Tag Archives: Financial Planning
Women and superannuation – how the pay gap can impact your super
By Robert Wright /September 08,2021/
According to the Australian Bureau of Statistics, women are retiring with 37% less than men in their super accounts, which is a frightening thought considering women, on average, live up to five years longer.
So, what’s behind the super gap?
The super gap is partly due to the lower average earnings of women. Data from the Workplace Gender Equality Agency, reports that the full-time remuneration gender pay gap in Australia is 13.4% compared to males.
While many have blamed the “wage gap” on gender, Harvard Business Review research suggests women ‘ask’ for pay rises as much as men do, however, they are far less likely to actually get them.
The study also suggests that while men are successful in negotiating a pay rise 20% of the time, women were only successful 15% of the time.
This in turn impacts retirement savings, as the less money you earn, the less superannuation you will receive because your Superannuation Guarantee contributions are based on your level of income.
The second reason for the super gap, is that women typically take time out of the workforce to raise children. The absence of ongoing superannuation contributions can have a significant impact on the final amount women can end up with in super.
What can be done to address the super gap?
One of the simplest ways to catch up on lost super contributions, is to make additional contributions to super along the way. Small amounts over longer periods of time may be easier to commit to, for example, making additional contributions may be enough to narrow the gap caused by taking time out for the workforce.
If you are getting closer to retirement, you may consider maximising the amount you are contributing each year in concessional contributions up to the $27,500 limit (or higher if you have previous unused concessional cap amounts).
Keep in mind, however that any contribution you do make to super will be preserved, and unable to be accessed until you meet a condition of release from super. Most commonly this would be reaching your preservation age and then retiring.
In addition, it’s worth considering if you are in an appropriate super fund, which meets your needs, including the level of insurance cover you have and whether you may reduce this if you no longer need it.
Consider the fee structure of the super fund and also pay attention to how your super is being invested, for example – if you have a long time until retirement, you may benefit from increasing your exposure to growth assets.
For women in relationships, a problem shared could help close the retirement gap. This is because your spouse can split up to 85% of their concessional contributions each year with you.
Furthermore, if you earn less than $40,000 per annum, your spouse may be eligible for a tax offset of up to $540 for a $3,000 contribution (made with after-tax money).
Take control of your super as soon as possible; little changes early can potentially make a big difference in the long-term.
Source: BT
Creating an emergency budget that works for you
By Robert Wright /September 08,2021/
It could take months, even years, to clear debt – especially if you used your credit card and you know you’ll be slugged with snowballing compound interest each month you don’t pay it off.
Things might get worse if another emergency comes up and you don’t have the means to pay for it. Before you know it, you’ve dug yourself into a deep financial hole that can be hard to get out of.
That’s why it’s no surprise that financial experts recommend creating an emergency fund. It’s a pool of money you always have on hand to cover any unexpected expenses.
Any fund is better than no fund
The figure most often cited by finance media personalities is six months’ salary. So how much do you really need?
The best way to decide on a figure is to look at your personal situation, and then create a budget accordingly. Consider possible future expenses, how much you earn, what your weekly costs are and how much you could realistically live without. It will take time to build your emergency fund, but it will be worth it in the end.
Think about it – even a few hundred dollars set aside now could mean not dipping into your credit card balance later on. This can help you avoid the rollercoaster of debt.
Work out what your unexpected costs could be
Think about the types of expenses that could come your way when you least expect them. List anything that’s outside your normal budget. This might include urgent car or home repairs, medical appointments, vet, or dental bills, or even an unexpected interstate or overseas trip to visit a sick family member.
While it’s unlikely you’ll get hit with all these expenses at once, having an idea of your potential future costs can go a long way in helping you decide your emergency savings target.
Revisit your budget
Once you know what you’re aiming for, look at your budget and work out how much you can afford to put away each week. If you don’t have a budget already – today’s the day to start one.
Consider your current financial commitments, then decide on a percentage of your wage that you’d like to put aside. For example, you might commit to saving 10% of your take-home pay until you reach your emergency fund goal.
If you’re financially stretched at the moment, putting aside money each week for something that might not happen in the future can seem like a big ask. But it may not be as tough as you first think.
Be consistent with your savings
Consider creating two separate bank accounts – one for your weekly expenses and ‘fun’ money, and another for your emergency fund. Then set up an automatic transfer so the money earmarked for emergencies goes straight into that account each payday. This way, you’ll barely even notice the money that’s gone. And over time, you’ll get used to having slightly less in your weekly expenses and ‘fun’ money account.
Replenish your fund after use
With your emergency fund now set up, you can relax knowing that you’re financially prepared for the unexpected. But remember – your fund is there for urgent, necessary costs only.
If you do need to dip it into it for a real crisis, then that’s fine – that’s what it’s there for. But make sure you top it back up again when you’re financially ready to do so. This way, if another unexpected bill comes your way, you’ll be prepared.
Talk to an adviser
Everyone’s financial situation is different. That’s why talking to a financial adviser can be so useful. They can show you how to create a budget and savings plan tailored to your needs, including an emergency fund. An adviser can also help you find the right insurance to protect your finances in the future.
Source: Colonial First State
Downsizing your home? Understanding the downsizer contribution
By Robert Wright /August 26,2021/
Downsizing the family home is often part of the longer-term financial plans for many older Australians. But did you know that you could consider investing the proceeds of the sale of your family home to your super – depending on your age and circumstances – as a downsizer contribution?
What is a downsizer contribution?
If you’re aged 65 years or older, you may be eligible to make a downsizer contribution of up to $300,000 to a complying super fund from the proceeds of the sale of your primary residence, which is owned for 10 years or more.
A downsizer contribution doesn’t count towards any of the contribution caps – and can still be made even if a person has total super savings greater than $1.7 million, or if they do not meet the work test requirements. It is a once-off option and doesn’t apply to the sale of any residences in the future.
Your spouse, provided they are also aged 65 years or older, can also make downsizer contributions to their own super, of up to $300,000 from the same proceeds, even if they are not an owner of the property. To do this, the sale price is key, as your couple contributions cannot be more than the total sale price of the property.
The benefits of the downsizer contribution:
No work test requirements
There is no requirement to meet a work test or work test exemption for this contribution, which makes it ideal for those aged between 67 and 74. It is even more appealing if you are aged 75 or over, as outside of this opportunity, you can no longer make voluntary contributions.
Contribution caps don’t apply
It doesn’t matter how much you already have in your super – the total super savings test (must be $1.7 million or less to make after-tax contributions) doesn’t apply for downsizer contributions.
May be more tax-efficient
The downsizer contribution is an after-tax contribution, so no tax is paid on the way in. And because you are over 65, it is returned tax free when you withdraw the funds in the future.
You don’t have to buy a new home
The money you make from the sale doesn’t have to be used to purchase a new home, and there is no need to move to something smaller or cheaper. If it involves the sale of a previous principal residence (that is now an investment property), there is actually no need to move at all.
Who is eligible?
In addition to the age 65 threshold, there are a number of other important criteria to be met.
You must sell a property that is located in Australia, and you must have owned the property for at least 10 years.
When you sell that property, you need to be eligible for some form of exemption from capital gains tax (CGT) on the sale of the property under the “main residence” provision. Basically, this means the property needs to be your principal place of residence for at least some time during its ownership.
If you purchased the property before 20 September 1985 (so that CGT doesn’t even apply), you still need it to have been your principal place of residence at some stage during ownership.
Keep in mind, it also doesn’t matter if the exemption from CGT is a full or partial exemption, which means the property could have been an investment at some stage during your ownership of it.
What a downsizer contribution could look like
Here are some hypothetical examples of how downsizer contributions could work in different situations.
Example 1:
Martin and Sharon are both aged in their 70s, own their home jointly and have lived in it for 25 years.
They sell their home on 1 August 2021 for $550,000 and the settlement date is 13 September 2021. They are exempt from capital gains tax (due to the home having been their primary residence).
Under the downsizer contribution measure, within 90 days, Sharon makes a downsizer contribution to her superannuation of $300,000 while Martin contributes $250,000 to his superannuation.
Though the cap on downsizer contributions is $300,000, Martin only contributed $250,000 because the combined contributions cannot exceed the sale proceeds of their home. They could have also split the contributions evenly, contributing $275,000 each.
Example 2:
Roger is aged 66, Mel is aged 63, and they live in a home purchased by Mel 20 years ago.
Mel sells the home for $900,000 on 15 July 2021 and the proceeds are exempt from capital gains due to it being their primary residence.
Roger can make a downsizer contribution of up to $300,000 within the 90-day period but as Mel is under age 65, she is unable to make a downsizer contribution.
Does it impact the Aged Pension?
If you qualify, or are hoping to qualify for the Age Pension, the impact of selling an asset needs to be considered. The value of your main residence is excluded from the assets test, however if it is sold, and some of the proceeds added to your super, that value will then be assessed and may reduce your age pension benefits.
How do you make a downsizer contribution?
If you are eligible, you’ll need to complete a downsizer contribution form and provide this together with or before your contribution, to your complying superannuation fund so it can be correctly classified. The form is available from the ATO website. You can elect to notify your super provider in advance of the contribution also.
It’s important to be aware of the timing of your contribution into super. The contribution must be made within 90 days of receiving the proceeds of sale (or longer permitted period), which is usually the date of settlement.
Source: BT
Retirement Realities: Five Tips for Rebuilding a Super Future
By Robert Wright /August 26,2021/
Australians will need to rebuild their superannuation and retirement savings, after withdrawing more than $36 billion in early super release payments in 2020, according to Colonial First State’s Retirement Realities Series.
The research found that the largest number of early super payments were made to Australians under age 40 with Australians under 30 receiving nearly one-third of these payments.
The research also revealed that Coronavirus had a big impact on the retirement savings of women, with the average super balances for men consistently higher than women – $110,000 vs $93,000 in December 2020, with a faster rate of growth for men.
But there is positive news. Half of Australians who withdrew their super early, have now made headway in making contributions either through their employer or by making their own contributions.
Despite the challenges there are a number of practical ways for Australians to get their super back on track and live a comfortable life in retirement.
Five Tips to Consider to rebuild your Super
1. Make small and regular top-ups
Even a small contribution to your super makes a big difference in the long term and to how much money you have in retirement.
How does it work? Your employer can pay some of your salary into your super before tax is taken out, instead of our bank account. And yes, that means a tax benefit. It is also a very simple and effective strategy.
If you withdrew $10,000 from your super, making additional contributions of just $20 per fortnight pre-tax (salary sacrifice) at age 30, can mean an additional $25,000 at retirement.
2. Seek advice
Advice can come in different shapes and sizes. Make the most of free online resources and calculators that provide useful tips and information.
A financial adviser can also help you plan for your future. According to Colonial First State, women who received financial advice made a 199% higher average voluntary contribution in 2020 compared with women who did not get advice.
Similarly, the research found that men who sought financial advice were 85% ahead of those who didn’t get advice.
3. Manage your debts
The majority of people who accessed their superannuation early used it to pay their mortgage or rent (29%), household bills (27%) or credit card bills or personal debts (15%) . It might be a personal loan, a credit card or a mortgage (or a combination of all). The general rule is that it’s always good to pay off any high-interest debts first.
4. Take an interest and get control
Understanding what measures are available can make a big impact on how much money you have in retirement. For example, if you earn less than $54,837 you may qualify for a government co-contribution of up to $500 where you make a non-concessional contribution in a year.
Other measures including spousal, after-tax and concessional contributions which again could deliver tax breaks or qualify you for government contributions. Talk to us about the different ways you can grow your super.
5. Check in on your super with online reminders
Just like scheduling diary reminders for work or social events or for bill payments, set yourself diary reminders to check your super every month. It is easy to set up these regular reminders on your online balance. Think of it as a ‘reality check’ on whether you are on track for a comfortable retirement.
Source: Colonial First State