Tag Archives: Retirement

Retire on your own terms

By Robert Wright /August 28,2018/

As the novelist C. S. Lewis once observed, “You are never too old to set another goal or to dream a new dream.”

Retirement should be the start of a new chapter in your life – perhaps the most exciting of all. The big question, of course, is how you pay for it without a regular pay cheque. A simple way to think about retirement income is by splitting your needs into two parts:

Regular income – the money you will need each month to pay regular living expenses, like your housing, food and health care costs.

Discretionary income – your pocket money to spend on the good things in life, like travel, restaurants and trips to the theatre. These funds also cover life’s nasty surprises, like car repairs, blocked pipes and leaking roofs (hopefully not at the same time).

Let’s use this framework to look at the retirement income options you have.

Regular income requirements

These are the sorts of expenses you are already paying every month – unfortunately most of them will continue when you retire. Council rates, utility bills, groceries, health care and phone bills all fit into this category. When you’re working you cover these sorts of expenses with your employment income, but what happens when you retire? The answer lies in generating a regular retirement income stream. Here are some options to consider:

Account-based Pensions

Once eligible, you can transfer all or part of your super to an account-based pension and choose how much you receive as regular income payments. There are compelling tax benefits because investment earnings on your assets supporting this income stay within the super system. This means they are tax free, and for most people aged 60 or above, the income payments you receive are also free of tax.

Annuities

An annuity is a product you can buy from an insurance company using your super or other savings. Annuities give you a set income for a defined period or for the rest of your life, depending on the product you choose. If you use your super to buy an annuity, income payments receive the same tax treatment as an account-based pension. Another advantage is reliability – you receive a guaranteed payment regardless of market performance or interest rate changes. On the downside, you have less control because you cannot choose where your money is invested, and you don’t have the flexibility to withdraw if you need extra cash.

Part-time work

Many of our clients love their work and choose to reduce their hours, or work part-time, in the early stages of retirement. Continuing work helps you to stay active mentally and continue to socialise with colleagues – but there are also financial advantages. You will receive income payments every month – money you can rely on for regular expenses. When you are still earning a salary you can continue to contribute to your super, rather than having to draw down on the balance. This could make a big difference to the value of your nest egg when you eventually retire.

The pocket money you deserve

So you’ve taken care of life’s essential expenses with a retirement (or semi-retirement) income stream. What about extra money to treat yourself to the finer things in life?  The secret to retirement pocket money is quick access to cash. The financial term for this is liquidity – cash is the most liquid asset while investments like real estate are considered illiquid, as it is very hard to sell just one room of a house.

Term deposits

With a term deposit, your money is invested for a fixed period and you receive an agreed rate of interest for the term of your investment. It’s a popular way to earn money for life’s pleasures – and emergencies – because the cash you receive is easy to access, it’s liquid. Another benefit is the safety of a term deposit because your original investment is returned at the end of the term.

Dividend investing

When you buy shares in a company you are entitled to a share in the company’s profits or earnings. Companies pay a dividend to shareholders as a way of sharing profits – usually twice a year. You can use these cash dividends as pocket money for discretionary spending in retirement. By holding the shares for a length of time, the value of your underlying investment is also likely to grow.

The potential for better returns through share investing comes with additional risk. It is important to spread risk by diversifying your investments – across industries and also beyond our borders to global markets.

Bringing it all together

There is no shortage of options for your retirement income – the secret is in combining the best of them in a tax effective way based on your individual circumstances. We strongly recommend you start thinking about your retirement income now and seek financial advice early. You’ve spent your life building your nest egg – don’t let it fall from the tree.

 

Source: Perpetual

New rules to benefit those downsizing for retirement

By Robert Wright /August 28,2018/

Australians aged 65 and over who are downsizing for retirement can now contribute the proceeds from the sale of their main residence (up to $300,000) into super.

We take a look at what this could mean for you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Super benefits for downsizers

Usually, people aged 65 to 74 need to satisfy a work test to make voluntary super contributions, while people aged 75 and over are generally unable to contribute to their super.

However, that changed on 1 July 2018, with those aged 65 and over now able to make a non-concessional contribution to their super of up to $300,000 using the proceeds from the sale of their main residence – regardless of their work status, superannuation balance, or contribution history.

For couples, both spouses are able to take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super.

How does it work?

Proceeds from the sale of your main residence that are contributed into super as part of this initiative can be made in addition to any other before-tax or after-tax contributions you’re eligible to make. The government says the aim is to encourage older Australians, where appropriate, to free up homes that no longer meet their needs and make room for younger growing families.

To qualify:

• The contracts for sale must be exchanged on or after 1 July 2018
• The property that’s sold needs to have been your (or your spouse’s) main place of residence at some point in time
• You need to have owned the home for at least 10 years
• The property that’s sold must be in Australia and excludes caravans, mobile homes and houseboats.

‘Downsizing’ contributions are not tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions.

Things to note

No special Centrelink means test exemptions apply to the downsizing contribution. Due to this, there may be means testing implications as a result of downsizing, which need to be considered.

Meanwhile, additional rules may apply to your situation, so make sure you do your research before making any decisions.

 

Source: AMP

Who is the boss of your super?

By Robert Wright /August 28,2018/

It’s tempting not to think too much about your super when retirement is still a long way off. After all, it’s growing just fine by itself … right? But the reality is, if you don’t take control now, you might be left with less than what you need when it’s time to put it to use.

Here’s how to be the boss of your super in three simple steps.

Step one: Know what you’re entitled to

If you’re working full-time or part-time for an employer, they generally have to make regular Super Guarantee (SG) payments into your super account. But there are some exceptions, like if you’re:

• earning less than $450 a month
• under 18 and working 30 hours or less a week
• doing domestic or private work for 30 hours or less in a week (for instance, if you’re a part-time nanny)
• an overseas worker temporarily working in Australia and you’re covered by a bilateral superannuation agreement
• a non-resident working overseas but paid by an Australian employer
• a Reserve Defence Force employee (applicable to some payments only).

SG contributions are calculated as 9.5% of your Ordinary Time Earnings (OTE). This includes loadings, commissions, allowances and most bonuses, but usually doesn’t include overtime pay. Your employer also has to keep making SG payments even when you’re on sick leave, annual leave or long-service leave – but not if you take time off for paid parental leave.

Step two: Check that your super is being paid

When you start working for a new employer, they need to give you a Superannuation (super) standard choice form. This lets your employer know which super fund to pay your SG contributions into. All you have to do is provide your fund details and account number.

By law, your employer has to start paying SG contributions into your chosen account on a quarterly basis – and they must start paying any amounts that are due within two months of receiving your completed standard choice form. If you think your employer isn’t making these payments – or they’re paying you the wrong amount – here’s what you can do:

1. Check your super statement to find out how much your employer has been paying.
2. Speak directly to your employer about how and when your payments are scheduled.
3. If you can’t resolve the issue, lodge an enquiry with the Australian Taxation Office and they’ll take steps to investigate.

Step three: Boost your super savings

Employer SG contributions play a vital role in building up your super savings throughout your working life. But they’re not the only way to grow your nest egg.

You may be able to set up a before-tax contribution from your salary, known as a salary sacrifice arrangement, with your employer. This means authorising them to take out a fixed amount or percentage of your before-tax income from every pay, which they then deposit straight into your super. But first, you should speak to your employer about how this arrangement would work for your employment situation.

Alternatively, you can use your own money to make voluntary contributions. In this case, you may be entitled to claim an income tax deduction on your contributions.

An advantage of salary sacrificing or making personal tax-deductible contributions is that your contributions will be taxed at just 15% in most cases, instead of your usual marginal income tax rate. However, it’s important to remember that the combined total of your SG payments, salary sacrificed amounts and your personal tax-deductible contributions can’t exceed $25,000 in a financial year or extra tax will apply.

What if you’re self-employed? You don’t have to pay yourself super, but it’s still a valuable way to save for your retirement.

 

Source: Colonial First State

7 budgeting apps to help you save in 2018

By Robert Wright /June 01,2018/

Where does all that money go? A host of apps are available to help you easily answer that question and even budget better, so you don’t get caught short in the event of a ‘rainy day’ and can feel more comfortable and in control of your finances every day.

The best place to start is with your bank. Most major Australian banks offer their customers great tools to help improve how they manage their finances.

In addition, we’ve found these seven apps to help you get off to a great financial start in 2018:

TrackMySPEND

This free app allows you to track your personal expenses on the go and is very simple to use. Made available by the Australian Securities and Investments Commission’s MoneySmart website (www.moneysmart.gov.au), it will give you a better picture of what you are spending your money on.

You can use it to record expenses such as your weekly household budget, work or travel expenses, particularly those cash expenses that are difficult to record or the costs of a special event, such as a wedding.

You can also separate your spending into categories like “needs” and “wants” to identify areas where you can rein in your spending and start saving.

TrackMyGOALS

Also available from the MoneySmart website (www.moneysmart.gov.au), this free and easy-to-use app will help you set realistic savings goals and help you to prioritise them, making it easier to achieve them and providing you with positive encouragement by tracking your progress.

You can also use this app to track how well you are saving for a holiday, wedding, car, house, renovation, school fees or anything else you are dreaming of.

Pocketbook

Also free, this popular budgeting app integrates with many of the major Australian banks. This means you don’t have to manually enter all your expenses onto the app. Instead, you sync the app with your bank accounts and credit cards to track where your money is going.

You can use mobile photos and geo-location to input cash transactions like coffee or a beer, or add additional details like photo receipts, bills and invoices to help you track your transactions.

Pocketbook automatically organises your spending into categories like clothes, groceries and fuel, showing you where money is being spent.

You can also set up budgets for each category, see your balances and view your transactions. The app ensures all your bills are automatically detected and in the one place. Plus, you get notified when bill payments are coming up and if you have enough money to cover them.

Mint

Another free app, Mint brings your bank accounts, credit cards, bills and investments together so you instantly know where you stand. You can see what you’re spending, where you can save money and can even keep track of your credit score. Plus, it allows you to easily create budgets you can stick to.

You get bill reminders so that you pay bills on time. And, you can schedule payments on the spot or for later, ensuring you never miss a payment again.

Acorns

This app helps you to save and invest proactively, by using your digital loose change.

You simply connect it to your credit card, debit card or another funding source and allow it to round up each of your transactions to the nearest dollar. It will then invest the change into a pre-decided diversified portfolio of investments that takes into account your investment goals and your risk tolerance. The transactions are small so hopefully you won’t even notice them.

This app is free to download. Once an account is opened, there are no fees on $0 balances. After that Acorns charges $1.25 per month for accounts with a balance under $5,000 and 0.275% a year (charged monthly, computed daily) for accounts with a balance of $5,000 and over.

Expensify

This app is great for people with work expenses. Not only does it help you track and log all your work expenses, it also liaises with your office while you are away.

Expensify automates every step of the expense management process. Its technology will read and scan your receipts and then add these to an expense claim that can be automatically submitted to your employer and approved. You could very well get your expenses reimbursed in just a few minutes.

A very basic service is offered to individuals for free. All the bells and whistles are available for US$9 a month on a corporate plan.

Goodbudget

This app is a modern take on the time-tested envelope budgeting method, where the cash for each month’s expenses is taken out and divided into envelopes for each budget category – for example, groceries, transport, eating out or rent.

The idea is to stop spending on that category once you’ve emptied the envelope or before, if you’re really disciplined.

Goodbudget helps you to stick to your budget limits. Rather than discovering that you overspent when it’s too late, you can plan your spending beforehand and only spend what you have.

Because you can share a budget across multiple devices, the app can also help couples manage the combined household budget and check know how each partner is tracking.

There’s a free version that allows you to create 20 envelopes and share across two devices. However, for US$6/month or US$50/year you get unlimited envelopes and accounts, the ability to share these across five devices and to keep five years of history.

 

Source: Money and Life.