Sacrifices now may pay off later

The choice between spending now or later will always depend on an individuals’ circumstances. But for anyone close to retirement, there are definite advantages to consider making sacrifices to put more into superannuation.

The money invested within the superannuation system carries with it tax benefits which if used properly can result in a substantially higher capital balance and income in retirement. Someone on the highest marginal tax rate who puts pre-tax dollars into superannuation is investing 85 cents of every dollar earned rather than 55 cents of every dollar earned. In addition, any income generated inside superannuation is also taxed at 15 per cent, rather than at the individual’s marginal tax rate.

Once a person reaches age 60 and retires, or age 65 if they haven’t retired, they can withdraw money from their superannuation account free of tax. The government trade-off to the tax advantages of saving for retirement in superannuation has been to restrict access to superannuation savings until retirement and to limit the amount of pre-tax dollars that can be contributed each year.

Exercise caution to avoid penalties

From 1 July 2012 the cap on concessional contributions is $25,000 a year for everyone, irrespective of age.

In previous years those aged over 50 could contribute up to $50,000 a year, which may have made it easier to save more in superannuation a few years out from retirement. Anyone contributing above the new concessional cap will be subject to penalty tax rates, regardless of whether it was an innocent mistake. Seeking advice from a financial adviser on your superannuation contribution strategy can help to ensure that you remain within the contribution caps.

Concessional contributions can come from the employer compulsory Superannuation Guarantee, additional salary sacrifice contributions and personal contributions where a tax deduction has been claimed – such as the self-employed. Contributions can also include an employer paid portion of an
employee’s insurance premium held in superannuation or payment of insurance premiums by an individual for insurance only superannuation products.

People aged 50 and above who already had in place salary sacrifice arrangements with their employer, based on the previous $50,000 cap, should be particularly mindful of the changes. They will need to change their existing contribution levels to ensure they do not breach their contribution caps and they should speak to their adviser about alternative retirement saving plans.

Contributions to superannuation can be made from after tax dollars, but there are also limits around this. Generally an individual can make non-concessional contributions of up to $150,000 each year or $450,000 in a three year period up until age 65.

Anyone who is unsure whether their concessional or non-concessional contributions may breach the annual caps should speak with their adviser.

Kids and money

In today’s electronic age, teaching children about money is much harder than in the old days of piggy banks and savings books.

Digital transactions are difficult for a child to understand. All they see is you giving a card to a salesperson and then being handed the goods. How can they be expected to learn about the value of money in this era of cashless and almost invisible transactions?

The government-sponsored Financial Literacy Board is now piloting a new education program that will integrate the teaching of money management skills in English and maths classes in Australian primary schools.


While this initiative is commendable, children begin to develop attitudes to money before they start school.

Let your children watch you do online banking so they can see how much money you have and how it is managed each month to pay for recurrent and unexpected living expenses. Explain the reasoning behind your budget and how it helps the family to take holidays or go to the football.

Pocket money

Pocket money can teach children many lessons. You may want your children to earn their pocket money by doing a household chore and then make them save some of the money to create a savings discipline from an early age.

If you go down the savings road, compare the different children’s accounts offered by banks and credit unions. While some institutions continue to offer rates of less than 1 per cent, others are paying as much as 6 per cent. Most banks no longer impose accountkeeping fees on children’s accounts, but there may be charges levied for making withdrawals. Alert your children to such fees and how they may erode the annual return on their savings. After the account is opened, you should encourage your child to regularly check their account so they can appreciate the benefits of compound interest.

For teenage children, you might raise the prospect of setting up a trust in their name through which your child can invest some of their savings in a managed fund or shares. This can be a daunting task for a parent and it may be useful to talk to one of our financial advisers about the various ways this can be done. Money pervades all parts of life and should be a regular topic of discussion for families. The sooner children come to grasps with money and investments, the better placed they will be for future financial success.

Let us know what you do to educate your children about money

Power of Attorney – taking the first step

Giving your power of attorney to someone is a major step. It means giving them the right to make financial and other decisions for you if you are not able to do so.

While their names and specific rules vary among the Australian states, there are four different types of power of attorney.

General: gives your financial decision-making powers to someone else until a specific date. It lapses on that date or if you become incapable of making your own decisions.

Enduring: gives another person (or persons) the power to make your financial and legal decisions, and continues to apply even when you are no longer capable of decision making.

Enduring Medical: appoints a person or persons to make decisions regarding your medical treatment on your behalf if you are not capable of doing so. (This is not a ‘Living Will’, which is a document recording your express wishes regarding resuscitation and other important medical decisions).

Guardianship: empowers someone to act for you in all areas of your life should you be incapable of making decisions. It is not strictly a power of attorney but it works like one.

To sign over power of attorney you must be capable of appointing someone and understand the implications of your action. But what happens if you haven’t signed a power of attorney and an accident or medical condition removes your option? In that case, a statutory official – a Public Advocate or Guardian – appoints a guardian for you. The appointee may or may not be a family member or close friend, and as a result, decisions regarding your life and finances could possibly be left to the Public Trustee.

Most states also have a body which can review enduring powers of attorney, remove an attorney, or substitute one if the original person is no longer able to fulfil that role; or require the attorney to provide accounts or submit a financial management plan. You can buy or download a standard Power of Attorney form, but if your financial affairs are complex or cross state borders, or you have estate planning issues, you should discuss the details with your financial adviser who may recommend that you also need legal advice.

Take action now, because by the time you need it, it may be too late. Give us a call to review your options

Super is still super – Part 2

What’s changed?

With the super contribution changes that came into effect on 1 July 2012, the concessional contributions cap for Australians remains at $25,000, with a two-year deferral for a planned higher cap of $50,000 for those aged 50 and over and with super balances below $500,000.2

While those wanting to build their retirement savings in their 50s and 60s may be disappointed, it’s important to remember that the change does not detract from the value of superannuation.

Other changes to superannuation that came into force were also contributions-related. To provide incentive to those people earning less than $37,000 a year to contribute to super, the Federal Government will now refund the 15 per cent contributions tax. This translates into up to $500 and will be refunded directly into their super accounts.3 At the other end of the scale, it is proposed that those people earning more than $300,000, who generally have much higher super balances, may face a doubling of the contributions tax rate from 15 per cent to 30 per cent.4

For people who are eligible to receive a co-contribution payment, there is a proposal to drop the maximum entitlement from $1,000 to $500. In practice, this means you could receive a 50 per cent co-contribution for a $1,000 contribution if you earn less than $31,920. Above that, your co-contribution would reduce until it cuts out at $46,920.5

At a time when the Federal Government is determined to return the Budget to surplus, it is not surprising that some of the tax concessions for super have been fine-tuned.

Super remains a sound investment vehicle for anyone looking forward to a tax free, or a relatively low tax environment in retirement. Keeping your eye on the future and working with your adviser to factor in the changes will ensure your super continues working for you.

Let us know what you think the current Governments change to Super has done for you?


Super is still super

Regular tweaks to superannuation don’t change the fact that it remains the best way to save for your retirement.

And the key reason is its tax effectiveness as you build towards retirement, as well as in retirement.

When you salary sacrifice into super, you only pay 15 per cent tax rather than your marginal tax rate (if you earn less than $300,000 a year) and zero tax if you earn less than $37,000. In addition, your earnings in the accumulation phase are taxed at 15 per cent compared with investments outside super that are taxed at your marginal tax rate, which could be as high as 46.5 per cent. Once you have turned 60 and move into the pension phase, none of the money earned within super nor your withdrawals from the fund are taxed.¹

Next time we will discuss the changes to Superannuation and what it means to you.

Let us know what you think of Superannuation and how the Government could improve it!



Are you ready to live the good life?

While retirement might seem a long way off, planning early is more important than ever as the choices you make today can have an enormous impact on the kind of lifestyle you will enjoy in retirement.

We understand that retirement marks new beginnings with many challenges and important changes along the way. It can also be an exciting time for many people. To help set you on the right path, we’d like to offer you a complimentary book, ‘Choosing the Good Life’.

The book offers some insights into retirement and looks at some of the most common strategies that can help you plan for a healthy (and wealthy) retirement.

Part one provides you with background information on the findings of an Australian retirement research project known as Retire 200, which sought to discover why moving to retirement is easier for some than for others. It also explores the four essential factors that contribute to a happy and active retirement – health, finance, relationships and activities.

Part two compiled by AXA Australia focuses on the importance of financial retirement planning. It contains information on how long we will live in retirement and how much we will need to live a comfortable lifestyle, as well as how to guard against inflation. This section also provides you with an overview of some of the common strategies that can help maximise your retirement savings. Even if you’ve already got a comprehensive financial and lifestyle plan, the book could be a useful resource to ensure that you’re on the right path.

Getting the right advice

For some things in life we are best getting specialist advice – like asking an architect to map out plans for a solid house. A financial adviser can help you make a well structured plan to build the retirement lifestyle you want.

Choose the good life today.

The first ten (10) people to comment on how they are tracking towards their retirement will receive a complimentary copy of Choosing the Good Life.

We look forward to helping you plan your own version of the good life.

Y’ is it so? The financial challenges facing Generation Y

The range of definitions to describe “Generation Y” is about as wide as the wings of an A380. Not even birth dates are agreed, but for argument’s sake let’s use the widely accepted range of 1982–2000.

That means the youngest Gen Y-er is barely out of secondary school while the oldest is lamenting a fairly recent 30th birthday.

In a News Limited feature,¹ writer Bryan Patterson labelled Gen Y, who number almost 5.5 million Australians, as “hip, smart-talking, brash, impatient … with a BlackBerry in one hand, take-away coffee in the other and an iPod-plugged earphones surgically attached to ears, they are ambitious, demanding and apparently born to rule. Right now!”

A single word in that description might cause alarm: impatient. That is not a characteristic that sits easily with building a sound financial base.

Of the record 3.7 million new credit-card applications last year, almost a third were from those aged 18 to 27. A third of people failing to pay their bills are Gen Ys, according to Australia’s biggest consumer credit check company, Veda Advantage, said.² But as reported by strategic research company RFi,³ Generation Y is driven to seek the most accurate information from those who have experience and knowledge in areas where they fall short. When it comes to money matters, Gen Ys looking to set short and medium term goals are keen to find a financial adviser.

So what can a Gen Y expect from sitting down with an adviser?

The first step is to clarify objectives and possibly run through a goal-setting exercise, so that a clear plan of action can be worked out. A plan doesn’t need to cover everything from A to Z but it might focus initially on how to protect income in the event of accident or illness, manage debt, and kick start investments.

Reviewing and refining the plan at agreed intervals to ensure things remain on track is also important, particularly when there are job or relationship changes, or if investment advice is needed.

Rather than being risk averse, Gen Y have been used to superannuation all their working lives and have seen global share markets rises and falls.

All investors have had to grapple with market volatility in recent years, but Gen Y have cut their financial teeth on it and are now well equipped to remain patient while they build their financial strength.

1 A-Z of Generation Y, Herald Sun, July 8, 2010

2 Australia’s Debt Divide Deepens report, Veda Advantage,March 13, 2008

3 Gen Y the most financially conscious following fallout report , RFi

Women and the super myth Part 1

Careful retirement planning is important for all Australians, but it’s especially important for women.

The pay disparity between men and women, combined with the different lengths of time each group spends in the workforce, means many women end up with much less super in retirement than their male counterparts. The ongoing casualisation of many traditionally female jobs and the fact that much unpaid work falls largely to women further compounds the problem.

When a woman takes a break from paid work to raise children or care for family members, she not only forgoes her wages, but also a portion of her retirement savings, as superannuation payments are linked to paid work.

The figures make stark reading. A 30-yearold woman with an annual salary of $50,000 who takes six years out of the workforce could miss out on $58,000 in retirement savings by the time she is 65.*

According to the Association of Superannuation Funds of Australia, in 2006 the average superannuation balance for women was half that of men: $35,520 compared with $69,050. And the average retirement payout for men is more than double that of women: $136,000 compared with $63,000.†

The current 9 per cent superannuation guarantee paid by employers is already deemed to be insufficient to fund a comfortable retirement according to the Labor Government which plans to increase compulsory super contributions. This leaves most women reliant on the pension to fund their retirement either in part or in full. Meanwhile more than half of women in their 60s have no superannuation at all, reflecting lower rates of participation in the workforce and the relatively recent introduction of the superannuation guarantee in 1992.

The problem is increased by the fact that many women believe their partner’s superannuation will be enough to cover them both and they don’t worry about having a Plan B.

Women need economic independence, regardless of how supportive and generous their partners are, in order to have a sense of control and help them to make their own financial decisions.

Sadly, relying on a partner for support may not be an option for all women.

Next time we will look at a couple of staregy options to maximise your contributions.

* This example is calculated using ASIC’s FIDO Superannuation calculator – byheadline/Superannuation+calculator?openDocument – and based on various assumptions including, but not limited to: an annual salary of $50,000, six years out of the workforce, super invested for 30 years, a return of 7 per cent pa, with all earnings reinvested, no administration fees or charges deducted, no salary-sacrifice contributions, no after-tax contributions, invested in a balanced portfolio (ie $232,000 – $174,000 = $58,000 is lost super).
† Clare, Ross 2008 ‘Retirement Savings Update’, ASFA 2008 – aspx,

Don’t forget your Super contributions


We are now two (2) months into the new financial year and we are receiving calls from clients still unsure about the changes to the concessional contributions cap (the contributions that go to Super before tax). As of 1/7/12 Australians … Continue reading