Tag Archives: superannuation

Women & Superannuation

I’ve met plenty of people skeptical about our superannuation system over my years as a planner and I get it.  Believe me, I have to devote hours ever year to keeping up with the annual federal budget, managing legislative changes and getting my head around constantly changing tax and super laws.  It can be a drag!

It’s also true that we retire with about half the retirement savings of most men, and some women retire with no super at all!  But the reality is this, women live longer than men, making it even more essential that they accumulate enough superannuation to last them through retirement.

Having said that, women also face unique challenges when it comes to putting away retirement savings. Chances are, you’re still on lower pay than your male counterparts, you’ll take more time out of the workforce to raise the kids or care for your parents, and for those running a single-parent household, it can make it even more challenging to build a reasonable amount of super savings.

However, there are some simple strategies make it possible for women to overcome some of these hurdles, or make them less of an issue anyway…

Try and remember, that superannuation is actually your friend.  It is a very tax-effective way to save retirement. Your super fund pays a low rate of tax on contributions and investment earnings while growing your nest egg.  From age 60, you can withdraw your super tax-free.

Without any superannuation savings, many women are forced to rely solely on the age pension in their senior years.  Remember, the pension is designed as a safety net and won’t provide at all for a comfortable old age.  I’m not sure I could go back to a lifestyle that’s funded on around $23,000 per annum and you probably don’t want to either!

Firstly, don’t let your super funds get ‘lost.’  Try and ensure your funds are consolidated – this can help save on fees, but make sure you’re not losing valuable insurance coverage when doing so.  When possible, try to put extra away into super.  The ATO and website MyGov are making it easier than ever now to stay on top of your funds.

Affording an extra $20 – $50 per week now may not take food off the table but the additional money, plus years of compound interest will add up, and after all, your investing in your future self.  Sounds like a win to me!

Understand your fund and make sure your employer is putting your full entitlements in regularly on your behalf.  At the time of writing, this was 9.5% of your gross wage. Mostly now, we have super choice meaning that we’re able to choose the fund we want, and then check where your money is invested within the fund.  Is it in line with your investment profile?

To grow your fund, you’re often able to make pre-tax contributions (Salary Sacrifice) or even post-tax contributions where no tax is charged.  Depending on your circumstances, your partner may also be able to make contributions on your behalf and receive a tax offset for their efforts.

However you go about it, remember that you’re investing in your future and that superannuation is your money.  It certainly pays to be savvy with your super!  Sitting down with your financial adviser may reveal new and innovative ways you can make the most of your retirement savings!

The Truth about Investing

Plenty of people tell me, “I’ll come and see you when I have money to invest!”  Great!!  (Mostly, I’m still waiting…)

So how much does it really take to start investing?

Truth is, you really don’t need a lot.  Some start with a small lump sum and others put small amounts away regularly.  It’s really what’s best for you.

The best advice I can give you for free… is to start!  Then keep adding to your investments regularly.

You’ve probably heard it before, but remember – don’t put all your eggs in one basket! And, the higher the earnings or return you expect from an investment, the more risky it’s likely to be. Investments that offer lower returns are generally less risky.

A financial adviser can assist in working out your risk profile – that’s the level of risk you’re comfortable with, and that can depend on what you’re investing or saving for.  You may have a much higher tolerance for volatility for your superannuation or retirement funds than you would when saving for the deposit on a home.

Advisers are also qualified to assist when you’ve had an inheritance, lost or divorced a partner or had a major change in circumstances.

Sit down and work out your personal budget and see just what’s left each pay period that you can use to either bring down debt or start your savings plan today!  If you don’t know where to start, an adviser can definitely assist.  So stop putting it off and waiting for the magic to happen… chances are you’re more likely to get ahead by starting, than waiting.

Women & Retirement

Seeing there’s actually no fixed aged when you can retire, it’s really completely up to you.  What it does come down to usually is, can you fund it?

Most start thinking in their’s 50’s about how it’s all going to work, as entitlement to the Age Pension is somewhere between 65 and 67, depending on when you were born.

Often a gradual transition is the way to go, slowly cutting back on days at work, going part time before finally exiting the work force for good.  Other conditions to consider when approaching retirement and leaving the work force for good are the loss of social interaction provided by work and the mental stimulation that’s provided.

Do you have hobbies that can take the place of your usual schedule or will boredom quickly creep in?  Exiting slowly can help you keep a hand in, whilst transitioning slowly, giving you a taste for what lies beyond work.

Some may choose to continue working part-time towards their 70’s as life expectancy moves forward.  Others have always wanted to volunteer for a local school or charity and now enjoy giving back to their local community.

If you still have a partner, discussing expectations and plans for life after work is essential to ensuring you’re on the same page.  Suddenly being together 24/7 isn’t everyone’s ideal start to their retirement years.

For others, it’s time to buy that caravan or Harley (or both!) and join the multitudes of Grey Nomads touring the country!

For others it’s not so easy.  Forced retirement may be brought on by having to assist in caring for aging parents or unwell children or grandchildren.  This can seriously impact your ability to put away additional funds to help in your retirement years.

And still, financial considerations remain top of mind.  How much you’ll need in retirement is completely dependent on the lifestyle you’ll be living…  And what you have saved to boost your pension will often dictate that lifestyle.

You might want to sit down with your planner long before retirement is on the horizon and discuss strategies that may suit your circumstances.  If your debt is low, it may be time to give your superannuation funds a boost by implementing salary sacrifice strategies.  For those closer to retirement, it might be worth considering a Transition to Retirement strategy.  Those on a lower income may be able to take advantage of the Government’s Co-Contribution strategy.

Getting the right advice for your situation is likely the best investment you can make in your future.  So how does retirement look for you?

Federal Budget Summary 2017/18

Federal Budget Update 2017/18

The announcements in this update are proposals unless stated otherwise. These proposals need to successfully pass through Parliament before becoming law and may be subject to change during this process.
  • Budget projected to return to balance in 2020–21 and remain in surplus over the medium term
  • Growing consensus that the global economic outlook is improving
  • First-home buyers allowed to save a deposit through voluntary contributions to superannuation
  • No changes to negative gearing or capital gains tax
  • The Medicare Levy will increase by 0.5 % to 2.5 % of taxable income on 1 July 2019
  • Non-concessional contributions to superannuation funds of up to $300,000 allowed from sale of principal residence
  • Small businesses with a turnover up to $10 million can write off expenditure up to $20,000 for a further year
  • Education funding set at $18.6 billion over 10 years
  • University student fees will increase by 7.5 % by 2021
  • University graduates will start repaying their loans when they reach an income level of $42,000 a year, down from $55,000
  • $75 billion in infrastructure funding and financing over the next 10 years
  • A $472 million Regional Growth Fund will be established
  • Doctors will be encouraged to prescribe generic drugs to save the Pharmaceutical Benefits Scheme (PBS) $1.8 billion over five years
  • $350 million to help returned soldiers
  • A one-off energy bill payment for pensioners worth $75 for singles and $125 for couples
  • $321 million over four years for the Australian Federal Police
  • An annual foreign worker Levy of $1,200 or $1,800 will apply per worker per year on temporary work visas and a $3,000 or $5,000 one-off Levy for those on a permanent skilled visa.

Overview

The economic plan Treasurer Scott Morrison delivered on Tuesday 9 May has housing affordability as the centrepiece. His 2017 Federal Budget had a number of significant announcements:

  • Using superannuation to help fund the deposit for first-home buyers
  • Allowing non-concessional contributions for those downsizing the family home
  • Increasing the Medicare Levy by 0.5%
  • Changes to eligibility for concession cards and income support payments.

The Budget also announced $75 billion in infrastructure funding and financing over the next 10 years. This will include $5.3 billion in equity funding for the second Sydney airport at Badgery’s Creek and $8.4 billion in equity funding for the inland rail link between Melbourne and Brisbane.

Another $18.6 billion will be spent on education over the next 10 years, with funding for each student across all sectors growing at an average of 4.1 % a year. Small businesses with a turnover up to $10 million will continue to be able to immediately write off expenditure up to $20,000 for another year.

Housing and superannuation

While Mr Morrison says “there are no silver bullets to make housing more affordable”, he promised a range of measures to boost the supply of land for new housing, help first-home buyers and further restrict foreign investment.

First-home buyers

First-home buyers will be able to use voluntary contributions to their existing superannuation funds to save for a house deposit. Contributions and earnings will be taxed at 15%, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less a 30% tax offset. Contributions will be limited to $30,000 per person in total and $15,000 per year. Both members of a couple can take advantage of the scheme. Non-concessional contributions can also be made but will not benefit from the tax concessions apart from earnings being taxed at 15%.

Housing supply

The States will be required to deliver on housing supply targets and reform their planning systems and a $1 billion National Housing Infrastructure Facility will aim to remove infrastructure impediments to developing new homes.

In Melbourne, Defence Department land at Maribyrnong will be released for a new suburb that could cater for 6,000 new homes. A new National Housing Finance and Investment Corporation will be established by 1 July 2018 to provide long-term, low-cost finance for more affordable rental housing.

States and Territories will be encouraged to transfer stock to the community housing sector and Managed Investment Trusts will be allowed to develop and own affordable housing. The incentive for investors will include a capital gains tax discount of 60%, and direct deduction of welfare payments from tenants.

Contribution of home sale proceeds into super

Australians over the age of 65 will each be able to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home.

Negative gearing

There are no changes to negative gearing, but tougher rules on foreign investment in residential real estate remove the main residence capital gains tax exemption and tighten compliance. An annual Levy of at least $5,000 will also apply to all future foreign-owned properties that are vacant for at least six months each year. As well, developers also won’t be allowed to sell more than 50% of new developments to foreign investors.

Education and health care

Schools funding

This Budget will invest $18.6 billion in extra schools funding over the next 10 years, in accordance with the Gonski needs-based standard. Funding for each student across all sectors will grow at an average of 4.1% a year.

University fees

However, university fees will rise by $2,000 to $3,600 for a four-year course and students will have to start paying back their debt when they earn more than $42,000 from July next year, down from the current level of $55,000. A 2.5 % efficiency dividend will be applied to universities for the next two years.

Medicare Levy

In health care, the Medicare Levy will increase on 1 July 2019 by 0.5% to 2.5% of taxable income to help fund the $22 billion National Disability Insurance Scheme (NDIS). The Treasurer says all Australians have a role to play in supporting the disability scheme, even if they aren’t directly affected.

The Budget lifts the freeze on the indexation of the Medicare Benefits Schedule and reinstates bulk billing for diagnostic imaging and pathology services. The Pensioner Concession Card will be reinstated for those pensioners who were no longer entitled to the pension following the changes to the pension assets test from 1 January 2017.

Hospital funding will increase by an additional $2.8 billion over four years and an additional $115 million will be spent on mental health initiatives. Another $1.4 billion will be spent on health research over the next four years.

What’s next?

Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of proposed changes.

 

If any of these proposals raise questions, concerns or potential opportunities for you, please speak with your financial adviser today.

How Budget 2017 may affect Small Businesses

The announcements in this update are proposals unless stated otherwise. These proposals need to successfully pass through Parliament before becoming law and may be subject to change during this process.

What’s in and what’s out!

• Small businesses with a turnover up to $10 million can write off expenditure up to $20,000 for a further year

• No changes to negative gearing or capital gains tax

• Depreciation deductions for plant and equipment on residential investment properties will be limited

• Accommodation and travel deductions for residential rental property will be disallowed

• An annual foreign worker levy of $1,200 or $1,800 will apply per worker per year on temporary work visas and a $3,000 or $5,000 one-off levy for those on a permanent skilled visa

• The Government will spend $75 billion in infrastructure funding and financing over the next 10 years

• A $472 million Regional Growth Fund will be established.

The main change for small businesses with aggregate annual turnover of less than $10 million was the extension of the ability to immediately deduct eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Certain assets are not eligible, for example horticultural plants and in-house software. Assets valued at $20,000 or more can continue to be placed in the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools). From 1 July 2018, the thresholds for the immediate deduction of assets and the value of the pool will revert to $1,000. A major new levy on the five biggest banks with liabilities above $100 billion will raise $6.2 billion over the Budget forward estimates. It will not apply to additional Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme. The Australian Competition and Consumer Commission will undertake a residential mortgage pricing inquiry until 30 June 2018 in conjunction with the levy.

Legislation to support a reduction in the company tax rate over 10 years starting on 1 July 2016 passed Parliament on 9 May 2017. The first companies to benefit were those with turnover of less than $10 million, which moved to the 27.5% rate on 1 July 2016. The tax rate for companies with annual turnover below $25 million will be 27.5% from 1 July 2017 and those with turnover of less than $50 million will be taxed at 27% from 1 July 2018. Legislation to support an increase in the tax offset for unincorporated small businesses over 10 years to 16% from 5% passed Parliament on 9 May 2017. This offset applies to the tax payable on the business income and it benefits unincorporated small businesses that do not receive a reduced company tax rate.

Housing and superannuation

Individuals will be able to make voluntary contributions to their superannuation accounts to help buy their first home from 1 July 2017. Generally, pre–tax contributions (personal deductible or salary sacrifice) of up to $15,000 per year and $30,000 in total can be made. First-home super saver scheme contributions must be made within the concessional contributions cap ($25,000 in 2017-18) and will be taxed at 15%. Contributions and deemed earnings can be withdrawn from 1 July 2018 and will be taxed at the member’s marginal rate less a 30% tax offset. Non-concessional contributions can also be made but will not benefit from the tax concessions apart from earnings being taxed at the concessional super rate of 15% and these will be tax-free when withdrawn.

Housing supply target

The States will be required to deliver on housing supply targets and reform their planning systems and a $1 billion National Housing Infrastructure Facility will aim to remove infrastructure impediments to developing new homes. In Melbourne, Defence Department land at Maribyrnong will be released for a new suburb that could cater for 6,000 new homes. A new National Housing Finance and Investment Corporation will be established by 1 July 2018, to provide long-term, low-cost finance for more affordable rental housing. States and Territories will be encouraged to transfer stock to the community housing sector and managed Investment trusts will be allowed to develop and own affordable housing. The incentive for investors will include a capital gains tax discount of 60%, and direct deduction of welfare payments from tenants.

There are no changes to negative gearing, but tougher rules on foreign investment in residential real estate remove the main residence capital gains tax exemption and tighten compliance. An annual levy of at least $5,000 will also apply to all future foreign-owned properties that are vacant for at least six months each year. As well, developers also won’t be allowed to sell more than 50% of new developments to foreign investors.

Education and health care

This Budget will invest $18.6 billion in extra schools funding over the next 10 years, in accordance with the Gonski needs-based standard. Funding for each student across all sectors will grow at an average of 4.1% a year. However, university fees will rise by $2,000 to $3,600 for a four-year course and students will have to start paying back their debt when they earn more than $42,000 from July next year, down from the current level of $55,000. A 2.5% efficiency dividend will be applied to universities for the next two years. In health care, the Medicare levy will increase on 1 July 2019 by 0.5% to 2.5% of taxable income to help fund the $22 billion National Disability Insurance Scheme (NDIS). The Treasurer says all Australians have a role to play in supporting the disability scheme, even if they aren’t directly affected. The Budget lifts the freeze on the indexation of the Medicare Benefits Schedule and reinstates bulk billing for diagnostic imaging and pathology services. Hospital funding will increase by an additional $2.8 billion over four years and an additional $115 million will be spent on mental health initiatives. Another $1.4 billion will be spent on health research over the next four years.

What’s next?

Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of proposed changes.

Financial Things to do Before You Die

While it might not be as exciting a list as Bucket List inclusions like:

1. Head to Base Camp;

2. Dive the Great Barrier Reef;

3. Have a Champagne at the top of the Eiffel Tower;

4. Stay in a yurt in Mongolia;

5. or sleep in an Igloo under the Northern Lights… it’s definitely a very loving legacy to leave behind for those you care about.

Unfortunately, I’ve had to assist in unraveling affairs of those who instead leave behind a financial mess for their family to navigate.  On top of grief, it’s a bitter pill to swallow when your financial affairs have not been left ‘in order.’  I know I’ve covered this issue before, but it’s so important to have finalised.

And I understand, it’s not a popular question to ponder and is likely hard to imagine, but what if something were to happen to you? Would your loved ones be taken care of or would they face a tough financial future?  Do they know what your wishes are?  Do you even have your important documents sorted?

The greatest gift you can leave your family and loved ones, is having your affairs sorted out before you go.  Please don’t think of this as something morbid… it might seem like I’m backing up the hearse and asking you to smell the roses here… but this isn’t about you, I promise.

If you have made plans, do your loved ones know where to find them? Would they know what assets you have, what insurance policies are in place or how to access your superannuation or life insurance?  Have they met your trusted advisers and know who to get in touch with if something were to happen?  Have you kept them in touch with what your wishes are?

Here are some simple steps you can take to protect the important people in your life:

  • Consolidate your assets and sort your bank accounts out
  • Ensure your life insurance is adequate based on your current circumstances
  • Make sure beneficiaries have been nominated (where possible) on your superannuation and insurance policies
  • Chat with your partner about what you’d like to have happen in the event of the unexpected
  • Ensure your Will is current – circumstances can change quickly!
  • Have your arranged for an Enduring Power of Attorney or completed an Advanced Health Directive?
  • Make sure those who need to know are aware of where your important documents are stored

Not everything will pass through your estate, so it’s wise to ensure you understand what forms estate assets and what stays outside.

Work through the list steadily and once it’s done, make sure it’s reviewed regularly.  Your loved ones will be glad you did.

My Top Financial Tip

If there’s one tip I’m constantly asked for, it’s what’s the best way to get on top of your finances?  And for me, that’s easy to answer – “Live Within Your Means!”  Good money management boils down to harnessing the cash flow and getting on top of debt – with the biggest gremlin being credit cards.

If the word ‘budget’ annoys you and has you running for the door, try ‘spending plan’ instead.  A budget/plan should be divided between fixed regular costs (those you MUST meet) and discretionary spending (the WANTS and nice to have stuff.)

Work out first what it costs for mortgage or rent payments, food, clothing, utility bills and loans.  This means you’ll have a much better idea of where you stand and how much you are spending on fun stuff like entertainment and non-essentials.

Losing the credit cards should be a top priority.  Learning that if you can’t afford it now, you can’t have it, is a great skill to take through life.  That’s not to say lay-buy or payment plans can’t work, but we need to move on from the ‘I want it now’ mentality.

Learn what you’re capable of when you’ve got less commitments like interest payments for items you’ve forgotten that you’ve even bought.  You may be pleasantly surprised at what you can achieve with better spending and saving habits.

Did you know, that if you’re 25 and have a nest egg of around $5000 and you’re able to save $50 – $75 a week at around 7% average interest (compounding over the long-term) you could have yourself a cool $1 million by retirement at 65?  It might be a while off, but it does highlight the opportunity cost of spending around $200 to $300 a month on eating out, movies, drinks and ‘stuff.’  Add that to your compulsory super and that’s not a bad way to enjoy post-work life.

Most however don’t really start thinking about retirement until they’re 40 plus and suddenly realise they’re half way through their working life and have been wasting the ready for over 20 years.  It’s time to analyse those poor financial habits now!

Reducing debt and saving as much as possible is imperative if you want to maintain a certain standing of living both now, and when you retire, and living within your means makes life a lot easier.  Life without ongoing financial stresses also helps you sleep easier now. Chances are, the Centrelink age pension will be harder and harder to come by and eventually disappear.

It’s up to us to take charge of our financial future, and the sooner, the better.  Living within your means from now, is vital.  Are you?