Hear from our experts on a range of topics to help you make the most of your super, whatever stage of life you’re at. The videos are available to watch on demand for your convenience and run for around 20 minutes each.
Setting your super up for success
Making the most of your super starts with knowing the basics of how it works. There are simple things you can do now that can make a big difference to your super in the long run.Learn more
Setting your super up for success
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Welcome and thank you for taking the time to join the AustralianSuper's Setting your super up for success presentation. Your super might be something you don't spend much time thinking about, and retirement might seem a long way off. But aside from a house, your super could be the biggest investment you have in your life, and it's all for your future. In today's presentation, we'll cover tips and strategies to help you set up your super for success. My name is Jaclyn and I'm an Education Manager at AustralianSuper. My job is to help you better understand how super works.
Before we start, it is important to understand that the information we are covering today is general financial advice, and doesn't take into account your personal objectives, situation or needs. Before making a decision, consider if the information is right for you and read the relevant PDS by visiting australiansuper.com/pds or by calling 1300 300 273. Also it's important to note that investment returns are not guaranteed and past performance is not a reliable indicator of future returns.
Today, we will be covering a number of concepts to help to set your super up for success including: understanding the basics of super, then we'll take a look at tips and strategies to manage your financial wellbeing, take control of your super, and the simple actions you can take now to set your super up for success. Superannuation is one of those things that can be easy to ignore, especially if we have a lot going on with our finances outside super and life in general. When we're young, retirement can feel like it's forever away. So tinkering around with our retirement savings that we may not be able to access for 20 or 30 years might not feel like a priority, but getting on top of your super at an early age could help you have the lifestyle you want later in life. To better understand super, let's take a closer look at the super basics.
Super is money set aside while you're working, so you'll have money to live off when you retire. Your employer directs a percentage of your salary to your nominated super account. At this time, the minimum your employer should be paying is 10% per annum. There are some exceptional circumstances in which employers aren't required to pay super, for example, some contractors. This money is invested by your super fund and earns returns, which will help grow your retirement savings for your future. When we say returns, we're referring to how much money the money you have invested in super has made. There are often some misconceptions about super, but as mentioned before, it could be one of your biggest assets. Your super is here to provide you with an income in retirement once you have stopped working. Without super and other savings, you may be relying on the Age Pension. Super can provide income for you to help you have the lifestyle you would like in retirement. It is also tax-effective with contributions potentially reducing your tax and the investment earnings inside your super, being taxed at 15% per annum in accumulation and 0% in retirement. This could be potentially lower than your taxable income.
But one of the true wonders of super is compound interest. The value of investing over the long term. Compounding is an important part of investing. In fact, it's often referred to as one of the great wonders of investing. In relation to your super, put simply, compounding is the investment returns generated on the returns you've already earned. Picture this: A snowball rolling along. It may start small, but it grows the longer it rolls. That's because it's adding layer after layer. The snowball represents your balance and the layers represent the compounding returns. Compound returns are earned on your entire super balance. Your super fund continues to invest these additional returns. The process repeats, continuing to accumulate returns as long as your super is invested, leading your balance to grow through employer and voluntary contributions while still compounding the returns.
Everything we do at AustralianSuper is designed to help people achieve their best retirement. As one of the biggest funds in the world, our size and scale mean that we have access to some of the world's best investments. Choosing the right investment is important. It can affect how much your savings grow and how long they last. You can decide to either leave your investment in the default investment option, which is the Balanced option, a PreMixed option, or choose and manage your own. You can also make and change investment choices after you become a member. You can choose one or a variety of options. And if you don't make a choice, your super savings will be invested in our Balanced option. PreMixed options are diversified options that invest across different combinations of asset classes, such as shares, property, infrastructure, fixed interest, and cash. There are a number of PreMixed options, which include High Growth, Balanced, Socially Aware, Index Diversified, Conservative Balanced, and Stable. DIY Mix options are single asset class portfolios. You choose how much you want to invest in each mix that can also include one or more PreMixed options. Your DIY Mix choices are Australian Shares, International Shares, Diversified Fixed Interest, and Cash. The Member Direct investment option gives you the greatest control of all options. You can invest your own super in a range of listed securities, including shares in the S&P/ASX 300 Index, Exchange Traded Funds, Listed Investment Companies, or term deposits. A good place to start in making this decision is to read the AustralianSuper Investment Guide which is available at australiansuper.com/investmentguide This guide can help you make your decision. You'll look at your investment needs and then go through your options in more detail. Alternatively, you can speak to a phone-based Financial Adviser who can look at your situation and provide advice on the most appropriate investment option for you.
Before we look at how you can benefit from taking control and making the most of your super, it's important to ensure you have taken control of your financial wellbeing outside super. A great place to start is managing your savings and understanding your spending habits. Setting short-term, mid-term, and long-term financial goals is an important step toward becoming financially secure. If you aren't working toward anything specific, you'll likely spend more than you should. You'll then come up short when you need money for unexpected bills, not to mention when you want to make a big purchase or retire. Vague goals don't necessarily work. Goals should be specific. Your goal is direct, detailed, and meaningful. It should be measurable. Your goal is quantifiable to track progress or success. Attainable, your goal is realistic, and you have the tools and the resources to attain it. Relevant, your goal matters to you. Time-based, your goal has a deadline. You can then break them down into smaller goals to ensure you are chipping away at these, which can help with motivation to continue working towards your goals. But what's next?
Once you've set your goals, it's actually a good time to look at what you were spending and create a budget. For those that already have a budget, how did that go? Did you stick to it? Do you review it regularly? The best way to control your finances is to do a budget. It will show you if you are spending more or less than you can afford. It can highlight where you can save money, or if you have surplus, it allows you to make other plans, such as saving for your goal or make super contributions if appropriate. Once you know your budget, you can set up a savings plan to better manage your finances. This could include implementing a bucket approach. The first step to becoming a budgeting expert is deciding how many buckets you need and what they are. An example might be a bucket for your bills, which covers things like your rent or mortgage repayments, as well as utility bills and repaying any debts. Then you could have a bucket for the everyday, which could cover things like groceries, public transport, and petrol. Then another could be a spend bucket. This could be for anything from catching the latest Marvel movie to eating out on a date night or even those shoes you've been eyeing off. And finally, a savings bucket. This will cover any emergencies and also things you're saving up for. It could be a family trip to Europe, your first house, or a new set of wheels. Once you've put a budget together, tracked your spending and implemented a bucket approach, this is something that you can continue to review regularly and work towards your goals.
So far, we've covered steps to manage your financial wellbeing with setting goals, budgeting, and allocating savings. It is now a great time to take a look at the five steps to take control of your super. In setting up your super for success, it's important you have chosen the best super fund for you. A great place to start is to do a comparison. There are a number of factors to consider when conducting a comparison including performance. How your super performs over the long term will make a big difference to your money for retirement. Fees It's important that you're paying reasonable fees. And insurance, which provides financial support for you and your family if anything happens to you.
If you have more than one super fund, you may want to consider consolidating your accounts if it's appropriate for you. Consolidating into one account might reduce the overall costs of your super accounts, helping you to grow your super. It's important to know before you consolidate to do your research. Use the comparison tool. Ask your super providers about any fees or charges that may apply. Another important consideration is your insurance cover. Before you rollover your accounts, it's important to ensure you have adequate insurance in place in your new account as you will most likely lose any insurance that was in place on the account you rollover.
Adding a little extra to your super can be a great way to boost your super savings for retirement. Paying extra into your super could save you tax and help you retire with more. Contributing small amounts over time is often easier than finding a spare lump sum of money. This way, your super can grow with investment returns. You can add to super in two ways. Before-tax, including employer contributions, salary sacrifice, extra employer, and tax-deductible personal contributions. These are also called concessional contributions. There is a limit to how much you can contribute each year for this type of contribution, which is $27,500 per annum. In certain circumstances, you can contribute more than the annual limit if you've not reached the contribution limits in prior years, which is known as the carry forward rule. The other way you can contribute is after-tax, which includes spouse contributions, after-tax employer, and non-deductible personal contributions. If you make contributions above the annual non-concessional contributions cap, you may be eligible to automatically gain access to future year's caps. This is known as the bring forward rule.
Depending on your total income, if you make after-tax contributions to your super account, the Government also makes a contribution called a co-contribution, up to a maximum of $500. The co-contribution is tax-free and isn't taxed when it's deposited into or withdrawn from your super account. For example, if you earn $41,112 or less, you could receive the full $500 bonus if you add $1,000 or more to your super from your take-home pay. If you earn between $41,112 and $56,112, you'll still get a Government co-contribution, but not the full amount. You can find out if you qualify at australiansuper.com/Co-Contribution. As mentioned earlier, adding to your super can help it grow for the long term.
AustralianSuper provides most members with basic insurance cover with their super account with some age and eligibility conditions applied. This cover provides a basic level of protection if you die or become ill or injured. Eligible members receive age-based Death, Total and Permanent Disablement, and Income Protection cover. Age-based cover is designed to provide a minimum amount of cover for changing needs as you get older. Death cover can help ease financial stress by paying a lump sum to your beneficiaries if something happens to you. TPD can pay you a lump sum payment if you become totally and permanently disabled and can no longer work. Income Protection can help you if you become ill or injured at work or outside of work and can't temporarily work. It can provide monthly payments to help you get by while you're not earning your regular salary. You can adjust the level of cover you hold to meet your needs. For Income Protection, you can insure up to 85% of your income with either a 30-day or a 60-day wait and benefit period paid for two years or up to age 65. You can access more detail on insurance by reading the Insurance in your super guide available on the AustralianSuper website. You can also calculate an estimate of your insurance needs by using the Insurance Calculator available on our website. This is a great guide to estimate how much cover you should have and how much your cover should cost.
If you've taken the time to carefully choose the super fund and you're happy with how it's performing, one of the best things you can do is take your fund with you when you change jobs or retire. You can also use the tools available to you to track your super, including an online account and the mobile app.
It's also important to let your fund know what happens to your super in the event of your passing, and there are a few options when deciding what happens to your money. You can nominate a beneficiary in two ways: binding and non-binding. With a binding nomination, you complete a form providing formal written direction to AustralianSuper to tell us who you want your account balance and Death cover paid to so that it's legally binding. A binding nomination comes into effect from the date we accept it and expires three years from the date you signed the form. You can set up or change your binding nomination by completing a valid binding death benefit nomination form, and you will be prompted to update it every three years. With a non-binding beneficiary, you nominate who you'd prefer your account to be paid. However, your nomination is not legally binding. And although the fund will consider who you choose, ultimately, the fund are legally responsible and will need to consider relevant laws when making a decision. You can make a non-binding nomination by completing the Change my details form available at australiansuper.com/factsheets or through your online account at any time, or by calling us.
So who can you nominate as a valid beneficiary? You can nominate your spouse or partner, including the same-sex or de facto relationships, your child of any age, interdependants who is someone who lives with you and shares a close personal relationship where one or both of you provide financial and domestic support and personal care of the other. Other financial dependants, such as someone who relies on you financially, or your estate or legal personal representative. So it's important to check if you have a beneficiary and look into your options to make the right choice for you. We have covered a number of concepts today to help you set your super up for success.
We've looked at understanding the basics of super, including the power of compounding interest, managing your financial wellbeing, and taking control of your super, but it's so important to take the steps now to ensure you set your super up for success. You could start by creating a budget, which will give you a clear picture of your finances today and help you set your goals and ultimately achieve them. You could check that your account details are up to date to ensure that when you want to take any actions on your account, you're able to do so. Another great step is to search for lost super. It could be reassuring to know you have all your super in the one account if you don't find any. Alternatively, if you do find lost super, you can consolidate it into your account to ensure that all your super money is working for you. And finally, download the AustralianSuper app. This is a great tool to track your super, check where you're invested, what insurance you have, and monitor your contributions. You can also make additional contributions to your super from the app when it's appropriate. And a great way to look at the long-term impact of setting up your super for success is to use the Super Projection Calculator. The calculator is available on the AustralianSuper website and is a great tool to look at what your lifestyle might be in retirement. You can see what it is today if you make no changes, and what it could be if you decide to add extra to your super. It could have a significant impact on your future.
AustralianSuper aims to provide help and advice to members as they need it. And we do this in three main ways. Online via our website, which has a range of tools and calculators and information about AustralianSuper and super in general. You can speak with an advice team member over the phone for simple personal advice, covering topics relating to your AustralianSuper account, such as your investment options, making contributions to super, insurance, and retirement income options. This advice is provided at no additional cost to members. Its cost is included in the member fee that we all pay. So I would suggest that to get the best value from your AustralianSuper membership, it makes sense to seek advice as you need it. I will just note that phone advice for retirement or transition to retirement has a small fee. For those members that would prefer to meet with an adviser or maybe have more complex issues, AustralianSuper also offers access to Financial Planners based in our offices around Australia. This advice is usually provided face-to-face or as a virtual meeting. This financial advice service is at the member's own expense. You can also access advice in your local area with a registered Financial Adviser. You can find all the advice options through our Find an Adviser tool.
By attending today's session, you have already taken a step in learning more about making the most of your super. I encourage you to look at what is available to you and determine what is the best course of action for you. We thank you for attending and wish you all the very best with your financial journey.
Preparing for your retirement journey
No matter where you are on the road to retirement, it’s good to know the right steps to plan your future. Boosting your super while you’re still working, finding different ways to fund your retirement and keeping engaged with your super can all help you retire with confidence.Learn more
Preparing for your retirement journey
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Many people wonder how much they need to have in super to retire. And the answer depends on a number of factors, which includes: when will they retire, the level of income they want in retirement, and where that income is going to be coming from. A recent survey showed that about half the population retire before they were planning to. And for many people, there are four things that really matter to them in retirement. Where are they going to live? Is it a downsize, sea change, tree change? What's their health like? We all know as we get older, our bodies can't do what they used to do. How are they going to fit in the community? And how can they keep and create connections with people when retired? And finally, the level of income that they're going to have in retirement. With regards to income in retirement, it could be coming from a number of different sources. It could be your super, the Government Age Pension, the savings you have, and maybe other investments. Today, we're going to look at how your super can help form your income in retirement. My name is Peter Treseder. I'm an Education Manager at AustralianSuper. And I've been helping people understand their super for over 30 years. With me today, I have one of our Financial Planners, Helen Harrison. And together, we're going to discuss some of the common questions that people have about retiring.
Before we start, it is important to understand that the information we are covering today is general financial advice. And doesn't take into account your personal objectives, situations or needs. Before making a decision, please consider the information is right for you and read the relevant PDS by visiting australiansuper.com/pds or by calling 1300 300 273. It's important to note that investment returns are not guaranteed, and past performance is not a reliable indicator of future returns.
Welcome Helen. You're a Financial Planner with AustralianSuper, can you please explain what you do and how you help members who are thinking about retiring?
Hi Peter, my role is to provide people with personal financial advice. I would say that the majority of AustralianSuper members I see are those approaching retirement, unsure about the journey into retirement, or looking for reassurance that they can actually afford to retire.
Helen, when people talk to you, what are the common questions they have about retirement?
I see a range of people, some of whom are starting to make plans for retirement 10 years in advance. While others arrive at my meeting room after having to retire sooner than they had planned. One common theme most want to know is, can they afford to retire? And will they be okay? I often think of the stages through retirement as stepping stones. And what I do is set up a plan to allow them to step through each stage with ease, but also have plans in place for any slips along the way.
We've all had to make plans at different stages in our lives, but often it's hard to know where to start, for those joining us today who are thinking about their retirement, Helen, where can they start?
By attending this presentation, you've already made the first step by starting to think about your retirement. Gathering information and thinking about retirement in advance is a fantastic start. The next step is to work out what you want your retirement to look like. Does it involve hobbies, looking after grandchildren, travel, or maybe you'd like to keep working part-time. Then, consider how much you'll need in retirement with the exception of hobbies and travel, I found that most people's living expenses don't differ in retirement too much from their current living expenses. It's therefore very important to work out how much you're currently spending. I tend to think of it more about tracking expenses, rather than doing a budget. And finally, are you on track to achieve this? If you know when you want to retire, we can calculate how much you'll have by then, and by understanding how much you need to live on, we can work out how long your money will last and if you are on track. Sometimes just giving people the confidence to know they can afford to retire, can completely change their perspective on working now. Someone recently commented to me after receiving some retirement planning advice that they are now working because they want to and not because they feel they have to.
To unpack these steps, we're going to look at a case study with a couple who are starting their journey to retirement. We've got Sam and Lucy. Both are 58 years old; Sam earns $80,000 a year and has $200,000 in super. And Lucy earns $60,000, a year and has $160,000 in super. Their current living expenditure is $60,000 per year. And they'd like to retain that for their retirement years. They both like to retire at 63, so in five years’ time. At present, the only contributions being made in their super account is the 10% employer contribution. Here you see Sam and Lucy's current retirement outcome, retiring at age 63. It is only the combination of their super accounts that provides them with the desired $60,000 per year, until they are eligible for the Age Pension at 67. From that age, it's a combination of their super accounts, and the Age Pension that then maintains their desired annual income up until age 82 when their super runs out. From this age, their income drops to the full Age Pension amount. So, Helen, how can Sam and Lucy achieve their desired income until life expectancy and potentially beyond?
To improve Sam and Lucy's retirement outcome, they will need to boost their super balance at retirement. So, we would start by getting them to do a budget, to see if there is an opportunity and for them to make additional contributions to super. And these could be concessional contributions, or non-concessional contributions.
Let's have a look at each of these types of contributions. Concessional contributions or before-tax contributions, are contributions typically made by your employer on your behalf. They include the legislated superannuation guarantee contribution, any additional contributions your employer makes, and any salary sacrifice contributions you make. They also include any after-tax contributions you make, where you claim those as a tax deduction. The annual cap for concessional contributions is $27,500. Concessional contributions up to this cap are taxed at 15%. Anything over the cap is taxed at your marginal rate. If you earn more than $250,000 as income, the concessional tax rate on contributions is 30%. There are also a couple of rules that apply to this cap.
A few years ago, the Government introduced a new rule around concessional contributions called the carry forward rule. The rule allows you to use unused concessional contributions from previous financial years, which can carry forward for five years. So, as an example, let's say in the 2019/20 financial year, you had an available concessional contribution limit of $25,000. And your employer contributed $10,000 to super, you will have $15,000 of unused concessional contributions that you can carry forward into the next financial year. So, in the 20/21 financial year, you would have available concessional contribution cap of $40,000. $15,000 carried forward, plus $25,000 for that year. Your employer then contributes $10,000 again, leaving you $30,000 of unused concessional contributions that can carry forward into the next financial year. This brings your total available contribution cap to $57,500 The $30,000 carried forward, plus the $27,500 for this financial year. Your employer contributes $10,000 again, however you have available money to contribute. This could be as a salary sacrifice during the year or as a $20,000 after-tax deductible contribution, meaning you can claim a tax deduction on that $20,000. The remaining concessional cap of $27,500 can be carried forward to the next financial year. To use this rule, your total super balance has to be less than $500,000 as of June 30 of the previous financial year. Non-concessional contributions or after-tax contributions are contributions made by you from your bank account, or by your employer from your after-tax salary. Spouse contributions are also classed as non-concessional contributions. Non-concessional contributions have a cap of $110,000 from the 1st of July 2021. With concessional contributions, we have a carry forward rule. With non-concessional contributions, we have a bring forward rule. This rule allows you to increase the level of non-concessional contributions made in a financial year. Depending on your total super balance and age, you may be able to bring forward up to three years’ worth of non-concessional contributions. So, Helen, with these types of additional contributions in mind, what's the recommendation for Sam and Lucy to help boost their super balance at retirement?
For Sam and Lucy, it's recommended that they both make concessional contributions before-tax into their respective super accounts. This is because the tax rate on concessional contributions, generally 15%, is less than their marginal tax rates. We've completed a budget and determined that they have surplus cashflow available. For Sam, this is a salary sacrifice of $15,000 per year until age 63. And for Lucy, this is a salary sacrifice of $10,000 per year, also until age 63. With these additional contributions, you can see that Sam and Lucy now have their desired income of $60,000 per year until age 90. The advice has resulted in an additional $114,000 in their super, which gives them an extra eight years of their desired retirement income. This takes their desired income beyond their life expectancy. And with this in mind, they might want to retire a little earlier or spend more in retirement.
The super projection calculator we've used to project Sam and Lucy's retirement outcome is available on our website at australiansuper.com/super-projection-calculator Recommend you check it out to see what your retirement outcome might look like. And to see the impact additional contributions could make to your balance at retirement. It's a great tool to help you get started with your retirement plans. Now, Helen, there might be some that can't afford to salary sacrifice as much as Sam and Lucy have. What other strategies are potentially available to save more for retirement?
A transition to retirement or TTR strategy could be used in this instance. TTR was first introduced in 2005 to provide Australians with a way to potentially reduce their work hours before retiring, instead of going from full-time work to full retirement. It can be used in many ways and allows you to access some of your super once you've met your preservation age and can be paid to you as an income while you're still working. In particular, it can be used to save more super while still receiving a regular income. You can start a TTR strategy by transferring some of your regular super account to a TTR Income account. You can then use your TTR Income payments to top up your take-home pay whilst working fewer hours or increasing your savings. A transition to retirement strategy can be complex and it isn't suited to everyone. It's a good idea to get financial advice before deciding if a TTR Income account is right for you.
Let's take a look at how a TTR strategy works. Your employer, or if you're self-employed, pays after-tax income to your bank account. Your employer also pays employer contributions to your super account. You can also make additional contributions from your income or bank account, including salary sacrifice, after-tax contributions, and personal deductible contributions. With a TTR Income account, you can top up your take-home pay with regular income payments. There are minimum and maximum drawdowns. The minimum is dependent on your age and account balance at the 1st of July each year. The maximum drawdown each year from a TTR is 10% of the balance. With the tax savings, there is the potential to contribute more to super than what is being drawn down as an income payment. And the tax savings you receive could mean you save extra super if you're aged 60 or over. If Sam were to implement a TTR strategy, age 60, this is what it would look like from a cashflow perspective. In his current position, he has a gross salary of $80,000 and he also receives employer contributions of $8,000 which is 10% of his salary. The income tax payable on this salary is $16,987, leaving a net income or take-home pay of $63,013. He also has tax payable on the super contribution of $1,200, which is 15% of the amount being contributed. Now let's take a look at the situation with a TTR strategy in place. He still has a gross salary of $80,000 and he also receives employer contributions of $8,000, being 10% of his salary. However, he will now salary sacrifice up to the maximum allowable contribution amount of $19,500. His taxable income is now $60,500, $80,000, less than $19,500 he has salary sacrificed. The income tax payable on this salary is $10,167, which would result in a reduced take-home pay. However, as he is commenced a TTR Income account, he can draw an income of $12,680 for the year. This provides him with a net income or total take-home pay of $63,013, which is the same as it was in the pre-TTR scenario. He also has tax payable on the super contribution of $4,125, 15% of the total amount being contributed. This demonstrates that if Sam wasn't able to afford to salary sacrifice extra funds to super due to his expense needs, he could potentially consider a TTR strategy to help build additional savings in super, whilst not impacting his take-home pay. And ultimately still being able to meet his living expenses.
When you reach your retirement, there are a few more things to consider. Now Helen, what are the steps that someone who's ready to retire should be thinking about?
As you mentioned before, you should think about your income in retirement, where will your money come from, and will it be enough? Depending on your age, you should also take steps to understand if you're eligible for the Government Age Pension, as this may have an effect on how much you need to draw from your super account. You may also want to consider whether you'd like to contribute any additional funds to super, as you may not have the opportunity later to add to your account.
In regard to the first consideration, income in retirement, many people don't understand that rather than taking a lump sum at retirement, they can turn their super into a regular income stream. It's called an account based pension. And at AustralianSuper, our account based pension is called Choice Income. Helen, can you explain what an account based pension is?
That's right. Some people think that they have to make lump sum withdrawals to meet their income needs on an ad hoc basis. And others believe that they need to take the whole amount of super and pop it into their bank account. Once you retire, you not only have the opportunity to leave your super invested, you also have the option to move your super balance into an account based pension. This allows you to turn your super into a regular income that's paid into your bank account. You can choose how often and how much you get paid, subject to minimum amounts. And you can withdraw lump sum amounts whenever you need to pay for things like a holiday, home renovations or a new car, your money isn't locked away. Your super balance stays invested for more potential returns throughout your retirement. There's also a range of investment options so you're in control of how your money is invested. Once you're aged 60 and over, the income received from an account based pension is tax-free, as well as your investment earnings.
As Helen mentioned, there are a number of other factors to consider at retirement and throughout your retirement. Such as your eligibility for the Age Pension, how your super and the Age Pension will work together to fund your retirement income, and whether you have other investments to factor in or savings you can contribute to super. For further information and guidance, you can visit australiansuper.com/journey Here you will be able to access the AustralianSuper Retirement Planning guide for tips and checklists to help you make a plan before you stop working. You can use the super projection calculator to find out how much super you could have when you do retire and how long it will last. And the difference additional contributions could make to your super balance and therefore your income in retirement. You'll also be able to see how super works with the Age Pension and if you're eligible to receive a full or partial payment.
So, looking back at the journey to retirement, we've covered a range of topics. First in the lead up to retirement, we looked at determining the level of income you want to have in retirement. Understanding where that income could be coming from, and are you on track to achieve the level of income you're after. We then discussed how to improve your retirement outcome by contributing extra to super in the most tax-effective way. Once we got to retirement, we looked at account based pensions and their flexibility. There is a lot to consider when it comes to retirement, and it can be helpful to get support when it comes to taking the next steps. One option is to seek professional financial advice. Now Helen, as a Financial Planner, can you give us an overview of the role financial advice plays in the journey to retirement?
At retirement, it's important to consider making the most of the last chance to get money into super. Setting up income streams, reviewing estate planning considerations, and providing you with the confidence about your retirement plans. Lastly, we also see people when they reach Age Pension age, when there may be some opportunities to maximise Age Pension payments, maybe you've received estate proceeds, or are considering downsizing your home.
Helen, AustralianSuper has a range of financial advice options. How can someone determine which option may be best suited to their circumstances?
AustralianSuper provides access to a number of advice options, depending on your needs. You can speak with an advice team member over the phone for simple personal advice, covering topics relating to your AustralianSuper account, such as your investment options, making contributions to super, insurance and retirement income options. For more tailored and comprehensive advice, you can meet with a professionally qualified Financial Adviser face-to-face or via secure video link. The first meeting is complimentary and it's all about you. We'll discuss your personal and financial circumstances, and what's important to you now and in the future. It is however important to point out that no personal financial advice is provided in this first meeting. If you'd like to proceed with personal financial advice, a one-off fee will be payable for the preparation of a personalised statement of advice. The actual cost will vary depending on the nature and complexity of the advice and will be agreed upon upfront in writing.
Thank you for joining us today to learn more about the important steps on your journey to retirement. Everyone's path will be different, and it's a great idea to make a plan so you can feel confident you're on the right track. On behalf of AustralianSuper, thank you for joining us today, and I wish you all the best in the future.
Do you need $1 million to retire?
The age-old question. Learn more about how much you might need to fund your lifestyle in retirement.Learn more
Do you need $1 million to retire?
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Welcome to today's presentation from AustralianSuper –Do you need $1 million dollars to retire? Retirement, just the thought of it, can invoke many different emotions, whether it's on your horizon, ten years away, five years away, or even less than one year away. You start to think about what retirement will look like. What will you do? Where will you go? What can you continue doing, and what will you stop doing? There are many things to consider. Then you remember you once heard that you need a million dollars to retire. So, you start thinking, how much do I have? Will I have enough to retire?
So, do you really need a million dollars? Well, today we will take a look at whether that is fact or myth. My name is Lauren Davis, and I'm part of the Education team at AustralianSuper. I've been working in financial services for 17 years, and my job is to help you better understand how super works.
Before we start, it is important to understand that the information we are covering today is general financial advice, and doesn't take into account your personal objectives, situation or needs. Before making a decision, consider if the information is right for you and read the relevant PDS by visiting australiansuper.com/pds or by calling 1300 300 273. Also, it's important to note that investment returns are not guaranteed. Past performance is not a reliable indicator of future returns. With me today, I have Financial Planner, Phil Wilkins. And together, we'll be exploring the question, do you need a million dollars to retire?
I'm a comprehensive Financial Planner for AustralianSuper. The majority of my role is to give personal financial advice for members and non-members as they approach retirement or have just retired and helping them achieve what's most important for them.
Thanks, Phil. It'll be really valuable for our attendees today to hear from you about some of the common questions you get asked about retirement and also how much someone would need. These questions include: What kind of lifestyle you would like in retirement? How much income will you need? Where will your income come from? When can you access your super? And how long should your money last in retirement? Let's tackle these questions together and help you understand how much super you might need for your retirement. As we enter retirement, there'll be many things that you start or stop doing. Will you continue to dine out once a week? Will you start a new hobby or activity? Will you travel locally or overseas? These things will have an impact on your income needs. So today we'll be discussing how much income you may need in retirement. And that's all going to depend on what sort of a lifestyle you want in retirement. It's important to consider we are all very different and we all have different expectations of our lifestyle. To give us a starting point for our discussion today, we're going to look at the Association of Superannuation Funds of Australia's retirement standards which are indexed every quarter. The ASFA retirement standard benchmarks the minimum annual cost of a comfortable or modest standard of living in retirement for singles and couples aged around 67 years, who also own their own home outright.
Phil, can you please explain the different retirement standards?
We'll look at a comfortable retirement lifestyle first, and the income required to fund this for a single person or a couple. A comfortable retirement lifestyle enables a healthy retiree to be involved in a broad range of leisure and recreational activities, and have a good standard of living through the purchase of such things as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment and domestic or occasional international travels. Let's compare this to a modest lifestyle. A modest retirement lifestyle by the ASFA retirement standards is considered better than the Age Pension, but only able to afford fairly basic activities. You'll notice from the image that there are a number of items that have disappeared that were included in the comfortable lifestyle but missing from the modest retirement lifestyle. When we describe a modest retirement lifestyle, it is considered better than the Age Pension, but you're still only able to afford fairly basic activities. It's important to remember, this is a guide only, and not an actual representation of what you can, or you can't achieve in retirement.
When we're describing the ASFA retirement standards for the comfortable or modest retirement lifestyle, it's useful to see how these compare to the full Government Age Pension. Here we are comparing the ASFA retirement standard for a modest and a comfortable lifestyle with the full Government Age Pension. You can see from the table that the ASFA retirement standards for a modest lifestyle is slightly higher than the full Age Pension for both a single and a couple. The full Age Pension is around $3,000 less than the ASFA modest retirement standard. So, it's important to be aware that if you're relying solely on the full Age Pension, there's still a gap to make up between the Age Pension and the ASFA modest lifestyle standard. This is where your super, even a modest account balance, can make a big difference to your lifestyle in retirement.
So, after looking at the retirement standards as a guide, we can now look at how you can determine what your income should be and where it will come from. Let's look firstly at how we can determine what your income should be. Phil, what can we do to determine what our income should be in retirement?
Before you can actually work out how much you're going to need in retirement, it's important to know what you're spending now. Because without knowing this, it's hard to determine what you will need in retirement. One way to work out what you're spending now is to create a budget. Most of us already budget to some degree, whether we have a written budget or not, but documenting your budget is important. Budgets can be simple or comprehensive, but either way, can be very easy to do. Rather than creating a budget which may turn out not to be accurate, try tracking your spending for a period of time. Write down everything you spend and then summarise it. For example, how much did you spend on household expenses, mortgage, rent, council rates, insurance, utilities, groceries and other goods and services. It's important to consider your health costs, petrol, public transport, motor vehicle servicing, registration, insurance. And then what did you spend going out for coffee, dinner, the movies, outings with friends and holidays. These are just some of the expenses that you may have. By tracking your spending, all of your current expenditure will be known, and you can then work out what is essential and discretionary. What will need to continue in retirement and what you may stop. There are some great budgeting tools available, but the Moneysmart Simple Money Manager is a fantastic tool to start this process.
Understanding your income needs is an important first step, but where is this income going to come from? Phil, can you please talk us through what these income sources could be?
Your retirement income could actually come from a number of different sources. And as we've mentioned, the Age Pension could be one of these. The Age Pension is an age-based and means-tested Government benefit. This means there are several tests that are applied to determine eligibility. First of all, you can only apply once you've met your Age Pension qualifying age, which we'll take a look at. The tests measure your level of income and the value of your assets to determine your eligibility for the Age Pension. The income and asset tests include your income from all sources, including any super account you may have, as well as all of your assets. There are a couple of exemptions from the asset test, for example, your principal residency on up to two hectares is exempt from the asset test. Based on your income and asset test, you may qualify for the full rate of Age Pension or a partial rate of Age Pension. For the majority of current retirees, the bulk of their retirement income comes from the Government Age Pension, either the full rate or a partial rate. As we saw earlier, the full Age Pension doesn't meet the income for the modest lifestyle. So, this is where your other assets and in particular, your super account becomes an important component of your retirement income. Your super account can be used to top up your Age Pension payments or provide the level of income you desire. Super is a tax-concessional retirement savings vehicle, to the point that once you turn 60, any income paid from your super account is tax-free. And once you've retired, if your super is transferred to a retirement income account, an account based pension, any earnings on your account are tax-free. It's important to note there are limits on when you can access your super and just how much of your super can be tax-free. Other sources of retirement income could come from your savings or any other investments that you may hold, which could be shares, property or managed funds, for example. All of these sources combine to make up your total retirement income needs. Through the financial planning process, we can look at how you can maximise the combination of these sources to provide you with the most effective income in retirement.
Super could form a major part of your retirement income. So, it's important to understand when you can access your super. There is an age restriction on when you can access your super funds. This is known as your preservation age. Your preservation age indicates the earliest age that you can access your superannuation under normal circumstances. Your preservation age is determined based on your date of birth. And you will see from the table that if you were born before 1 July 1960, your preservation age was 55. If your date of birth is 1 July 1964 or after, your preservation age is 60. Between these two dates, your preservation age increases annually. In addition to reaching your preservation age, to access your super, you need to have permanently retired, or want to transition to retirement whilst you're still working, or have changed jobs on or after turning 60, or you have turned 65 even if you are still working. We find that your preservation age is often confused with the Age Pension qualifying age, which is in fact different. The Government Age Pension qualifying age is different to your preservation age, although both are based on your date of birth. You can see from the table, the Government Age Pension qualifying age increases in line with your age. For example, if you were born before 1 July 1952, you would have qualified for the Age Pension from age 65. If your date of birth is after 1 January 1957, your eligibility for the Age Pension will occur when you turn 67. Between these dates, the Age Pension qualifying age increases incrementally. And you can have a look at the table and the dates of birth and work out just what your Age Pension qualifying age will be.
Phil, after looking at how much income you need to fund your lifestyle, what else should be considered?
This is a great question. A big consideration for us is how long should your money last? In 2020, the average life expectancy increased to an average of 83.2 years. So we are, on average, living longer than ever before. And this is thanks to better nutrition, public health, and medical advances. However, living longer also means you might need your money to last longer as well. Life expectancy calculators use a lot of data to estimate how long you might live. So, it can give you an indication of just how many years to prepare to spend in retirement. But it's important to remember that these are averages and can't predict how long you will actually live. So, it might be better to estimate that you will live longer than average when calculating your retirement income needs. For example, a male who is 65 today has an average life expectancy of 85, whilst a female at age 65 today has a life expectancy of 88.
One way you can estimate how long your superannuation could last, is to use our super projection calculator. This tool is available at australiansuper.com/super-projection-calculator and it allows you to estimate your super balance at retirement and the income this could provide you. Simply enter your details including your income, your age, and your super balance. Based on contributions going in from your employer and your investment earnings, it will project your super balance at retirement and the income this could provide through to or beyond your life expectancy. You can also input the amount of income that you would like to draw down in retirement and see how long your super may last. Then you could see what putting a little into your super could mean for your retirement income. This is a great tool to use to give you an idea of what your retirement could look like. I encourage you to take a look at the super projection calculator today to start visualising your retirement.
We started this presentation with the question, do you need $1 million to retire? To work this out, let's have a look at the super projection calculator in action with Nick and Anne. They're both aged 58. Nick is earning $80,000 per year and has $180,000 in super. Anne is earning $70,000 per year and has $150,000 in super. So, between them, they currently have $330,000 in super. They also have $100,000 in assets outside of super. So, they're definitely not at that $1 million stage, and they're planning to retire at age 67, which is in nine years’ time. Let's have a look at Nick and Anne's situation, projected up to the point of their retirement at age 67.
These figures are discounted to today's dollar values. They now have a balance of over $560,000 in today's dollars. And the target yearly income in retirement is the ASFA retirement standard for a comfortable lifestyle. There's a few things to look at here. We have the dark orange bar, and that is the income coming from Nick's super account. He's put it into a retirement income stream and he's drawing an income. We then have Anne's super account, which is the lighter orange bar. She has done the same and put her super into an income stream. The blue line that runs across the top represents their comfortable retirement income goal. The light and dark blue bars represent the Government Age Pension that Nick and Anne will receive from age 67. As they start spending and therefore reducing some of their super, the Age Pension amount increases. What this shows is that while you still have some super or other income sources, the Age Pension can potentially balance your income out. As these super balances reduce, the amount of Age Pension they're eligible for increases. By using both their super balances and their Age Pension, they achieve their income goal past their life expectancy, and their super eventually runs out at age 89. From age 89, they are reliant solely on the Age Pension. But that shows that with a total super balance of around $560,000 in today's dollars, they have achieved a comfortable lifestyle beyond their life expectancy until age 89. Now that may be different for you. You may want a different level of income in retirement, and you can review this with a super projection calculator to look at your situation.
So, Phil, does someone really need $1 million to retire?
In answering this question based on what we saw with Nick and Anne, no, they actually don't. Nick and Anne were able to retire comfortably and have the lifestyle they want through to the age of 89 without a million dollars. However, this is dependent on your circumstances and what's important to you.
So, what are the steps you can take today to help you on your journey to retirement? You can start with a budget and work from there to see what you might want your retirement to look like. Complete that budget, track your spending, summarise it and identify just where you are spending your money. Doing so can be very rewarding and you might identify some small savings that you can put towards your retirement goals. Check out the super projection calculator at australiansuper.com/super-projection-calculator to see if you're on track for your retirement goals. And visualise what your retirement income could look like. Consider where your retirement income may come from and the different sources. Your super, the Government Age Pension and your personal savings and assets. Super has some fantastic tax advantages, but you may have other investments that could also provide income in retirement.
Phil, you spoke about your role earlier as a Financial Planner. Can you give us an overview of the role financial advice can play in understanding retirement needs?
It's never too early or too late to get financial advice. Seeking advice can help you get a plan in place and on the way to achieving your retirement goals. We'll consider things such as maximising your current income, reducing tax, increasing contributions to super, focusing on any non-deductible debt, reviewing your risk profile, and start to visualise what you want your retirement to look like for you.
Now, AustralianSuper has a range of help and advice options. How can someone determine which option is best suited to their circumstances?
AustralianSuper aims to provide help and advice to members as they need it. And we do this in three main ways. Online via our website, which has a range of tools and calculators and information about AustralianSuper and super in general. You can speak with an advice team member over the phone for simple personal advice, covering topics relating to your AustralianSuper account, such as your investment options, making contributions to super, insurance, and retirement income options. This advice is provided at no additional cost to members. It is included in the member fee that we all pay. So, I would suggest that to get the best value from your AustralianSuper membership, it makes sense to seek advice as you need it. I will just note that phone advice for retirement or transition to retirement has a small fee. For those members that would prefer to meet with an adviser or maybe have more complex issues, AustralianSuper also offers access to Financial Planners based in our offices around Australia. This advice is usually provided with face-to-face or virtual meetings. This financial advice service is at a member's own expense. You can also access advice in your local area with a registered Financial Adviser. You can find all of the advice options through our Find an Adviser tool.
It has been a pleasure to discuss with you today and help to answer the question, do you need $1 million to retire? We wish you all the best on your financial journey to your best possible retirement.
Investing in retirement
With a longer life expectancy, low interest rates and the rising cost of living, there are different retirement strategies you can follow to ensure peace of mind. Join AustralianSuper’s Global Economist Mark Tierney and a Financial Adviser to discuss how to navigate the ups and downs of your retirement journey.Learn more
Investing in retirement
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Welcome and thank you for joining today's Investing in retirement presentation. A person retiring today is likely to spend more than 20 years in retirement as the average life expectancy continues to rise. For many, this means their retirement savings may need to last longer than they first realised. Keeping your money invested in super during retirement can give your savings the chance to grow and possibly outpace inflation rather than withdrawing the money as a lump sum and leaving it to sit dormant in your bank account. Taking a long-term view of your finances and choosing the right investment option for your needs are important considerations in managing your retirement finances. My name is Peter Treseder. I'm an Education Manager at AustralianSuper. And I've been in super for nearly 40 years, with over 30 of those spent helping members get a better understanding of their super so that they can improve their retirement outcome.
Before we get into today's presentation, please note that the information provided may include general financial advice, which doesn't take into account your personal objective, situations, or needs. Before making a decision, consider if the information is right for you and read the Product Disclosure Statement. Investment returns are not guaranteed, and past performance is not a reliable indicator of future performance.
When I'm talking with members, I find not everyone is aware of the different investment options available to them for their retirement savings. To help those in or approaching retirement understand how AustralianSuper invests and the different investment options available, I'm joined by our Global Economist, Mark Tierney, and Financial Planner, Fern Havea. Fern, before I jump into things, what is your background and how do you help our members with their retirement plans?
Thanks Peter. As a Financial Planner, I help members understand and navigate the landscape of retirement. Be it understanding my income options, including Centrelink, planning major lifestyle changes, such as moving to a new state or area. I look at critical planning areas of retirement timing, affordability, really understanding what my capital can do and how long my funds will last. These are just some examples of how I help members with their retirement planning needs.
To talk about how AustralianSuper invests, we also have Mark Tierney, our Global Economist with us. Mark, could you please tell us a little bit about your role and how you help members of AustralianSuper?
I analyse trends in economic growth, inflation, and interest rates in the key economies, such as the United States, Europe, and Australia. This helps us to decide which assets to hold for our members that will generate the maximum returns.
Superannuation investment returns are taxed differently, depending on whether you have your account in a super account or in an account based pension. Investment returns on a super account are taxed up to 15%, whereas the investment returns on an account based pension are tax-free. As we're going to be talking about investing your super in retirement, we're going to be looking at the investment performance figures for AustralianSuper's account based pension product, Choice Income. We're also going to start with AustralianSuper's default investment option, the Balanced option. Our default option applies when you do not make any investment choice when you join a super fund, whether you are joining in accumulation phase or in Choice Income. For Choice Income members in a Smart Default option, the majority of your account is invested in the Balanced option. Now, Mark, a standout financial year of investment returns has just occurred. What were the reasons behind this performance?
Well, it certainly was a great year for performance, with the Choice Income Balanced option returning 22.3%. Importantly, this was also very good in a relative sense with the median fund producing a return of 19.46%. The reason for the performance was asset allocation. That is what proportion of assets we hold in the Balanced option. Last financial year, we had high exposure to equities, a very low exposure to bonds, and a significant exposure to what we call mid-risk assets such as infrastructure. Financial markets had very different performance last year: equities were strong, bonds had a poor year, infrastructure was somewhere in between. So, the way we'd set up the asset allocation meant that we captured maximum gains in financial markets.
Mark, we've been doing these updates for a few years now. Did what we expect happen and has anything changed the economic outlook for the next few years?
There hasn't been a great difference between the performance of the key economies and what we're expecting. The most important fundamental has been persistently low interest rates. This has been the main driver of the recovery and has also been extremely important for the outperformance of asset classes such as equities. Government spending has also been firm during the COVID infections, so the combination of significant government direct support and low interest rates, which we largely expected when COVID started, has been crucial to the asset allocation process. From this point, we don't expect things to change very much. It is likely that interest rates will start to increase at some point, but that is probably a few years away. And in any case, the trajectory of higher interest rates is likely to be very slow. Governments, particularly in the United States and Europe, are also showing a willingness to spend to try and ensure that the recovery is entrenched.
Now, Fern, Mark covered short and long-term performance and how AustralianSuper is investing for the long term. When you talk to members in, or planning, retirement, what do you find they focus on, short term or longer term?
I see this a lot when I meet with members for the first time. There is this focus that I'm retiring soon, should I start moving my funds to be more conservatively invested? Well, the answer is yes if you're planning to spend it all at retirement. But the reality is, in retirement, we need to invest for our immediate funding needs, it needs to pay me my pension, my income for the next fortnight, but I also need it invested for my long-term funding needs, it needs to be able to fund me in 5, 10, 15, 20 years from now. I do find a lot of people want to move a bit more conservatively because now they're focusing completely on this money. Whether they look at the balance every day, it can be a bit nerve wracking. But this is where with financial planning, we do have a look at both needs, the short-term and the long-term needs, and we can address it with the way we invest.
So, Fern, do investment returns have a greater impact on those who have retired?
Investment returns have a greater impact on those who have retired because of the amount of capital you have at retirement. You have been working to get to this point, you have been building up your superannuation balance to get to this point. So, if we were to experience a 5% loss due to markets, it will be quite detrimental. On the flip side, if we have a 5% increase, it would be very good. So, we have to focus on the amount of capital that we have. This is the highest we'll ever have just at retirement, because from this point on, we are looking to live off this capital and start exhausting down our money. The other thing to consider is we are living off this money. So, in that example of a 5% return, if I'm drawing down 5% of my capital as income, a 5% return means I don't have to touch my capital, I'm purely living on the earnings. If the markets were to go backwards, however, and I lose 5% in capital, I still have to draw an income. So, I'll have to take another 5%. So, we can see that our capital can go backwards about 10% if there was a 5% market crash.
For the majority of people who have reached pension age, part of their income comes from the Government Age Pension. And as this is government-funded income, it's not subject to the ups and downs of investment markets. How do you take this into account when talking to members about their retirement?
The Age Pension is a form of guaranteed income. For a retiree, it might be funding about 20% of their overall income needs. So, this means, this is 20% that I would have otherwise taken out of my own retirement capital. Different people view this in different ways. Some might think, 'well, since I don't have to touch my superannuation as much, I don't have to be as risky', where others will consider, 'well, I don't have to touch this money, I can take a bit more risk and try to get better returns'. What it comes down to is the individual. We have to consider, what's your attitude to risk? What's your tolerance to risk? So, it does affect different people, different ways.
Mark, Fern has spoken about other investment options that members might want to use as they have a lower risk tolerance. How do the options differ, and what is the impact of those differences?
We understand that for some members, the default, which is the Balanced option, may not be suitable, but there are alternative PreMixed options, including the Conservative Balanced option and the Stable option. These carry less risk, but they also mean that the returns will be lower over time. The objective of the Balanced option is to beat inflation by 4%. For the Conservative Balanced option, it is to beat inflation by 2.5%. And for the Stable option, it is to beat inflation by 1.5%. As a result of these lower objectives, the timeframe also differs from 10 years in the Balanced option, down to 5 years in the Stable option. The reason for the difference in performance is that the Balanced option, Conservative Balanced option, and Stable option have quite different asset allocations. Now, all three options offer our members investment of a similar degree in infrastructure and direct property for example, but there are significant differences in the weight of equities, fixed interest, and cash, with the Balanced option having a much greater weight to equities compared to the Stable option while the Balanced option has a much lower weight to fixed interest and cash compared to the Stable option. And that's why the investment objectives, that is the gap above inflation, is quite different. Now, over time, all the options have shown good performance, but it is clear that the Balanced option will always produce a superior return over the longer term. One of the key things to note, of course, is that the cash option has performed generally poorly compared to these PreMixed options.
Mark, cash is often seen as the safe and secure option. With central bank interest rates at the levels they are now, is this still the case?
The main problem with putting money into cash when interest rates are so low is it is unlikely to cover inflation. And this problem could get worse. The Reserve Bank of Australia is intent on forcing inflation higher, somewhere between 2 and 3%, which is its target range. Now, the cash rate is likely to lag that. So, the negative gap between inflation and the money that you earn on cash is likely to grow. So, this opens up an important issue, difference between saving and investment. Saving is withholding some of your income and not spending it. The next stage is to invest that money so that you earn money on that savings, you earn greater income. Given the low level of interest rates, it is becoming increasingly important for all retirees to invest rather than just save. Otherwise, the risk of inflation eating away at your living standards over the long term will be considerable.
Fern, do you still see people want to invest in cash even when the returns are at the levels Mark has spoken about?
As far as retirement planning is concerned, cash does have its place, and that's in the form of a cash reserve we hold in the bank. This could be considered an emergency source of funding that we hold. As far as investing is concerned, there are other conservative options out there, not just cash. So, I do educate members on what these conservative options look like. We can use these other options as a way of investing conservatively.
Mark, we spoke earlier about investing for the longer term, but every now and then markets drop and the members I meet with question if the option they're in is still appropriate in a downturn. What can you tell people about taking a long-term view?
For more than a decade, there have been significant adverse market developments. These include the GFC, the blow up in the European bond market in 2012, a marked deterioration in China in 2015, and, of course, the COVID infection. This has had significant negative impact on equity markets each time with marked declines. And yet each time they've had these declines, they've recovered back to new heights. This is because of the application of appropriate policies, such as lower interest rates or government spending. The important message here really is to stay the course, to recognise that superannuation is a long-term investment. And yes, it is always a real concern when markets do decline, but the fact that we've seen so many adverse events in relatively short period of time yet equity markets have responded to appropriate policy is an important insight because it does show the importance of staying invested and not panicking at these short-term developments.
Fern, I mentioned before how members I meet start to question the investment options they're in during downturns. What are the potential impacts of switching in a downturn?
When we see our retirement capital going down, it is very tempting to switch and move the money to something safer. But by switching, we are locking in the losses. We might consider switching to a more conservative option, or we might consider switching to Cash, which means we're completely getting out of the market. But the risk here is if we're out of the market and the markets pick back up again, I'm no longer invested, I'm not going to benefit from that upward swing, because I've either reduced my exposure or I'm completely out of the market. For a retiree, it gets a bit more complicated, because if the markets crash, we still have to determine, do I have enough adequate to continue to fund me? Should I get out now knowing that I still have enough capital for my funding needs in retirement, because I'm scared it might reduce even further? There are risks if you switch, there are risks if you don't switch, and it really comes down to the individual. In this case, I would strongly advise to seek out advice to really understand your situation and the implications.
Fern, Mark spoke before how diversity within an investment option can reduce risk. Can you explain how a diversity of investment options can also reduce risk?
This is a very big question. This question alone, it takes me about an hour to cover with my members, so I'll try to keep it as brief as possible. Look, if we find an investment option that meets our needs, we're comfortable with the range of returns, we're comfortable with the up and with the down, the investment timeframe, we can consider using that one investment option and dollar-cost average out of that fund. So, what that means is, as the markets are up and as the markets are down, I'm slowly taking out money from that fund and I'm dollar-cost averaging out. Another option is what we call a bucket strategy. And what the bucket strategy is, you will have a short-term bucket and you will have a long-term bucket, and you're investing for your long-term needs and for your short-term needs. And we take our pension payment from the short-term bucket. When I say short term, I mean, the investment timeframe is a short term, so it has lower risk. It's more stable when we take a pension out, if there was a crash, it's not as volatile. The long-term bucket means this is my long-term funding needs, so I'm taking more risks with this bucket. It has more volatility. And if markets take a downturn, it's this bucket that will be hit. But we have to remember that if the markets are going backwards, I'm not touching this bucket, I'm living off my short-term bucket. The idea is, as I exhaust my short-term bucket, my long-term bucket is building up, and I can take some of the earnings from the long-term bucket and top up my short-term bucket. So, this strategy requires members to be quite involved, to have a look at their investments maybe once every six months, once every year, and look at topping up the short-term bucket. When markets go backwards, I don't touch the long-term bucket, I let it crash, and I wait for it to recover and I completely live off my short-term bucket. Another way we could use the bucket strategies is to have a short-term and a long-term bucket, but I take my pension out proportionally. So when markets are doing well, I take a little bit out of the short-term bucket, I take a little bit out of the long-term bucket; but if markets decide to go backwards, I stop touching my long-term bucket and I purely take my pension out of my short-term bucket and I allow the long-term bucket to recover. Once it recovers, I can look at rebalancing and taking funds out proportionally. Look, what it comes down to is the individual. How involved do you want to be with your investment? How frequently do you want to look at it? Some people want to be very involved; some people don't really want to worry about it. And it also comes down to your tolerance of risk. So yeah, those are just three strategies that one could use when it comes to investing.
Fern, taking into account what Mark spoke about regarding objectives, how important is it that a member knows their investment objectives when it comes to selecting their options?
It is very important for members to know their investment objectives. What I do is I give money purpose. The money in the bank, that's our cash reserve, this is what we can expect from it. Our retirement capital, this is our short-term funding needs, this is what we can expect from it. This is how it could return; this is what it could lose in different markets cycle. And the same is applied with our long-term funding bucket. When we understand the purpose of our money and the level of risk we're taking with the money, when we have a market downturn, we are not surprised, we know what to expect, and this does give a lot of retirees comfort. How could someone be so calm when their investment has gone backwards 10%? Well, it's because we know that it could happen, and we also know what the purpose is for that money. We might be planning to help a child with a wedding or with a deposit, we might be planning to purchase a caravan in five years. Well, that needs to be considered when it comes to investing. I need that money readily available for me in five years when that expense comes up. So yes, we have to give our money purpose, and then we can define the investment objectives.
Thanks Mark and Fern for joining us and passing on some of your wisdom and experience when it comes to investing in retirement. I'm sure many of those watching will have a deeper understanding of the topic. Fern, if they'd like to know more about seeking help from AustralianSuper, what should they do and what will they find?
Thank you Peter and Mark, for getting me involved with this session. There are a number of ways you can engage for advice. The first one is you can have a look at the website. You'll find a lot of information is available on the website. You can call AustralianSuper as well and obtain advice over the phone. Or you can seek an appointment with a Financial Adviser where we do more comprehensive advice. There is a Find an Adviser tool available on the website, but please note that the advice provided is held by a third-party. We are licenced by a third-party provider, and that includes myself.
If you'd like more information about how AustralianSuper invests and the investment options available, please visit australiansuper.com/investments. On behalf of AustralianSuper, thank you for attending and I wish you all the best in the future.
Estate planning and your super
What happens to your money when you're gone? Nominating super beneficiaries and understanding the tax consequences (so loved ones can avoid unexpected tax bills) are all part of smart estate planning.Learn more
Estate planning and your super
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Your super savings may last 20 years or more when you retire. Some of your savings may even outlive you, so it's important to let us know where you want your money to go. The concept of beneficiaries can raise lots of questions. Who should I nominate? What happens to my super when I pass away? And, will it be taxed? Today, in our Estate planning and your super presentation, we're going to unpack this and discuss what happens to your super when you pass, and how you can ensure it passes to those you intend to receive your benefits. My name is Darryl Florance and I'm an Education Manager. Part of the Education Team here at Australian Super. Helping you better understand how super works is important and why we're here today. I've been working in super and financial services for over 35 years.
Today, I'm joined by AustralianSuper Financial Adviser, Daihla McGinty, who is going to help us understand how estate planning and your super work together. So, welcome Daihla. Can you please tell me how you help people, in particular, when it comes to their beneficiaries?
Thanks, Darryl. It's great to be here today. My role as a Financial Adviser is to help people with retirement planning, but it also includes things such as estate planning. This is a really important discussion to have with people to really understand what they'd like to happen, in the event that they passed away, to ensure that things get passed as per their wishes.
Before we start, it's important to understand that the information we're covering today is general financial advice, and it doesn't take into account your personal objectives, situation or needs. Before making a decision, consider if the information is right for you, and read the relevant Product Disclosure Statement by visiting australiansuper.com/pds or by calling our national contact centre on 1300 300 273. It's important to note that investment returns are not guaranteed, and past performance is not a reliable indicator of future returns.
Through our discussion today, we'll look at what's included in an estate plan. We'll look at the rules around nominating beneficiaries, including who can be nominated. Then we'll work through the tax implications of different beneficiaries, and how this could be factored into your decisions. And, finally, the next steps you could take following today's presentation. In our roles, we meet a lot of different people and one of the most common things we hear is, "It's okay, I have a will. I don't need to worry about my beneficiaries." Now this is not necessarily the case. Before you start planning your estate, it's important to understand the way different assets are treated and the options available to you. Making sure your assets go to the right people after you pass is not always as simple as stating your wishes in your will. How your property and assets are distributed may depend on a number of factors. Many people think super forms a part of their estate. This is actually a misconception, and, in fact, your super isn't considered part of your estate and, therefore, not subject to the terms of your will. Therefore, it's important to ensure you have an estate plan plus nominated beneficiaries listed on your super account. We'll unpack this area in today's presentation. Daihla, can you please tell us what estate planning is, and what people should consider as part of their estate plan?
Estate planning involves the transfer of wealth between yourself and your chosen beneficiaries. Having a valid will in place is just one aspect of estate planning, however, having that will in place, can give you comfort and peace of mind to know that your wishes can be followed in the event of your death. A will is a legal document that sets out how you want assets that you own to be distributed when you pass away. You must have both legal and mental capacity to be able to make a valid will. If someone dies without a will, they die intestate. Being intestate means that the laws of the state or territory they live in will decide how their estate is administered. This highlights how important a will is to ensure your wishes are met. Then there are enduring powers of attorney, financial or medical, and enduring powers of guardianship. Again, different states have different rules in regards to these items. A power of attorney or enduring power of attorney can give you the peace of mind knowing that your affairs can continue to be taken care of in the event that you are not in a position to make certain types of decisions yourself. For example, this can include situations when you're overseas or incapacitated. There are a variety of powers of attorney available. The ones that are appropriate for you will depend on your circumstances, and what decisions you think are important in the event that you are unable or unavailable, to make those decisions yourself. A letter of wishes, also known as a statement of wishes, is an informal document that accompanies your will. A letter of wishes help to explain your will and make it easier for your executor to administer your estate, than if they just had your will to go by. It's not legally binding and it's much easier to make changes to than your official will. A health directive is a legal document that enables you to make decisions, now, about the treatment you would want, or not want to receive, if you ever became sick or injured and were incapable of communicating your wishes. In such circumstances, your health directive effectively becomes your voice. Finally, there are beneficiary nominations to ensure your super passes as per your wishes.
It's important to let your super fund know what you want to happen to your super in the event of your passing. And there are a few options when deciding what happens to your money. You can nominate a beneficiary in two ways, binding or non-binding. Once retired you also have another option, to nominate a reversionary beneficiary to continue to receive your regular pension payments. Daihla, can you please explain these types of beneficiary nominations?
For a binding nomination, you provide formal written direction to AustralianSuper to tell us who you want your account balance, including any applicable insurance, paid to, so that it's legally binding. A binding nomination comes into effect from the date we accept it and expires three years from the date you sign the form, as long as the nominees remained valid beneficiaries. You can set up or change your binding nomination by completing a valid Binding death benefit nomination form. A binding nomination instructs AustralianSuper how to pay your death benefit if you die. As long as it's valid, your nomination is legally binding and we must follow it. This is why it's important to consider changing or cancelling your binding nomination, if your circumstances change, so that your benefit will be paid in line with your current wishes.
For a non-binding beneficiary, you nominate who you'd prefer your account to be paid. However, your nomination is not legally binding, and although your super fund consider who you choose, ultimately, they are legally responsible and will need to consider relevant laws when making a decision. You can make a non-binding nomination by completing the Change my details form available at australiansuper.com/factsheets through your online account at any time, or by calling us on 1300 300 273.
Finally, if you have a pension account, you can nominate a reversionary beneficiary. A reversionary beneficiary will receive regular income payments from your account until the account balance reaches zero. You can set up or change your reversionary nomination by completing a valid Reversionary benefit nomination form.
When nominating a beneficiary, it's important to understand who you can nominate. So, who can you nominate? You can nominate your spouse or partner. A spouse includes legally married spouses or de facto spouses. A spouse can be a person you're legally married to but estranged from or separated from. So, if you haven't formally ended a marriage, your husband or wife is still considered your dependent under superannuation law. And while you can't be legally married to two people, it's still possible to have two spouses. A legally married spouse and a de facto spouse. Your child, of any age. A child includes an adopted child or a stepchild, even though a stepchild is included in the definition of a child, if you end the relationship with the natural parent or the natural parent dies, the child is no longer considered your stepchild. However, they may still be considered a financial dependant, or in an interdependency relationship with you, and could, therefore, continue to be a beneficiary of your super. Interdependants which is someone who lives with you and shares a close personal relationship, where one or both of you provide financial and domestic support, and personal care of the other. A financial dependant, generally, a person is financially dependent on you if the level of support you provide them is necessary and relied upon, so that if they don't receive it, they would be severely disadvantaged rather than merely unable to afford a higher standard of living. And, finally, you can nominate your estate or your legal personal representative. This will mean your super benefits could be paid as per the intentions of your will.
When we talk about dependants, they are actually two different dependants. A dependant under super legislation, known as the Superannuation Industry Supervision Act, or SIS Act, meaning who is eligible to be a beneficiary of the super benefits, and a dependant for tax purposes, meaning, who can receive the benefits tax-free. The SIS Act determines who can get your super directly from your super fund without having to go through your estate, these are your SIS dependants. Tax law determines who pays tax on the taxable component of any such payment. Tax dependants receive your super tax-free. A current spouse is considered a SIS dependant, so can receive your super benefits directly, and also receive these benefits tax-free. A former spouse is not considered a SIS dependant, so is unable to receive the super benefits directly from the super fund, but if they did receive the benefits via an estate, they could receive these benefits tax-free. A child under 18 is considered a SIS dependant, so it can receive your super benefits directly, and also receive these benefits tax-free. A child over 18, who is not a financial dependant, is considered a SIS dependant, so can receive your super benefits directly, but they are not considered a tax dependant and, therefore, would be required to pay tax on the taxable components of the super benefits. A financial dependant and an interdependant are considered a SIS dependant, so they can receive your super benefits directly, and also receive these benefits tax-free.
When we talk about tax potentially being payable on the death benefits, it's important to understand what that means. The taxation of death benefits from super varies depending on many factors, including tax components within the account, which are tax-free and taxable, whether the beneficiary is a dependent for tax purposes, which we've just discussed, whether the amount is taken as a lump sum or an income stream, and, in some cases, the age of the deceased and a beneficiary. For reversionary pensions, consideration may also need to be given to the introduction of the transfer balance cap for larger account balances. Daihla, can you please explain in more detail what the tax components are?
The tax-free component of a super account includes the following: after-tax contributions, Government co-contributions, and any tax-free component of a rollover from another super fund. Whilst the taxable component is the total of the following: employer contributions, salary sacrifice contributions, personal contributions where a tax deduction was claimed, and any investment earnings. Whilst the entire tax-free portion of the benefit is received with no tax payable, there can be tax payable on the taxable component of the total benefit. The tax payable is 15% plus the Medicare levy.
Let's take a look at an example of the implications of the tax payable with John and his family. John is 60 and married to Laura, 58. They have a son, Ben, who is 20, currently studying at uni and financially dependent. They have a daughter, Meg, who is 28 and married. Meg has a daughter, Ava, aged 4, who is John's granddaughter. Sadly, John passes away, and has a total super death benefit of $400,000. This is made up of 100% taxable component. Daihla, let's assume that the full $400,000 is paid to just one of John's family members. What are the tax implications if the full amount is paid to each of his family members?
As Laura is his spouse, she is considered a SIS dependant and she can receive the full super death benefits directly, and also receive these benefits tax-free. Ben, a financially dependent child, is also considered a SIS dependant, so he can receive the full super death benefits directly, and also receive these benefits tax-free. On the other hand, Meg, a child over 18, who is not financially dependent, is considered a SIS dependant, so she can receive these benefits directly, but Meg is not considered a tax dependant, and, therefore, would be required to pay tax on the taxable component of the super benefits. This is 15% plus the Medicare levy on the $400,000 benefit. Meaning if she received the full benefit, there would be tax payable of $68,000. Finally, Ava, who's John's granddaughter, is not a financial dependant, so would not be eligible to receive the benefit and is not a tax dependant either, so would have to pay tax on the benefits. However, if Ava was a financial dependant, for example, if she lived with her grandparents, she could be dependent for both super and tax purposes. So, this highlights the importance of planning when deciding on who your beneficiary should be.
Daihla, are there considerations or strategies available to help people plan and reduce the tax implications?
Absolutely, Darryl, there are a number of strategies that we can implement to help minimise or reduce the amount of tax payable. What's important to understand though, is everybody's situation is different. So, I would strongly suggest that you seek some personal financial advice if you wish to explore this area in more detail.
Thanks, Daihla. You've certainly highlighted just how important it is to plan and consider all of the options when nominating beneficiaries. Today, you've made the first step in planning and preparing by attending our presentation. However, there are some other steps that you can take. First, you can nominate or review your super beneficiaries factoring in what we've covered today, including who you can nominate and who qualifies as a tax dependant. You should consider legal advice on your estate planning requirements, including wills, power of attorney, and any other areas that may be applicable to your situation. And you should consider seeking financial advice. Like Daihla mentioned, there are strategies that may be appropriate to you that could potentially reduce the tax implications, but advice may also provide you with a peace of mind when making decisions.
Daihla, AustralianSuper has a range of financial advice options. How can someone determine which option may be best suited to their circumstances?
AustralianSuper aims to provide help and advice to members as they need it, and we do this in three main ways. Online via our website, which has a range of tools and calculators, and information about AustralianSuper and super in general. You can speak with an advice team member over the phone for simple personal advice, covering topics relating to your AustralianSuper account, such as, your investment options, making contributions to super, insurance, and retirement income options. This advice is provided at no additional cost to members. Its cost is included in the member fee we all pay. So, I would suggest that to get the best value from your AustralianSuper membership it makes sense to seek advice as you need it. I will just note that the phone advice for retirement or transition to retirement has a small fee. For those members that prefer to meet with an adviser or maybe have more complex issues, AustralianSuper also offers access to Financial Planners based in our offices around Australia. This advice is usually provided with face-to-face or via virtual meetings. This financial advice service is at members' own expense. You can also access advice in your local area with a registered Financial Adviser. You can find all of the advice options through our Find an Adviser tool on our website.
Thanks again, Daihla, for your insights today, and explaining the finer details of beneficiaries, the tax implications, and how important it is to plan and prepare. By attending today's session, you've already taken a step in understanding how estate planning and your super work together, how you can evaluate the most appropriate beneficiaries, and what the tax implications are, and the next steps you can take today. Thanks for joining us, and we wish you all the very best on your financial journey.
Tips to boost your super
Instead of having your super in a set and forget mode, simple actions like making extra contributions when you can, knowing the different types of contributions you can make, and understanding how much you’ll need for retirement can all help improve your super.Learn more
Tips to boost your super
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Welcome, and thank you for taking the time to join AustralianSuper's Tips to boost your super presentation. Now there are many things that we enjoy planning for including holidays, starting a family, buying a home, and we tend to spend a lot of time focusing on these. However, our retirement, which could be 20 to 30 years of our life isn't often given as much time. But your super could one day be the biggest investment that you have in your life. At AustralianSuper, we aim to help members achieve their best possible retirement outcome. And in today's presentation we'll cover the tips and strategies that may be available to you to help boost your super, and to help you have the best possible retirement. My name is Linda and I'm an Education Manager at AustralianSuper, and my job is to help you better understand how super works. Now, I've been working in the super industry for over 20 years. Today I'm joined by one of AustralianSuper's Financial Advisers, Duncan Collie. And Duncan's here to help me unpack the ways in which we can boost our super. Hi Duncan, can you please tell me how you help people boost their super?
Thanks, Linda, in my role as a Financial Adviser, I help members plan for their retirement. In meeting with my clients and getting to know them, I find out what's important to them and what they want to achieve. From here we can work through the strategies that will benefit them and help them to achieve their goals.
So, before we start, it's important to understand that the information that we're covering today is of a general nature, and it doesn't take into account your personal objectives, situation or needs. So before making a decision, consider if the information is right for you, and read the relevant PDS, by visiting australiansuper.com/pds or by calling 1300 300 273 Also it's important to note that investment returns are not guaranteed, and past performance is not a reliable indicator of future returns.
So there are a number of factors that can help you to boost your super, and today we'll be covering understanding how much super you might need, learning the ways that you can boost your super through contributions, understanding how investments form an important part of your super, and learning more about the different investment options that are available to you. When you reach retirement and you're able to access your super, you may also be eligible to access the Government Age Pension. While this sounds like an easy route to a comfortable retirement, many people are unsure of how much super they actually need in retirement. For instance, do you want to spend the same you are now? Do you want to travel? What will your day to day living expenses be? It's worth thinking about what type of lifestyle you'd actually like to have in retirement. The Association of Super Funds of Australia benchmarks the annual budget needed by Australians to fund either a comfortable or a modest standard of living in their retirement. This is a good starting point to determine what type of lifestyle you'd like and how much super you may need. Duncan, can you explain to me what a modest and comfortable lifestyle are?
A modest retirement lifestyle by the ASFA retirement standards, is considered better than the Age Pension, but still only able to afford fairly basic activities. However, a comfortable retirement lifestyle by the ASFA retirement standards, assuming the retiree is healthy, provides the ability to undertake a range of leisure and recreational activities, maintain a reasonable car, afford private health insurance and make purchases like electrical equipment, household goods, and new clothes as well as being able to take an occasional holiday. This is assuming the retiree owns their own home. A budget is a great place to start in determining your own exact needs, as everyone's situation is different. The next step is then how much super do you need to provide that lifestyle?
For a comfortable lifestyle, a single person would need a super balance of approximately $545,000 at retirement. While a couple would need a super balance of approximately $640,000. A great tool to use is our Super Projection Calculator. You can see how much super you could have at retirement, and how long it could last. And the difference additional contributions could make to your super balance. The calculator is available on the AustralianSuper website and is well worth a look.
Whether retirement is on the horizon or right around the corner, it's never too late to add more to your super. There are simple ways to contribute to your super while you're still earning a regular income. So, you'll have more for your best retirement. Extra contributions can make a big difference to your final super balance and your retirement lifestyle. Plus, there are ways that you can save on tax. Duncan, can you please explain the different ways that you can contribute to super?
You can add to super in two ways. Firstly, concessional contributions, also known as before-tax contributions, which include employer contributions, salary sacrifice, tax deductible personal contributions, and reportable super contributions. For example, employer paid insurance premiums. The maximum amount you can contribute is $27,500 per year. However, you may be entitled to contribute more than this, subject to eligibility using the carry forward rule. From the 1st of July 2019, you can carry forward any unused portion of the concessional contributions cap for up to five previous financial years if your total superannuation balance is less than $500,000 on 30th of June of the previous financial year. Unused concessional contribution cap starting from the 2018/19 financial year may be carried forward in this manner.
So, let's now take a look at the carry forward rule in action. So, in this example, we're going to have a look at Sarah, and how she can use the carry forward rule. In the 2019/20 financial year, Sarah has an available contribution cap of $25,000. Now her employer pays in $10,000 as part of her employer contributions, and that leaves her $15,000 remaining cap. This $15,000 can be carried forward into next financial year So in the 2020/21 financial year, Sarah now has a total available contribution cap of $40,000. The $15,000 from last financial year is added to the concessional contribution cap of $25,000. So, her employer pays in $10,000 as part of her employer contributions, which leaves her $30,000 remaining cap. Now this amount can be carried forward into this financial year. So, in the 21/22 financial year, Sarah now has a total available contribution cap of $57,500. The $30,000 from last financial year is added to the concessional contribution cap of $27,500. So, her employer again pays $10,000 as part of her employer contributions. However, this year she makes a personal deductible contribution of $20,000 from her available funds. Now this leaves her with $27,500 remaining cap, which can be carried forward to next year, but she also has a tax deduction for this financial year of $20,000, which is based on the personal deductible contribution that she made. So, to find out how much of your concessional cap that you have available, you can log into the ATO via your myGov account and look under the super section. So, Duncan, earlier you mentioned that there are two ways to contribute, what is the second way of contributing?
The other way you can contribute to super is via a non-concessional contribution, also known as an after-tax contribution, which is made from your after-tax take-home pay. This includes non-deductible personal contributions and after-tax spouse contributions received by you. The non-concessional cap is $110,000 per annum. This is subject to eligibility, including your total super balance and bring forward arrangements. The bring forward rule allows you to bring forward up to three years’ worth of non-concessional contributions, depending on your super balance and age. For example, if you contribute $330,000 in this financial year, you wouldn't be able to make a non-concessional contribution in the next two financial years. To be eligible to bring forward, you must be under age 67, and you can contribute up to $330,000 if your total super balance on 30 June of the previous financial year is less than $1.48 million. Up to $220,000 if your total super balance on 30th June of the previous financial year is above $1.48 million and below $1.59 million, and no contributions can be made if your total super balance for the previous financial year is $1.59 million or above.
So, if your yearly before-tax income is less than $56,112 you could be eligible for a Government co-contribution if you make an after-tax contribution to your super. Under the scheme, the Government matches 50 cents for every dollar that you contribute to your super from your after-tax pay, up to a maximum of $500 per annum. This co-contribution gets paid directly into your super account after you've lodged your tax return for that year, as long as your super fund has your tax file number. So, let's have a look at an example of the Government co-contribution in action. If you have an annual assessable income of $41,112 or less, and you contribute a total of $1,000 non-concessional contributions into your account, you'll receive a maximum Government co-contribution of $500. So, Duncan, is there another type of after-tax contribution that people may be able to benefit from?
A spouse contribution is another useful contribution for those that are eligible. A spouse means a person who is legally married to you, the person who lives with you on a genuine domestic basis in a relationship as a couple, or a person with whom you are in a relationship that is registered under law of a state or territory. If your spouse is earning less than $37,000 per annum, and you make an after-tax contribution into their account, you could be eligible for a tax offset. The tax offset is 18% of the total contribution up to a maximum offset of $540, with a $3,000 after-tax contribution. If this is something you would like to consider, it's important you seek advice to see if it's appropriate. Although contribution splitting isn't an extra contribution, this rule allows you to split 85% of your before-tax contributions with your spouse. This can be done regardless of your own age, but your spouse must be either less than their preservation age, or between their preservation age and 65 and not retired. Any before-tax contributions you split are still counted towards your concessional contributions cap. For example, if your total before-tax contribution for the year was $10,000, you could split $8,500 into your spouse's account. There are many reasons that couples may utilise this strategy, and if it is something you would like to consider, it's important you seek advice to see if it's appropriate for you.
After looking at the many different ways that we can contribute to super, we're now going to look at Tim's situation after he's used the AustralianSuper Super Projection Calculator. So, Tim's 45 and he's got an annual income of $85,000 and he has approximately $185,000 in his super account. Now Tim's indicated that he'd like to retire at 65, which is two years before he would be eligible to apply for the Government Age Pension. If Tim doesn't make any changes, and he keeps receiving his employer contributions only, and doesn't make any extra contributions, he'll have a balance at retirement of $537,613. And that will give him an annual income of $44,000, which will last his life expectancy. But Tim has looked at his living expenses and he believes that he can afford to contribute extra to his super. So, he decides to salary sacrifice $20 a week. Now by doing that, he'll have a balance at retirement of $561,394 and that will give them an annual income of $46,000 which again will last his life expectancy. So, this extra $2,000 per year in retirement could equate to an interstate holiday that he may not have been able to take otherwise. So, after completing a budget, Tim has realised that he could actually afford to salary sacrifice more, and he's chosen to increase his contributions to $50 a week. So, this will provide him with a balance of $597,066 And an annual income of $47,000 in today's dollars until his life expectancy. So, this results in an extra $3,000 per year or $58 a week. Now this could mean a meal dining out each week that he may not have been able to do otherwise. Now Tim has determined that he has surplus cash and could potentially go without a takeaway meal each week. And this provides him with the capacity to salary sacrifice $100 a week. Now this will provide Tim with an account balance of $656,520 and an annual income of $49,000. Now this is an extra $5,000 per year, which could be an overseas holiday each year, or a new car every four or five years. So ultimately this has given him more flexibility with his lifestyle in retirement.
So, we've covered a lot of detail on the different types of contributions and the ways that you can add to super. For more information, visit australiansuper.com/grow Another component to your super is how your super is invested. There are many different ways to invest your money. How you decide to invest can depend on your age, your financial situation, and your personality. So, Duncan, what are some of the considerations in understanding what type of investor you are?
One of the first steps to understanding what type of investments you should have your super invested in, is understanding what type of investor you are. This means knowing yourself, the types, and levels of investment risk you're prepared to take, as well as understanding how long you're investing for. The timeframe is a very important consideration, when determining your investment choice. Your investment timeframe is how long you plan to invest your super savings before you retire, as well as how long you want your savings to last once you do retire. Take a look at the table to see how long you might need to keep your savings invested in super, based on how old you are now, and your current life expectancy. Keep in mind, the timeframes shown are averages. So, you may well live beyond these ages. So, for a 40-year-old male today, he will have another 42 years until his life expectancy. And this is how long he would like his super to last.
One of the biggest considerations is that superannuation is a long-term investment. While it can be concerning to see returns go down during periods of volatility, it's important to remember ups and downs are a normal part of the investment cycle. A look back over history can be reassuring. It shows that significant share market downturns and recessions are not uncommon, and indeed should be anticipated over a lifetime of investing. Before 2020, the last major share market downturn was the GFC in 2008. At the time, it was a very challenging period, and there were large daily swings in super balances. But the important thing to remember is that markets did eventually recover, and we experienced strong investment returns over an extended period. So as an example, if you invested $50,000 into the AustralianSuper Balanced option on 1 July 2006, 15 years ago, and left it in the Balanced option for the entire period despite the GFC and various other market corrections, your investment would have grown to $147,859 as at 30 June 2021.
Choosing the right investment option is important. It can affect how much your savings grow and how long they last. So, you can choose one or more investment options for your super account. If you prefer not to make a choice, then your super will be invested in the default investment option, which is AustralianSuper's Balanced option. So, the PreMixed options means that AustralianSuper has determined the assets and the asset allocation for each of these options. As you look down the list from High Growth to Stable, the amount of growth assets, such as shares, reduces. As the allocation to growth assets reduces, so too does the investment risk and the expected rate of return. If none of the PreMixed options appeal to you, you can make your own investment mix by using the individual asset classes listed in the DIY options. If you want to be a bit more hands-on with your investment options, then you have the Member Direct option available as well. The Member Direct option allows you to pick and choose any shares included in the ASX 300 list, a limited range of exchange traded funds, and even some term deposits. Our investment options are quite flexible, so you could have all of your account invested in just one option or spread across multiple options.
A good place to start in making this decision is to read the AustralianSuper Investment guide, which is available australiansuper.com/investmentguide This guide can help you make your decision. So, you'll look at your investment needs and then go through your options in more detail. Alternatively, you can speak to a phone-based Financial Adviser, who can look at your situation and provide advice on the most appropriate investment option for you.
So here we're taking a look at the performance of the Premixed options over 1, 5 and 10 years. When looking at investment performance for super funds, it's important to look at the long-term performance. As super and retirement is a long-term objective. You're likely to be in a super fund for well over 30 or more years of working, and then many more years of retirement. So long-term performance is important. I just mentioned that the AustralianSuper Balanced option is our default investment option. So, you can see from the table that the Balanced option and all of the other PreMixed options have performed very well over the short term and the long term. With the Balanced option achieving 20.43% last year, but most importantly, 10.44% over the last rolling five years to the 30th of June 2021, and 9.73% over the last rolling 10 years. So, let's take a closer look at the performance of the Balanced option over the long term.
The investment mix of the Balanced option will produce returns that vary year by year, depending on how each of the asset classes perform. This chart shows the performance of the Balanced Investment option as a 30th of June 2021, over a number of different time periods, ranging from one year, right through to when AustralianSuper began back in 1985. AustralianSuper's returns are shown in the orange bars, and the blue bars represent the median return as published in the SuperRatings SR50 Balanced Index survey. So, what does this chart tell us? This chart shows that AustralianSuper has outperformed the median balanced fund, over each of the reporting periods shown. Now we need to remember the past performance doesn't indicate future performance, and investment returns in the future are not guaranteed. As I mentioned, it's important when looking at investment performance to focus on the long term, as super is a long-term investment. You can view our investment performance and read investment articles on our website at any time at australiansuper.com/investments
So far, we focused on helping you to work out what type of investor you are, how comfortable you are with investment risks, and what amount of control you want. Here are a few other things to consider when making your investment choice, as well as some ways to help manage your investment strategy and minimise your risk. Focus on your long-term needs. And remember, that it's normal for markets to change both up and down. If you're not comfortable with your investments, review them, and seek some professional financial advice, and make your investment decisions based on informed factual research. As mentioned, a great place to start in understanding your investment options is with the AustralianSuper Investment Guide. You can download a copy at australiansuper.com/investmentguide or you can speak to an AustralianSuper phone-based Financial Adviser in order to receive the advice on the best option for you. So, we've covered a number of tips and strategies about boosting your super in today's presentation. Now it's important to us that you have the tools and the help and advice available to make the appropriate decisions for you.
So, we've discussed a number of helpful resources today. To estimate your super retirement, please check out our Super Projection Calculator at australiansuper.com/super-projection-calculator For more information on contributing to your super, please visit australiansuper.com/grow And finally, to learn about your investment options, download a copy of our Investment Guide at australiansuper.com/investmentguide Now, these are just some of the tools and resources that are available to you to assist you to boost your retirement savings and to achieve your best retirement outcome. So, Duncan, you spoke earlier about your role as a Financial Adviser. Can you give us an overview of the role that financial advice can play in boosting super?
It's never too early or too late to get financial advice. Seeking advice can help you get a plan in place and on the way to achieving your retirement goals, we'll consider things such as maximising your current income, reducing tax, increasing contributions, to super, focusing on any non-deductible debt and reviewing your risk profile. We can then start visualising what retirement might look like for you.
Now AustralianSuper has a range of different financial advice options, so how can someone determine which option may be best suited to circumstances.
AustralianSuper aims to provide help and advice to members as they need it. And we do this in three main ways. Online via our website, which has a range of tools and calculators, and information about AustralianSuper and super in general. You can speak with an advice team member over the phone for simple personal advice, covering topics relating to your AustralianSuper account, such as your investment options, making contributions to super, insurance, and retirement income options. This advice is provided at no additional cost to members. Its cost is included in the membership fee that we all pay. So, I would suggest that to get the best value from your AustralianSuper membership, it makes sense to seek advice as you need it. I'll just note that phone advice for retirement or transition to retirement has a small fee. For those members who would prefer to meet with an adviser, or maybe have more complex issues, AustralianSuper also offers access to Financial Planners based in our offices around Australia. This advice is usually provided with face-to-face or virtual meetings. The financial advice service is at the member’s own expense. You can also access advice in your local area with a registered Financial Adviser. You can find all the advice options through our Find an Adviser tool.
By attending today's session, you've already taken a step in learning more about making the most of your super. I encourage you to look at what is available to you and determine what is the best course of action for you. We thank you for attending and wish you all the very best with your financial journey.
The Government Age Pension – are you eligible?
Many Australians in retirement receive either a part or full Government Age Pension. And the good news is you don't have to use all of your super before you can access it. Learn how the Government Age Pension works, the eligibility criteria, and what income and assets impact it.Learn more
The Government Age Pension – are you eligible?
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When you think about your retirement and how you're going to fund it, you may only consider your super balance. But around 62% of Australians over the age of 65 receive a part or full Government Age Pension payments, and the two can work together to support you in retirement. These extra payments can support your super and help you manage your retirement budget. The balance between super and the Age Pension is different for everyone, but understanding both can help you feel more confident about your retirement.
My name is Claire and I'm an Education Manager at AustralianSuper. My job is to help you better understand how super works and I have been working in financial services for over 14 years. I'm joined today by AustralianSuper Financial Planner Kevin Moore to help us understand how your super and the Government Age Pension can work together. Welcome Kevin, can you please tell me how you help people, in particular, when it comes to their retirement and the Age Pension?
Thanks, Claire. My job as an AustralianSuper Financial Planner is to assist AustralianSuper members and would be members to get their best possible financial outcome, and for most people, that's their best possible retirement outcome. It's a fact of life that most Australian retirees will get a part or full Centrelink pension, so it's an integral part of any planning that we do to make sure that any of our AustralianSuper members who are looking at retirement to see whether they're eligible for any benefits, and for us to assist them to maximise those benefits, if possible.
Before we start, it is important to understand that the information we are covering today is general financial advice, and doesn't take into account your personal objectives, situation or needs. Before making a decision, consider if the information is right for you and read the relevant Product Disclosure Statement by visiting australiansuper.com/pds or by calling 1300 300 273. Also, it's important to note that investment returns are not guaranteed, and past performance is not a reliable indicator of future returns.
Most people attending today may have some understanding of the Age Pension and how it works. It is a regular fortnightly income payment from the Australian Government to provide financial support to retirees, and it is subject to a range of eligibility criteria, including your age, your assets, and your income levels. But most importantly, it can work together with your super to top up your retirement income. A common question we often hear is, do I have to wait until my super runs out entirely before I can apply for the Age Pension? And the answer to this is usually no, you can still have a super balance and other assets and income and apply for the Age Pension, as long as it's within the income and assets test limits, which we will cover today.
As I've mentioned, your level of income and the value of your assets affect the payment rate of your pension. There are different Age Pension rates for singles, couples, and homeowners. If you're in a couple, whether you're married, separated, or living with a de facto partner, can also affect your payment rate. Generally, Services Australia will consider you to be in a couple if you're married, in a registered relationship, or in a de facto relationship. From the 20th of September 2021, the maximum fortnightly Age Pension payments are $1,458.60 combined for a couple, or $729.30 each, and $967.50 for a single person. When looking to apply for the Age Pension, the first factor when it comes to eligibility is your age and residential status. When it comes to super, retirement and the Age Pension, there are two important numbers you need to be aware of, your preservation age for super and your Age Pension qualifying age. Kevin, can you please step us through these two important considerations?
Super could form a major part of your retirement income, so it's important to understand when you can access it. Your preservation age is the minimum age you must reach before you can access your super, and it varies depending on the year you were born. In addition to reaching your preservation age, to access your super, you need to have permanently retired, or want to transition to retirement while you're working, or have changed jobs on or after turning 60, or have turned 65, even if you're still working. You will see from the table that if you were born before the 1st of July 1960, your preservation age was 55. That gradually increases up to age 60 for those who were born after the 1st of July 1964. We find that preservation age is often confused with the Age Pension qualifying age, which, in fact, is quite different. If you're eligible for the Age Pension, you will be able to apply for it when you reach your qualifying age. As you can see, your qualifying age is higher than your preservation age. That means that even if you've reached the age you can access your super, you may be a number of years away from being eligible to receive the Age Pension. The Age Pension qualifying age increases in line with your age. For example, if you were born before the 30th of June 1952, you would have qualified for the Age Pension from age 65. If you were born on or after the 1st of January 1957, your eligibility for the Age Pension will occur when you turn 67. Between these dates, the Age Pension qualifying age increases incrementally. You can work out from the table when you will be eligible for an Age Pension.
In most cases, being eligible for the Age Pension means being an Australian resident who has lived in Australia for at least 10 years. You must have lived in Australia for at least five years consecutively. You also need to be in Australia on the day you apply for the Age Pension. If you're not an Australian resident, there are some circumstances in which you could be eligible for the Age Pension. For example, those who have lived or worked in a country that has a social security agreement with Australia, and refugees. If you meet the age and residential requirements, your eligibility depends on two tests: an asset test and an income test.
As we've discussed, the value of your assets determines your eligibility for the Age Pension, as well as the payment rate you receive. To have the value of your assets determined, they're subject to what's called an assets test. Kevin, can you please explain what assets are assessable and which are exempt?
The asset test takes into account the value of the assets you own. This includes investments such as shares, cash, term deposits, bonds, includes super and retirement income accounts, yours and your partners, household contents, a car, property, although generally it doesn't include your principal home and up to two hectares of the land it's on. It's important to note that assets such as your household contents are the fire sale value, not the insured value. So, if you had a garage sale today and put everything you own on the front lawn, how much would you have in your hand at the end of the day? That is the value of your assets as considered by Centrelink. The test also considers assets that may not seem obvious. These include any deposits you may have paid on a granny flat or retirement village for the rest of your life and includes any gifts or assets you might have given to family members or friends. There are also assets that are exempt from the test, including your primary place of residence and surrounding land, up to two hectares on the same title. Some properties larger than two hectares on the same title, in some circumstances. It includes super accounts if under Age Pension age. So, for example, if your spouse or partner is under the Age Pension age, their super would not be assessed by Centrelink. And it also includes funeral bonds and cemetery plots. It's also important to understand the rules around gifting. The first thing regarding gifting is if you want to give money away or help out a loved one, you can. It's your money, you can do what you want with it. However, if you are receiving the Age Pension, it can impact on how much you may receive. It is considered gifting when someone gives away an asset or assets, or transfers, or sells an asset for a value that is less than market value. There are some allowable limits where you can gift without it adversely impacting your Age Pension payment. This is $10,000 per year, but not more than $30,000 over a five-year period. If you're a couple, that $10,000 and $30,000 is for both of you, not as individuals. After five years, the gifted amount is no longer assessable. The asset test has different thresholds for singles and couples, and whether you're a homeowner or a non-homeowner. If assets are below the lower threshold, you're eligible for the full Age Pension under the assets test. As the value of your assets increase, the amount of pension decreases. If your assets are over the upper threshold, you will not be eligible for the Age Pension. For example, a single homeowner would be eligible for a full Age Pension with assets below $270,500. Between that amount and $593,000, they could be eligible for a part Age Pension. Above that upper amount, they would not be eligible for any Age Pension payment.
For many Australians, measuring income isn't as simple as just looking at a payslip. Income can come from a variety of sources, such as investments and interest on savings. When it comes to the Age Pension, your combined income has to be under a certain limit for you to be eligible for payments, similar to the assets test. To assess your Age Pension eligibility in relation to the income test, the Government looks at your total earnings across all your income streams. This total income value along with your total asset value will determine if you're eligible for the pension, and how much your pension payments will be. Just like the asset test, the income test has different thresholds for singles and couples. If your income is below the lower threshold, you are eligible for the full Age Pension. As your income increases, the amount of pension decreases. If your income is over the upper threshold, you become ineligible for the Age Pension. For example, as at September 2021, a couple combined could be eligible for a full Age Pension with a total income below $8,320 per year. Between that amount and $84,167.20 per year, they could be eligible for a part Age Pension. Beyond that amount, they would no longer be eligible for any Age Pension. The income test looks at all income sources. This includes employment income, wages you might earn from working, or money you might receive from businesses you own. It also looks at investment income. This include your super and income created from financial assets, such as savings accounts, managed investments, and shares. Income sources exempt from the test include rental assistance payments, child support, emergency relief payments, and regular payments from a close relative.
To assess the income from your investments, the Age Pension income test uses a set of rules known as deeming. Deeming works by assuming your financial investments are earning a certain amount of income, rather than considering what they're actually earning. The rate your investments are deemed to be earning is set by the Government and is known as the deeming rate. For example, for a single person, the first $53,600 in investment assets have a deeming rate of 0.25% applied, and any asset value above that amount, they have a deeming rate of 2.25% applied. When you compare this to your potential super returns, you could actually be earning more on your super or account based pension than the deeming rate that is applied.
There are a couple of other considerations and strategies that come into play if you are receiving or hoping to receive the Age Pension or are retired. Kevin, can you briefly explain what some of these are?
One of those considerations is the Work Bonus. I find many people get asked to come back and help out at work on a casual basis after they retire, or even find that they miss the social aspect that work brings. The Work Bonus refers to an exempt allowable amount of earned income from work, which includes self-employment for Age Pensioners. The first $300 per fortnight is exempt from the income assessment and can accrue for up to 12 months. This can be really helpful if you get asked to go back to work for a couple of weeks, as you can potentially do this with no impact to your Age Pension payment. There is also the Pension Loan Scheme, which is a voluntary reverse equity mortgage that offers older Australians a fortnightly income stream to supplement their retirement income. It draws down on equity in property owned in Australia. The loan can be repaid in full or part at any time. The full amount of the loan plus interest owed at the time of death of the person will be recovered from the person's estate. Where I find this type of scheme is helpful is people who have not been able to accumulate much in super and need more than the current full Age Pension to meet their income needs.
For those members that are not eligible for the Age Pension, there is the consideration of the Commonwealth Seniors Health Care card. This entitles the holders to concessions and discounts on everyday items to reduce the living expenses of retirees, and therefore reducing the need to draw on their retirement funds. This is income-tested, but not assets-tested. The majority of people I see that aren't eligible for the Age Pension are mostly able to qualify for this card, due to the current low deeming rates. Furthermore, those who have not yet reached their qualifying age may be eligible to claim the Low Income Health Care card. Checking eligibility for these types of concession cards are part of the advice process.
Although not an Age Pension or Government benefit, the downsizer contribution is a very useful strategy for retired or older Australians. If you're 65 or over and sell a property that has been your main residence for 10 or more years, you could be eligible to contribute to super via a downsizer contribution. This may be suitable if you want to sell your home and use any surplus funds to boost your retirement savings. You can add up to $300,000 per person into super, regardless of your work status, super balance, or what you've already contributed under the ordinary concessional and non-concessional contribution caps. However, one area to be aware of is that moving funds from a non-assessable asset for the Age Pension into an assessable asset may have implications for your Age Pension payment. It's also important to note that the contribution needs to be made within 90 days of settlement, so it might be worthwhile to seek advice prior to ensure that this is appropriate and has been planned before settlement.
If you're eligible for the Age Pension and approaching retirement age, you don't have to spend all your super before you're eligible for pension payments. You can draw payments from your super to top up any Government pension payments you're entitled to. You can do this by setting up an account based pension from your super. AustralianSuper's account based pension is called a Choice Income account.
As I mentioned earlier, a common question we're often asked is, do I have to wait until my super runs out entirely before I can apply for the Age Pension? To look at this in action, we're going to take a look at Sally's situation. Sally is 66 years of age and is retiring now. Sally has a super balance of $500,000. She also has $100,000 in assets outside of her super, which will be assessed by Centrelink. She would like an income of $40,000 per year in retirement. Using our Super Projection Calculator, we can have a look at how Sally's super could work together with the Age Pension.
So, let's have a look at Sally's situation. The graph here demonstrates Sally's retirement outcome, with the orange bar being the income received from Sally's super income stream, and the blue bar being Sally's annual Age Pension benefit. The blue line that runs across the top represents her income goal of $40,000 per year. In year one at age 66, Sally is not eligible for the Age Pension as she exceeds the assets test limits, so she's fully reliant on her super. These funds deplete slightly, meaning she dips under the assets test threshold in year two and receives a small part Age Pension. Over time, as Sally uses more of her super savings, her Age Pension entitlement increases, meaning she draws less and less from her super to fund her living expenses. Visually you can see this with the orange bar gradually becoming smaller over time, and the blue bar becoming larger. This means, as time goes on, she receives a higher Age Pension benefit. Her super will then last her until 95 years of age, 10 years beyond her life expectancy of 85. From 95, she will be solely reliant on the Age Pension benefits.
This example gives us a clear picture of how the Age Pension and super can work together, and how your eligibility can change over time. This is something you can continue to review and revisit to ensure you maximise your entitlements if and when you are eligible. You can learn more about the Age Pension and the rules that are applied at servicesaustralia.gov.au/agepension To understand more about how your super savings and the Age Pension can work together, please visit australiansuper.com/agepension And finally, to see what your retirement outcome could be, please visit the AustralianSuper Super Projection Calculator. Kevin, you spoke about your role earlier as a Financial Planner, can you give us an overview of the role financial advice can play in the journey to retirement?
It's never too early or too late to get financial advice. We help people when they reach Age Pension age, when there may be some opportunities to maximise Age Pension payments. Maybe you've received estate proceeds or considering downsizing your home. We will consider all of these strategies and any concessions or benefits you may be entitled to.
AustralianSuper has a range of financial advice options. How can someone determine which option may be best suited to their circumstances?
AustralianSuper aims to provide help and advice to members as they need it, and we do this in three main ways. Online via our website, which has a range of tools and calculators, and information about AustralianSuper and super in general. You can speak with an advice team member over the phone for simple personal advice, covering topics related to your AustralianSuper account, such as your investment options, making contributions to super, insurance and retirement income options. This advice is provided at no additional cost to members. Its cost is included in the member fee that we all pay. So, I would suggest that to get the best value from your AustralianSuper membership, it makes sense to seek advice as you need it. I will just note that the phone advice for retirement or transition to retirement has a small fee. For those members that would prefer to meet with an adviser or maybe have more complex issues, AustralianSuper also offers access to Financial Planners based in our offices around Australia. This advice is usually provided with face-to-face or virtual meetings. This financial advice service is at members' own expense. You can also access advice in your local area with a registered Financial Adviser. You can find all the advice options through our Find an Advisor tool.
Thank you for taking the time to attend today's presentation to look at how the Age Pension can work with your super, the eligibility criteria, and some of the other strategies and considerations that may be available to you as you navigate your retirement. Thank you, and we wish you all the best on your financial journey.
Annual Member Meeting
AustralianSuper held the 2021 Annual Member Meeting (AMM) on 4 November 2021. At the AMM, members heard from the Board and Executive Team about how the Fund is performing, and the outlook for the year ahead. A recording of the AMM is available to watch on demand.Watch now