your income to be less than $52,000 in a financial year, make sure you take advantage of the Federal Government’s co-contribution scheme. By putting just $20 a week of after-tax income into super, you will receive up to $500 from the Government directly into your super account as soon as you lodge your tax return. That’s a guaranteed 50 per cent return on your money and the best investment you will ever make. If you are earning less than $37,000 a year, you should receive the Federal Government’s low-income superannuation tax offset of $500. Both payments happen automatically, meaning you don’t have to apply or complete additional paperwork to receive them. Still, you should check your superannuation account to make sure these payments are there. If you need more advice about your super, talk to us today. The information provided in this article is general in nature only and does not constitute personal financial advice.

How to create a Debt Repayment Plan

29 March, 202329 March, 2023 Budgeting, Finance, Superannuation

Debt can be overwhelming and stressful, but creating a plan to pay it off can help ease that burden. In Australia, household debt is on the rise, with the average household owing over $260,000 in 2021, according to the Australian Bureau of Statistics. If you’re struggling with debt, here are some tips and strategies for creating a debt repayment plan. Create a Budget The first step in creating a debt repayment plan is to create a budget. This will help you understand where your money is going and where you can cut back on expenses. List all of your income and expenses, including bills, rent or mortgage payments, groceries, and any other expenses. Once you have a clear picture of your finances, you can start to identify areas where you can save money. Prioritise High-Interest Debt If you have multiple debts, it’s important to prioritise the ones with the highest interest rates. These debts are costing you the most money in interest charges, so paying them off first will save you money in the long run. Make minimum payments on all of your debts, and put any extra money towards the one with the highest interest rate. Automate Payments Automating your debt payments can help ensure that you don’t miss any payments and incur late fees. Set up automatic payments for the minimum payments on all of your debts, and then add extra payments as you can afford them. This will also help you stay on track with your debt repayment plan. Choose a Repayment Strategy There are different methods of debt repayment, such as the snowball and avalanche methods. The snowball method involves paying off the smallest debt first, while the avalanche method involves paying off the debt with the highest interest rate first. Choose the method that works best for your situation, and stick to it. Case Study Let’s compare two scenarios to see how creating a debt repayment plan can make a difference. Scenario 1: Sarah has $10,000 in credit card debt, with an interest rate of 20%. She is making minimum payments of $200 per month, but is struggling to make progress on paying off the debt. Scenario 2: John has the same amount of credit card debt, but has created a debt repayment plan. He is making minimum payments of $200 per month, but has also cut back on expenses and is putting an extra $200 per month towards the debt. He is using the avalanche method, and has prioritised the credit card with the highest interest rate of 25%. After one year, Sarah will still have $8,360 in credit card debt, and will have paid $1,440 in interest charges. In contrast, John will have paid off $4,800 of his debt, and will have saved $1,200 in interest charges. Creating a debt repayment plan can make a big difference in your financial situation. By creating a budget, prioritising high-interest debt, automating payments, and choosing a repayment strategy, you can take control of your debt and work towards becoming debt-free. If you need help creating a debt repayment plan, speak with our advisers who can provide guidance and support. The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: July-September 2024

10 October, 202410 October, 2024 Economy, Finance, Investing

The Australian economy is still growing, but things are moving slower than usual, and the Reserve Bank of Australia (RBA) is being cautious with any changes to interest rates. They’re waiting for inflation to settle before taking further action. GDP Growth: Slowly But Surely While the economy is growing, it’s not as fast as we might like. Over the June quarter, the economy expanded by just 0.2%, with a 1.5% growth over the financial year. While these numbers sound positive, when you factor in Australia’s growing population, the story changes. For the sixth quarter in a row, GDP per capita (which looks at economic growth per person) has actually fallen. This shows that while Australia as a whole is growing, individuals may not feel that impact, especially with rising costs of living. Interest Rates: Holding Steady In September, the RBA decided to keep interest rates on hold at 4.35%, with the next decision due in November. While the US recently cut rates, Australia hasn’t followed suit, and it’s unlikely we’ll see any rate cuts before Christmas. The RBA is holding off to ensure inflation is well under control, despite it being much lower than the peak in 2022. Inflation: Better But Still Stubborn Annual inflation hit 3.8% in the June quarter, slightly up from March. However, there’s good news: underlying inflation (which strips out the more volatile price changes) has been falling for six straight quarters, down from its peak of 6.8% in late 2022. That said, prices for everyday goods remain high, and the overall cost of living is still squeezing households. Households Are Tightening Their Belts With cost-of-living pressures building, many Australians are cutting back on things like travel and entertainment. Even grocery spending is down, with households trimming their food budgets by 1%. However, spending on household goods, like furniture and appliances, increased by 4%, which propped up discretionary spending overall. Housing Market: Prices Still Going Up The property market remains strong, with housing values continuing to rise across Australia, although at a slower pace than before. CoreLogic reports that the national Home Value Index rose by 0.5% in August and a further 0.4% in September. Despite the cost of living, demand for property remains high, which is keeping prices elevated. Jobs Market: Still Tight, But Productivity Is Falling Australia’s unemployment rate remains low, sitting at 4.1% as of June, which is historically strong. However, total hours worked rose only slightly, and productivity—measured by GDP per hour worked—fell by 0.8%. While jobs remain secure for many Australians, people are working more for less output, and this could become a concern for long-term economic stability. Global Outlook: Uncertainty Ahead Globally, central banks are starting to look at easing monetary policies, but it’s still unclear how much they’ll ease up. Ongoing conflicts in the Middle East, Ukraine, and northern Africa are causing further instability. Meanwhile, Asia’s economy, a key trading partner for Australia, is expected to slow in 2024, which could have a knock-on effect on our own economic growth. What It All Means for You For everyday Australians, the combination of high interest rates, sticky inflation, and rising living costs means it’s more important than ever to manage your finances carefully. Mortgage holders won’t see relief from rate cuts soon, and households should continue to be mindful of their budgets, especially with the cost of essentials like groceries and petrol still fluctuating. If you’re feeling the pinch, now is a good time to seek professional advice and ensure you have a financial plan in place that helps you navigate these uncertain times. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Navigating the reality of divorce after 50

17 June, 202418 June, 2024 Updated on18 June, 2024 Budgeting, Education, Retirement

Adjusting to life after divorce, particularly later in life, is akin to navigating through some of life’s most challenging events, psychologists say. It’s a journey comparable to coping with loss, relocation, major illness or injury, or job loss. While these upheavals are often beyond our control, how we choose to manage them greatly impacts our recovery. Is grey divorce on the rise? Unfortunately, yes. Despite overall divorce rates declining since the 1990s, both the age at divorce and the rate of divorces among couples in long-term marriages are on the rise. According to data from Australian Seniors and the ABS, 32% of divorces now occur after the age of 50. What are some of the key financial impacts of divorce? Superannuation is typically regarded as part of the assets in any pre-divorce financial settlement. Understanding that superannuation can be divided without the need for fund withdrawals or meeting specific conditions is crucial if no prior agreement has been reached with your partner. While splitting it isn’t obligatory, ensuring its inclusion in the settlement is vital due to its significant role in overall wealth. However, dividing it can substantially diminish what was once a solid nest egg, potentially impacting retirement plans. Aside from the emotional toll of asset division, the process can be difficult. Factors like investment properties, primary residences, or self-managed super funds (SMSFs) with less liquid assets—such as business holdings, real estate, closed funds, or art—can further complicate matters. Selling assets without proper advice can trigger capital gains, while shifting assets from tax shelters like superannuation or trusts can result in hefty tax liabilities. Centrelink entitlements and thresholds will also alter with your changed circumstances. Seeking the professional advice of more than just a lawyer is the smartest thing to do. Divorce is also expensive Many shared expenses, such as utilities, become the sole responsibility of each party post-divorce. For instance, while the average monthly living expenses for an Australian couple total around $4,118 ($2,059 per person), for a single person living alone, it’s estimated at $2,835. In essence, each individual spends roughly 70% of what a couple would spend. After divorce, with each person potentially having only half of their assets but needing around 70% of their income to cover living expenses, budgets become tight. So, how can you rebuild financial stability post-divorce? In other words, review your financial plan and seek professional advice. A qualified financial adviser can help you learn to take control of your finances and plan your future. Remember, the benefits of compounding mean that the sooner you start, the better off you’ll be! The information provided in this article is general in nature only and does not constitute personal financial advice. 

Quarterly Economic Update: October-December 2021

19 January, 202220 April, 2022 Updated on20 April, 2022 COVID-19, Economy, Investing

Coronavirus Victoria and New South Wales saw their economies roar back to life as they emerged from lockdown just in time for a new kid to arrive on the coronavirus block. Omicron spread around the world seemingly within days knocking Delta off the front pages. Appearing to cause less severe disease than previous strains, and with Australia achieving high rates of immunisation, state governments held off resorting to lockdowns in an attempt to minimise financial carnage on businesses and workers. All this battling against the virus comes at an enormous cost. The mid-year budget update forecasts annual deficits of around $100 billion for the next few years, no surplus over the next ten years, and gross debt of $1.2 trillion by 2024-2025. Jobs galore The unemployment rate dipped to 4.6% in November as an additional 366,100 people joined the ranks of the employed. The under-employment rate fell 2% to 7.5%, and many employers reported difficulties in finding staff. Homebuyer hopes Homebuyers gained a little power over sellers towards the end of the year as a surge in listings saw auction clearance rates in Melbourne and Sydney drop to 66% and 73% respectively. If this extra supply is maintained it should help to cool what has been a very hot property market. COP this The Covid-delayed climate change conference COP26 was finally held in Glasgow, and Australia joined the large number of countries aiming to reach net zero carbon emissions by 2050. Good progress was made in some areas, such as reducing methane emissions, ending deforestation and, for some countries, phasing down coal. However, modelling predicts that if all current commitments are fulfilled we will still see temperatures rise by 2.4 degrees. This is well short of the Paris Agreement goal to limit warming to 2 degrees, and preferably 1.5 degrees. The Glasgow Climate pact calls on nations to “strengthen their pledges to reduce emissions by the end of 2022.” Expensive energy Major energy users suffered from a big spike in the costs of both coal and natural gas during the quarter. Prices corrected abruptly in November, but still remained much higher than at the start of the year. Oil prices were also higher, nudging US$85 per barrel during October and November. Aside from hitting consumers’ petrol and home energy bills, high energy prices also led to an increase in the cost of, and shortages of urea – a chemical that is critical to the production of fertilizer (and therefore food) and to keeping diesel trucks on the road. Ups and downs The volatility in the value of the Aussie dollar against major currencies continued for the quarter. It traded between 70 US cents and 75 US cents in line with its long-term trend. We gained more than 3.7% against the Euro and Yen, and held ground against the British Pound. The local share market failed to excite, tracking sideways before putting on a small end of year spurt that saw the S&P ASX 200 close the quarter up 1.5%. It was a different story for US stocks. The S&P500 closed out the year at a record high after lifting nearly 11% for the quarter. The Nasdaq was close behind with a 9% gain. The information provided in this article is general in nature only and does not constitute personal financial advice.

A Self-Employed Superannuation Guide

6 December, 20236 December, 2023 Superannuation, Tax

When you’re at the helm of your own business, it’s easy to get caught up in the whirlwind of the present – chasing sales, generating leads, and growing your business. Often, self-employed people prefer reinvesting back into their businesses, hesitant to stash money away in superannuation. Yet, there’s a compelling case for setting aside a slice of your earnings. The facts don’t lie At present, self-employed Australians are not required to contribute to superannuation. According to the Australian Tax Office’s (ATO) data, while self-employed people make up about 10% of the workforce, their super contributions account for just 5% of the retirement pie in 2014-15. Dive deeper into the numbers, and fewer than 1 in 10 self-employed Australians opted to make tax-deductible super contributions that same year. What is ‘self-employed’? The ATO has clear guidelines on what a self-employed person is: For more information see the ATO website. Why contribute to superannuation? While it’s tempting to pour every hard-earned dollar back into your business, the reality is that not all businesses come with a pot of gold at the end. Some self-employed people and businesses rely solely on their own labour, with no substantial business assets to lean on. That’s where superannuation can come in, providing a great way to plan for your retirement. A nest egg for retirement By contributing to super, you are building a nest egg that will provide you with financial security and income in retirement. Putting a small amount of money into superannuation regularly can provide financial stability over time, allowing you to focus on growing your business knowing that you have another income stream building in the background. Tax benefits Here’s a big one: self-employed people may be entitled to a full tax deduction for contributions made to super. If you’re self-employed, you can make personal contributions up to the annual cap, which is $27,500 per year for the 2023-24 financial year. These contributions are taxed concessionally at 15 per cent, rather than marginal tax rates. So not only are the contributions taxed at a lower rate, self-employed people can also claim a tax deduction on those contributions. To claim a deduction for personal contributions it’s important to note that: Compounding Superannuation remains one of the most tax-effective ways to grow wealth. Over time, your contributions can benefit from compounding growth, as your investments earn returns on both your initial contributions and any earnings generated. Starting early and contributing consistently, even with small amounts, can significantly boost your retirement savings. Diversification Many self-employed people see their business as their retirement strategy. But by putting money away into the tax-effective superannuation environment, with investment strategies that can be tweaked over time, you can diversify your investment, reduce risk, AND plan for retirement. How do I contribute to super if I’m self-employed? Just because you’re self-employed doesn’t mean super has to be complicated! With various tax benefits, flexibility of contribution size and frequency, and having another source of income for your retirement, if you’re self-employed why wouldn’t you be contributing to super?! If you’d like to get started, talk to your adviser today. The information provided in this article is general in nature only and does not constitute personal financial advice. 

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