Tag Archives: Superannuation

A guide to Super Contributions

By Robert Wright /March 22,2019/

As well as super guarantee payments from your employer, there are all sorts of ways to save more into super and boost retirement savings. Find out more in our comprehensive super contributions guide.

Super Guarantee contributions

If you work for an income, your employer is required by law to pay your superannuation guarantee (SG) contributions at least once a quarter. Whether you’re full or part-time, salaried or casual, if you receive more than $450 per month in wages or salary, you’re legally entitled to these SG payments.

Concessional contributions

Super guarantee contributions are treated as concessional contributions, which means they’re pre-tax contributions. When you choose to make extra voluntary contributions into super from your pre-tax salary, these are also treated as concessional contributions. This can be done through a salary sacrifice arrangement with your employer and you may benefit from tax concessions on these extra super payments, depending on your marginal tax rate.

There is a maximum amount of concessional contributions you can pay into super in each financial year. This is called the concessional contributions cap and the total amount at the time of writing is $25,000, this includes both SG contributions from your employer and voluntary before-tax contributions.

You can check the ATO website (www.ato.gov.au) for the latest information about the concessional contributions cap for super.

From July 2018, if you don’t contribute up to the maximum concessional contributions cap, you can carry forward unused amounts to the next financial year, for up to five years.  This only applies if your total superannuation balance is less than $500,000.

The ATO website provides more information on this new ‘carry-forward’ arrangement.

Non-concessional contributions

$25,000 may be the annual limit on concessional contributions, but that doesn’t mean you can’t contribute more into super as an after-tax payment. If you’re approaching retirement, it may be in your interests to make super contributions from your net income, so you can maximise retirement savings before you stop work. A Certified Financial Planner® professional can help you review your goals and finances for retirement and help you decide whether to top-up your super.

These payments from your after-tax income are called non-concessional contributions. If your super balance is less than $1.6 million, you can pay up to $100,000 into your super as non-concessional contributions in the current financial year.

Government contributions for low-income earners

If you’re on a low income, the government offers two ways to boost your super savings if you’ve made contributions, either as SG or voluntary payments into super.

By making non-concessional contributions, you could be entitled to an annual government co-contribution of up to $500 directly into your super fund. Eligibility for this payment depends on your taxable income and the amount you contribute into super as an after-tax payment.

Visit the ATO website to find out more about the government co-contribution scheme for low-income earners and determine whether you’re eligible.

Tax offset for low-income earners

If you’re on a low income and makeconcessional contributions into super – and this includes payments made by your employer under the SG – you could be entitled to a tax offset at the end of the financial year. This is called the Low Income Superannuation Tax Offset (LISTO). Eligibility for this tax offset depends on your taxable income and the amount you or your employer contribute into super as a before-tax payment. If you are entitled to the LISTO, the amount will be paid into your super fund after you lodge your tax return.

Visit the ATO website to find out more about LISTO and determine whether you’re eligible. 

Spouse contributions and tax offsets

Many super funds allow you to split your contributions – including compulsory payments from your employer under the SG – with your spouse (married or de facto). It’s important to be aware that these contributions will still count towards your concessional and non-concessional contributions caps.

If your spouse isn’t working or is earning a low income, you may also be entitled to a tax offset for these contributions into their eligible super fund.

Visit the ATO website to find out more about the tax offset for contributions made to super on behalf of your spouse and determine whether you’re eligible.

Source: Money & Life February 2019

Six things to consider when investing for retirement

By Robert Wright /February 19,2019/

Many people aged between 50 and 65 are uncertain about being able to cover living expenses in retirement. In the past retirees could rely on the age pension to secure their retirement. Many retirees are now less confident about this source of support, as a growing number of baby boomers are retiring and the number of working people to support them is not keeping pace.

Governments are now encouraging Australians to save and invest on their own, so they can build income streams for retirement to supplement social security payments, and the earlier people focus on how to fund their retirement, the greater their capacity to respond.

How to set retirement goals

The first factor in retirement planning is establishing a retiree’s goals. Not everyone will have the financial resources to meet all their goals, so an adviser must help their client set priorities.

Retirement goals can be diverse, but most belong to one of three broad categories:

 

1. Essential needs

A person’s immediate need in retirement is to have an income to deal with the essentials in life, including food, housing, transport and paying regular bills. This represents the most important set of goals and requires the most pressing financial attention.

Confidence about the receipt of a steady cash flow becomes paramount. An adviser may recommend strategies centred on income-focused securities that deliver sustainable cash flow which keeps up with increases in the cost of living.

2. Lifestyle wants

Retirees may also want to set aside some capital to fund discretionary spending on goods and services such as holidays, hobbies, or the purchase of a new car. Attainment of these lifestyle wants enables a more enjoyable retirement, but the retiree doesn’t regard them as essential to their wellbeing. To help fund these lifestyle wants, investment strategies should grow capital steadily over time and have a low probability of producing a major or protracted decline in value.

3. Legacy aspirations

Finally, retirees with additional financial resources may aspire to leave a bequest for future generations.

Six things to look for when considering investment solutions

There are six key factors that advisors and investors should focus on when considering retirement investments.

1. A predictable and reliable stream of income: Consider strategies that aim to deliver a steady income in the form of coupons from quality bonds, dividends from shares or distributions from Real Estate Investment Trusts (REITs) and infrastructure.
2. Resilient returns: Focus on strategies that are designed to exhibit greater resilience in challenging market environments.
3. Inflation protection: It’s important that the overall portfolio seeks to grow with the cost of living to maintain purchasing power over time.
4. Tax effectiveness: Even though most retirees have an income tax rate of zero per cent in retirement, franking credits attached to the sustainable dividends of quality Australian companies represent a good additional source of retirement income. But it is important to watch out for potential regulatory change in this area.
5. Liquidity: It is easier to redeem money from liquid investments when a change in circumstances may require it.
6. Transparency of strategy: Seek strategies that are easy to understand and where the manager offers regular communications and insight into how funds are performing against retirees’ goals.

Set up success

The key is to understand retirement goals: what does success and failure look like? What do retirees want at this point in life and how might that evolve over time? What constitutes a ‘must have’; what is ‘nice to have’ and what is ‘aspirational’?

By answering those important questions, various goals can be matched with investment strategies that meet the unique challenges and risks of retirement.

 

Source: AMP Capital

Royal Commission into Financial Services. Our advice and you.

By Robert Wright /February 13,2019/

The final report from the much-anticipated Royal Commission into Misconduct in the  Banking, Superannuation and Financial Services industry was released on 4 February.  Whilst there has been plenty of media coverage regarding the report already, the attached newsletter (Royal Commission – our advice and you) is designed to provide:

1. A brief summary of the key areas relating to the provision of Financial Advice, and
2. How it affects the advice and services I provide to you.

In short, the way I provide advice and services will remain unchanged.  The primary reason we partnered with Capstone when we established BMB Private Wealth was because they enabled me to put my clients at the forefront of everything I do.  The advice I give is tailored to your needs, not the requirements or demands of a bank or big institution.

I look forward to continuing that advice and service, and welcome any changes the Royal Commission may apply.

Getting personal insurance right

By Robert Wright /November 16,2018/

With recent media coverage about insurance sales tactics, many Aussies might be concerned they’re being sold personal insurance policies – life, total and permanent disablement (TPD) and income protection – they don’t really need.

The fact that some Australians with multiple super accounts are likely to have duplicate personal insurance policies, is also putting the question of adequate insurance into the spotlight. After all, no-one wants to be paying for something they won’t benefit from.

Are Australians over or underinsured?

By focussing on problems with how insurance is sold or the issue of multiple policies through super, we’re overlooking the possibility that many Australians simply don’t have any one policy that will enable them to meet their financial obligations and maintain their lifestyle if the worst were to happen.

As a nation of people we’ve become more and more indebted in recent years. The latest Australian Bureau of Statistics data shows the average Australian household is servicing a high level of debt, thanks to both personal borrowing and home loans.

Average household debt has grown by 79% in real terms from 2003/4 to 2015/16 and this is largely because of borrowing to buy property. However, more households are burdened by credit card debt (55%) than a mortgage (34%).

According to a February 2018 report from Rice Warner, 94% of working Australians are likely to have some sort of life insurance policy in place, with an average estimated cover amount of $344,500. So it seems the majority of people will have something to fall back on in the event of their death. The report attributes this high incidence of cover to the introduction of compulsory default life cover by superannuation funds.

But it’s not only premature death that families need to worry about. With 81% holding a TPD policy and only one third of working individuals currently insured for income protection (IP), should people be taking out these policies to make sure they have all bases covered?

As the Rice Warner report highlights, insurance needs vary according to how many dependents you have and your age. They provide the following estimate of insurance needs for 30-year old parents with children:

• 8 times family income for life insurance on income replaced basis,
• 4 times family income for TPD insurance, and
• 85% of family income for IP insurance.

While these figures could be appropriate to one family’s situation, they may be way over the top or completely inadequate for another family.

At the end of the day, it’s really up to you how you budget for insurance cover – as a standalone policy or through your super fund. But what is worth doing is working out how much cover you need, and then comparing this with your current policy – whether it’s standalone or through super.

As the Rice Warner report points out, super fund trustees are having to make decisions about default insurance options based on their assumptions about general insurance needs. But those assumptions might not apply to you and your finances.

 

Source: FPA Money and Life