In conversation with the experts: Taking control of your superannuation

There are some pretty simple decisions that people always seem to miss out on making that could massively help their retirement savings. So we asked the Responsible Investment Association of Australasia to recommend three advisers willing to spill their best tips so you can avoid making common mistakes.

Australia is on track to have the oldest pension age in the developed world by 2035. It’s also estimated that most Australians aren’t going to have enough money to comfortably retire. This is why raising financial literacy is so important – so people can plan properly and contribute enough early in life so that they have better financial security and so their super can work for them later in life.

A simple approach most financial experts will share is to check in with your finances every time you experience a ‘life event’. It makes sense to check on your spending, saving, super and insurances to ensure you are on track and covered for any potential risks.

Apparently, one of the most common mistakes made when it comes to our finances is not recognising what a life event is. Or being so caught up in the moment that we forget to consider how it’s going to impact our finances.

So here are some savvy insights from three ethical financial advisers to help you stay on track. Of course everyone’s circumstances are different, so we always recommend chatting to a financial adviser, who will take into consideration your personal circumstances and help you make decisions.

A ‘life event’ is the term used in the wealth sector to describe a substantial shift in your circumstances. This might be something like changing jobs, moving in or breaking up with a partner, starting a family or starting or stopping full-time work.

Getting a new job

You’ve just got your dream job – not only does it align with your ethics and sense of purpose, but the pay packet is considerably more than in your previous job. But before you go out and splurge your cash on a new ethical wardrobe, ask yourself – what would the future ‘me’ have to say about what to do with my extra money?

Adviser: Stuart Barry, Tas Ethical (Hobart, Tasmania)

“Ok, so you got an increase in your salary, but it’s not always a good idea to give yourself a pay rise for your day-to-day expenses too. Sure, you could just pocket the extra money, or even just add it to a savings account – but there are actually some even smarter ways to approach your windfall.

“First of all, it’s worth making sure you consolidate your super from all your previous jobs into the one account for your new job. That way you’re avoiding paying more fees than you need to be. In 2017, the Australian Tax Office announced that 40% of Australians have multiple super accounts.

“But be careful if you’re switching from one super fund to another as there might be a short period where you aren’t covered by insurance – so make sure your insurance has kicked-in with the new fund before closing your old fund account. People have unfortunately been caught out with a serious illness without insurance while in-between funds, or find out too late that their new insurer won’t cover them because of a pre-existing condition.

“On the topic of insurance, if you’re changing careers you might now be at a new risk level. So the cost of your insurance might go up or down depending on how different your new occupation is to your previous one.

“And last, but definitely not least, the wisest people aren’t the ones who get the significant pay rise, but the ones who add to their future savings now. One way of doing this is to consider salary sacrifice (within the set limits). Salary sacrificing means arranging with your employer for some of your pre-tax salary to go into your super account. But doing it can be a major bonus and boost how much super you’ll potentially have to retire with. Another benefit of this strategy is that you’ll reduce the amount of your income that is taxed at a higher rate, meaning that your overall tax paid will be less.”

How much money do I need to retire?

The Association of Superannuation Funds of Australia (ASFA) has done research into how much income is required to live a comfortable lifestyle in retirement. On average, a comfortable standard for singles who are 65 years old is around $44,000 per year, and $60,000 for couples – but that doesn’t take into account inflation or big purchases such as a caravan or yacht if you really want to embrace the lifestyle of a grey nomad. For more detailed information, visit ASFA.

Living with a partner for 12 months

You’ve reached a relationship goal – 12 months of living in each other’s pockets and you’re still completely captivated with each other. But be aware that money is one of the most common reasons why couples break up. So rather than becoming a statistic, how can you take positive steps to make sure that money doesn’t get in the way of your life partner wanting to remain your partner for life?

Adviser: Michelle Brisbane, Ethical Investment Services (Melbourne, Victoria)

“You might not know it, but if you’ve lived with your partner for more than 12 months, under Australian law any money in your own bank, investment and super accounts isn’t necessarily only your own – but also that of the person you’re in a serious relationship with. In some cases, debt of one partner is also the responsibility of the other. So it’s a good idea to have a conversation with your partner to agree on common goals for the total of your combined assets.

“Your super is likely to be the biggest investment you’ll ever make – next to buying a house – so a romantic candlelit conversation about super with your partner is just as important as the one where you brainstorm about your dream house together.

“Speaking of your dream home, from July 2017 a fancy new rule was implemented that allows first home buyers to draw on their super for a home deposit. To help save for a deposit, the First Home Super Saver Scheme will let you make tax-free contributions into your super account, but it is capped with limits. You and your partner might like to consider maximising how much you can put into or draw from both your super accounts.

“Bear in mind that regulations can change at any time, so you won’t want to be left high and dry if the rules suddenly change.

“If you earn significantly more than your partner, there might actually be some tax benefits to splitting your super by depositing what are called spouse contributions. This means you could gain tax benefits of up to $540 if you rollover a lump sum – within limits – of your super into your partner’s account. The idea is it allows your partner to grow their nest egg more than they might normally on their lower wage, and using this pre-tax money can be more cost effective for both of you than putting savings into a bank account.

“There’s another rule around contribution splitting which means you can ask your employer to split your super contributions between your account and your partner’s. Making regular contributions might only seem like small pennies at the time, but with the effect of compound interest over time this can grow substantially – and it’s pre-tax money. Just make sure you notify your super fund beforehand if you want to take advantage of contribution splitting.”

At Australian Ethical we’re proud to support same-sex couples and marriage equality, in line with our Ethical Charter that guides us to support human dignity and avoid discrimination. See our Ethical Charter for more info.

Having a baby

The excitement of an impending new family member can be so overwhelming that it’s easy to forget about how much it’s going to change your lifestyle, finances and spending habits going forward. So you can sit back and enjoy the baby cuddles, what things do you need to reassess before the new family member arrives?

Adviser: Louise Edkins, Ethical Investment Advisers (Brisbane, Queensland)

“Prior to having a baby, life was reasonably easy and straight forward. The arrival of a baby brings immense joy, but also immense responsibility to make sure they’re protected and provided for in all circumstances.

“Most people probably aren’t really aware of what kind of insurance cover they have. Many just opt for the default through their employer, but they don’t really know what that might do in a given scenario. For example, what might happen if one or both partners get sick and the ‘breadwinner’ needs to stop work to care for the child? If suddenly there’s no regular income coming in, can a claim for insurance be made on your current cover? You may need to consider increasing to a higher level of cover before having a baby – and not all insurance is the same.

“Then there’s the question of beneficiaries. It is a bit heavy to think about, but if you or your partner pass away – or heaven forbid both of you do – you can decide how your children, or any other so-called ‘dependants’, are going to share the assets you owned. This includes your super and any life insurance that might be paid out. So, there’s what’s called a ‘binding nomination’, which is where you nominate either with your super fund or in your own will (see more below) one or more people who will get all your assets after you’ve passed away. If you don’t nominate someone, the rules default to a ‘non-binding nomination’, which means your super fund trustee decides who gets your money.

“If you’re having a baby, you really do want to have a will in place. Estate planning can be complex if there are blended families too. So it is wise to seek advice from a specialised lawyer before deciding how to elect binding nominations, and the strategy to use – for example, noted in your will or through your super fund.

“Those having children need to be aware of rules like spouse contributions, as they are likely to be taking a decent chunk of time out of the workforce, especially if they have more than one child. There’s also the issue of juggling coming back into the workforce, which perhaps would be part-time – meaning a lower wage is being paid to you and less money is going into your super savings. But there are ways you can tackle this. For example, you’re most likely to go into a lower income bracket, which means you’ll probably pay less tax, but it also means that if you couldn’t take advantage of spouse contributions before, you can now. Don’t forget that you’ll need to factor in any Centrelink payments as income.

“The rule for spouse contributions started back in 2010, but it’s amazing how few people actually know about it. There is definitely a lack of awareness about it. Raising a child is hard work, but it’s unpaid, so it does make sense for the ‘bread-winner’ in the family to help by making contributions into the primary carer’s superannuation.

“Running the numbers for your own circumstance might be different to someone else’s though. If you’re really good with numbers you could give it a go yourself, but as adviser’s we review your personal and financial situation taking into account all the life events and develop a plan to help you achieve your goals. Not just that, but we’ve got some pretty fancy tools to help run the numbers quickly and accurately to save you time and hassle.”

Are you ready to get wiser with your wealth?

1. Use this online retirement income simulator:
This calculator is a great starting point to get an idea of how much impact putting a little bit of money in your super now can make.

2. Find out more:
There are some great resources that can help you to improve your financial literacy. The MoneySmart website has been put together by the Australian Securities and Investments Commission and it’s pretty great. It explains some of the complex financial terms in easy-to-understand ways. There’s also ASFA’s SuperGuru for super-specific advice. And for those peachy-keen among you, try the 10 Thousand Girl online money management course – just sign up to their 12-week Money Makeover.

3. Contact a financial adviser:
A retirement income simulator is a generic tool and only really shows what the average person based on broad assumptions for the future economy is likely to have. There might be ways to reach your goals that you hadn’t thought of before. Even if you think you know everything about your finances, it might be worth going to see an adviser who can take into consideration your personal circumstances and identify any gaps as well as opportunities. Visit RIAA for suggestions of a few ethical financial advisers near you.

Disclaimer: The information in this article is general information only and does not take into account your individual investment objectives, financial situation or needs. Before acting on it, consider seeking independent financial advice from an appropriately licensed advisor. Australian Ethical’s financial services guide (FSG), managed funds product disclosure statements (PDS) and super product disclosure statement (PDS), available at australianethical.com.au should be considered before making an investment decision.
The online simulator noted above was prepared by Mercer Consulting (Australia) Pty Ltd (MCAPL) ABN 55 153 168 140 for Australian Ethical Superannuation Pty Limited. The simulator is not intended as an advertisement for any product issued by Australian Ethical Superannuation Pty Limited, Australian Ethical Investment Limited, Mercer, MCAPL, or any of its related entities.

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