Tag Archives: Superannuation

8 easy steps to take control of your super

By Robert Wright /May 31,2019/

Want to make the most of your super? Here are eight steps on how to take control of your super, check your super balance and get it sorted to make sure your retirement savings are on track.

1. Understand how superannuation works and what the benefits are

Your super builds up throughout your working life through a combination of superannuation guarantee (SG) contributions made by your employer and any voluntary contributions you choose to make. Any time money is deposited into your super account, it’s invested on your behalf by a trustee from your super fund. Investments can be made into property, shares, cash deposits and other assets depending on your default investment profile, or where you’ve specifically chosen to invest. When your investments generate returns, your super balance grows.

Your super is important because it’s an investment in your future, and can help you enjoy a comfortable life in retirement. Many people think of their super as an investment they don’t need to worry about until retirement, but it pays to get better acquainted now. The earlier you get on top of your super, the more effectively you could grow your retirement nest egg.

2. Check if your employer is paying your super

The SG contributions made by your employer are the foundation of your future savings, so it’s important to check they’re being paid correctly. You can do this by reviewing your pay slips, which should show the amount of super being paid into your account. This should be at least 9.5% of your ordinary (not overtime) earnings if you’re aged over 18 and earn $450 or more each month.

3. Check how much super you have today

Keeping track of your super balance is an important step towards taking control of your super. In many cases you can check this online with your super fund, or via the statements they send you.

It’s one thing to know what your balance is, but another thing to understand whether it’s on track to help you achieve the kind of retirement lifestyle you’re hoping for.

4. Find lost or unclaimed super

It can be easy to lose track of your super, and for your super fund to lose track of you. This could happen when you change jobs, as you might opt for your new employer to make SG contributions into a new fund and forget to roll over what you’ve accumulated in a previous one.

If you change jobs and wish to remain with your existing super fund rather than have your employer set up a new one for you, ask your employer for the necessary forms to fill out, and have your existing super fund account details handy.

You can search for lost or unclaimed super by doing a super search with your current super fund or by logging into your MyGov ATO account to find your super funds.

5. Consolidate your super into one account

Of the 14.8 million Australians with super, around 40% have more than one account. If that’s you, there may be advantages to rolling your accounts into one super fund. These include paying one set of fees, which could save you hundreds of dollars each year and even thousands over many years.

Consolidating your super also makes it easier to keep track of your overall balance, and could save you money in insurance premiums if you have insurance cover through several super funds.

6. Check the insurance cover in your super

Your super account may include a range of personal insurance options, which are paid for from your account balance. Super funds generally offer three types of insurance cover – life insurance, total and permanent disability, and income protection.

Insurance through super can often be cheaper than personal insurance bought outside super. This is because super funds purchase insurance policies in bulk, and they are usually available without health checks.

7. Keep your beneficiaries up-to-date

How your super is distributed in the event of your death is known as nominating your beneficiaries. It’s important to notify your super fund of your choice and keep it up-to-date if your circumstances change, as super is treated differently to other assets in your will.

There are two types of beneficiary nominations you can make: binding and non-binding.

If you make a binding nomination, your super fund is required to pay your benefit to the person or people you’ve nominated, as long as the nomination is still valid at the time of your death. Bear in mind that you can’t always make binding nominations and that they generally only remain valid for three years.

If you make a non-binding nomination, your super fund will make a decision about who to pay your death benefit to. Your benefit will be paid to those people considered to be financially dependent on you and, in some cases, this might not be the person or people you’ve nominated.

8. Review your investment options within super

Most super funds allow you to choose how your super is invested, and generally, the main difference between the investment options will be the level of risk you’re willing to take on. Many people choose to take on higher risk investments with the potential for higher returns while they’re younger, then change to more stable investment options with lower returns as they move closer to retirement.

Remember that the most appropriate investment option may change depending on the economy, your age, circumstances and stage of life, so it’s worth considering and reviewing your investment options regularly. Staying on top of your super may give you a better chance of building money for a comfortable future.

Source: AMP, April 2019

How much do I need to retire?

By Robert Wright /May 31,2019/

When you plan to retire will often be determined by whether you can afford to stop working and still have enough income to maintain your lifestyle. Latest figures from the Australian Bureau of Statistics show the majority of men (36%) and women (22%) chose to retire at the time when they became eligible to draw on their superannuation and/or the age pension. And their average age at retirement was 63.5 years.

If you’re planning to delay retirement until your super balance reaches an amount you can comfortably live on, just how do you determine what that target should be? There are a number of factors that will affect how far your money will go, including your life expectancy, how your money is invested and other choices you make for managing your income. But one of the most important steps to planning for a secure financial future in retirement is to be realistic about your living costs.

How your living costs might change

As you stop working and have more time to yourself, your routine will change and you might save on some costs as a result. Spending on transport could fall as you no longer have to commute. If buying lunch and takeaway coffees has been a daily habit while working, you could also make significant savings by leaving these out of your retirement routine. Other living expenses, such as buying groceries and clothes and paying household bills are likely to be much the same before and after retirement.

Thinking about how you’ll spend time in retirement and where you’re planning to live will also give you clues about how your spending might go up or down. If a few trips overseas are on the cards, you’ll need to allow for these occasional costs in your overall budget. But if you’re planning to limit travel to domestic holidays only, then you won’t need to allow for these expenses in your financial plan.

Start with a ballpark estimate

How much travel you plan to be doing is just one of the many daily and one-off costs taken into account in the Retirement Standard estimates for annual expenses. Updated every quarter by the Association of Superannuation Funds of Australia (ASFA), these figures can give you a rough idea of what you can expect to be spending day-to-day in retirement.

There are two estimates available, a higher one for a comfortable lifestyle and a lower amount for a modest lifestyle. As at December 2018, the amount you’d spend as a single person aged around 65 years enjoying a comfortable lifestyle is $43,317 and for a modest lifestyle the annual budget is $27,648. The estimate for couples is $60,977 and $39,775 for comfortable and modest lifestyles respectively.

To give you an idea of how differences between a modest and comfortable budget might impact on your retirement plans, the annual travel budget is a good place to start. A couple living modestly can expect to spend approximately $2,500, with no allowance for overseas trips. On a comfortable budget, a couple can splash out more than $5,000 each year on travel, with roughly a third going towards international travel.

The cost of lifestyle changes

Although it’s wise to build a budget based on what you expect to be doing in early retirement, your overall plan should also take into account potential for lifestyle changes as you age. Travelling for longer periods, dining out and entertainment and taking part in sports and hobbies could taper off as you grow older. Health and aged care costs, on the other hand, could make up a larger share of your budget in the later years of retirement.

A plan to see you through retirement

Your expenses are just one side of the whole budget planning process. Taking a good look at all your retirement income options is just as important to figuring out how much you’ll need and when you’ll be ready to take that step. From the age pension to the equity in your home to retirement income products such as annuities and account based pensions, there are all sorts of ways to support yourself financially towards having the lifestyle you want.  A qualified professional who specialises in retirement planning can support you in exploring these opportunities to manage your income for your whole retirement so you can make better choices for a secure financial future.

Source: FPA Money and Life, 02 April 2019

Buy, sell or hold: How to deal with market movements

By Robert Wright /May 31,2019/

When share markets fall, every investor has a different emotional response. Some investors get anxious and sell up at the first drop in value, whereas others are happy to ride out short term fluctuations to realise the long-term benefits of their investments down the track.

One of the reasons for these different reactions is that all investments carry some level of risk, and we all have different perspectives on how much risk we’re willing to accept. This is because many personal factors can impact our investing style – from our financial situation and investment timeframe to our lifestyle goals and even our personality.

But when markets are in flux, how do you know if it’s time to change your strategy? Here are some things to keep in mind.

How do you react to market fluctuations?

A study by Colonial First State Global Asset Management (GAM) examined how a recent period of market movements impacted people’s investment decisions.

The results showed that as confidence declined, portfolio activity increased as more investors moved away from the stock market. In fact, the group most likely to switch out of shares were investors aged 50 and over. This is perhaps because they were seeking to preserve their capital and minimise their risk exposure as they headed towards retirement.

While investors of all ages often respond to uncertainty in the market by taking a more active approach to their investments, this may not always work in their best interests. Not only is switching costly, but it can also mean missing out on opportunities when the market recovers.

What happens if you sell?

Before you withdraw from an investment, it’s important to make sure you understand all the implications, including the risks and costs involved. For one thing, if you sell your asset you may be liable for capital gains tax (CGT), which can reduce the profit you stand to make.

What’s more, even if you’re only planning to sell off part of an investment, it’s not just the face value you’ll be giving up. You’ll also miss out on the benefits of compounding, which means you won’t be able to earn further returns on the shares you sell.

But that’s not all: if the value of your investment is falling, this is only a hypothetical or ‘on paper’ loss. If share prices begin to rise again, your investment could soon return to profit without you doing anything. However, if you sell your investment while its value is down, you essentially crystallise your losses – making them real and irreversible.

Are there alternative options?

When tailoring your investment mix, it’s important to focus on the big picture and think long term. That way, you’ll be able to ride out short-term fluctuations and take advantage of growth opportunities.

If you’re investing for the long term – for instance, with your superannuation – it’s important to have a diversified portfolio. This means investing in a variety of different asset classes. GAM’s research revealed that Australian investors tend to react to uncertainty overseas by reducing their exposure to international shares. But while this may seem like a sensible move in theory, it also means your overall portfolio will become dependent on a smaller pool of asset classes.

On the other hand, a diverse portfolio allows you to spread your risk exposure across different asset classes and markets, rather than putting all your eggs in one basket. This provides a financial buffer whenever an individual asset class declines in value.

If you’re thinking about changing your investment strategy, your financial adviser should be your first port of call. They can review your portfolio to make sure you have the right investment mix, taking into account your financial goals, investment timeframe and risk appetite.

Source: Colonial First State

7 super strategies for end of financial year

By Robert Wright /May 17,2019/

The end of the financial year is a good time to think about how you could grow your super and start saving for retirement. Here are some options you could consider to help your super work harder for you.

Tax-deductible super contributions

You may be eligible to claim a tax deduction for your personal super contributions.  By doing this, you may be able to pay less tax while saving more for your future. Your eligibility can be affected by your age, sources of income and the level of salary sacrifice and certain other employer contributions made for you. To claim a deduction, you must give a notice to the Trustee of your super fund and have it acknowledged.

Keep in mind that personal deductible contributions count towards your annual before-tax contributions cap. The current before-tax contributions cap is $25,000 per financial year. Any contributions made above these limits will attract additional tax.

Salary sacrifice to top up your super

Salary sacrifice is an arrangement where part of your before-tax wage or salary is paid into your super account instead of being received as take-home pay. It could be an effective way to boost your super and help you with saving for retirement. There may be tax advantages for you, depending on how much you earn.

To get started, do a budget to work out how much you can afford to contribute to your super from each pay packet. You may also consider talking to your employer to find out if they can set up salary sacrifice arrangements for you.

Keep in mind that salary sacrifice contributions count towards your annual before-tax contributions cap of $25,000 per financial year. Personal deductible contributions and contributions made by your employer also count towards your annual before-tax contributions cap.

Consider a one-off contribution

After-tax super contributions are made from money you have already paid income tax on and won’t be claiming a tax deduction on. For example if you work for an employer, making a contribution to super directly from your bank account is considered an after-tax contribution.

Investment earnings within your super accumulation account are taxed at up to 15%, compared to your marginal tax rate which applies to investments you may hold outside of super. Please note that depending on your income level, your marginal tax rate may be less than 15%.

The annual limit for after-tax contributions is currently $100,000 if your total superannuation balance is below $1.6 million at the start of the financial year. In certain circumstances, you may be able to bring forward three years of after-tax contributions into one year, contributing up to $300,000, if you haven’t triggered the rule in the previous two years and your total superannuation balance is below $1.4 million at the start of the financial year. You may still be able to contribute part of the bring-forward if your total superannuation balance is between $1.4 million and $1.5 million at the start of the financial year.

Government co-contribution

In the 2018/19 financial year, if you are a middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500.

To be eligible, you need to earn less than $52,697 in the 2018/19 financial year and be aged below 71 at 30 June 2019. You must also have a total superannuation balance of less than $1.6 million at the start of the financial year to be eligible.

The maximum co-contribution of $500 is available if you earn less than $37,697 in the 2018/19 financial year and if you have made a contribution yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $52,697.

Spouse super contribution tax offset

If your spouse or partner’s assessable income is less than $40,000 in a financial year, and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself.

The maximum tax offset available is $540 if your spouse receives $37,000 or less in assessable income in the 2018/19 financial year. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year.

First home buyers

You may be able to make voluntary superannuation contributions to use towards a deposit for your first home under the First Home Super Saver Scheme (FHSSS) starting from 1 July 2017. Voluntary contributions you make, plus associated earnings, can be accessed from 1 July 2018 subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total). Superannuation Guarantee contributions, as well as contributions that don’t count towards or are in excess of the contribution caps, cannot be accessed under the FHSSS as part of your deposit.

Downsizer contributions

From 1 July 2018, if you are planning on downsizing your family home of ten years or more and are aged 65 or over, you may be able to contribute up to $300,000 from the sale proceeds to superannuation as a downsizer contribution. If you have a spouse, they could also contribute up to $300,000 to their superannuation from these proceeds. Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance.

Be aware of annual limits

As annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year to know which strategies can work for you.

Source: BT