While you’re working, with money coming in, you can probably afford to live life the way you choose. But what will happen to your lifestyle when you retire?
When you’re used to a certain standard of living, it can be a shock if you can no longer afford to live that way. You would hate to have to cut back on life’s day-to-day pleasures, like a restaurant meal or weekend away. But that’s what can happen if you don’t prepare properly for retirement — so it’s important to plan ahead.
Here are three easy things you can do before you retire to help you keep the standard of living you enjoy today:
1. Work out how much you’ll need
It’s estimated that a couple needs about $57,665 a year in today’s dollars to retire comfortably. But everyone’s situation is different. If you want to take regular overseas trips, buy a new car, renovate your home, or protect your health with private health insurance, you’ll need to factor in even more.
Then you’ll need to estimate how long your super needs to last, remembering that Australians, on average, are living longer than ever before.
2. Work out how much you’ll have
Once you’ve worked out how much you’ll need for retirement, it’s time to work out whether you’re likely to have enough. Consider your assets, including your super, home, shares or investment properties, as well as your liabilities, such as a mortgage or other debts.
Try MLC’s retirement tool to find out how much your dream retirement might cost, and how much you’re on track to save.
3. Close the gap
If you’re on track – well done! But, if you’re like most Australians, you may find that there’s a gap between the retirement you want and the one you can afford.
Luckily, there are some simple strategies to help you close it. And the sooner you start putting them in place, the better your retirement lifestyle can be.
Ask your employer to put extra, regular contributions from your pre-tax salary into your super. Known as salary sacrificing, this can also have favourable consequences for your tax today, especially if you’re in a high tax bracket. Or contribute a lump sum, such as a tax refund or bonus, to give an extra boost to your super when you can.
Once you turn 55, you might want to consider a Transition to Retirement strategy. This involves drawing a pension from your super while you’re still working and salary sacrificing a larger slice of your income. You’ll pay a tax rate of just 15% on your contributions and boost your retirement savings inside super at the same time.
Ask the experts
To find out more ways to avoid a lifestyle crash in retirement, speak to us today.
 AFSA (2014) ‘AFSA Retirement Standard’ http://www.superannuation.asn.au/resources/retirement-standard
by Shane Oliver, Head of Investment Strategy & Chief Economist, AMP Capital
on 12 Aug 2016
The Australian June half earnings reporting season has kicked off on a relatively ordinary note with so far only 37% of companies exceeding expectations (compared to a norm of 45%).
However, 71% have seen their earnings rise on a year ago, 52% have seen their share price outperform the market the day results were released and 93% have either maintained or increased their dividends. It’s also still early days with less than 20% of results out so far.
What to watch in the coming weeks.
The June quarter earnings reporting season will ramp up in Australia as we move into the two busiest weeks for reports with 66 major companies due to report in the week ahead including JB HiFi, BHP, Wesfarmers, CSL, QBE, Origin, AMP, IAG, DUET, Lend Lease and Woodside Petroleum.
After the downgrades since the last reporting season back in February the hurdle to avoid disappointment is now relatively low.
Consensus expectations for 2015-16 earnings are for an 8% decline in profits driven by a 50% fall in resources earnings and a 2% fall in bank profits leaving profits in the rest of the market up just 1%.
The key themes are likely to be:
- Improved conditions for resources companies following a stabilisation in the iron ore and oil price
- Constrained revenue growth for industrials
- Ongoing cost cutting
- Continuing headwinds for the banks
- An ongoing focus on dividends.
Sectors likely to see good profit growth are discretionary retail, industrials, gaming and healthcare. Expect disappointers to be punished severely with sharp share price falls.
Treasurer Scott Morrison has handed down his first Federal Budget—the Coalition Government’s third. This is a budget with small steps in the right direction with significant changes to super now and company tax progressively over the next 10 years. The changes to super could warrant further discussion at your next review.
Note: These changes are proposals only and may or may not be made law.
We have enclosed an extract from the Federal Budget Analysis prepared by the MLC Technical team, part of GWM Adviser Services Limited below.
Date of effect: Immediate
- A lifetime cap on non-concessional (after-tax) superannuation contributions of $500,000 will apply from 7.30 pm on 3 May 2016.
Date of effect: 1 July 2016
- The income tax threshold for the 37% tax bracket will increase to $87,001pa, from the current $80,001pa.
- The tax rate that applies to small business companies will reduce to 27.5% for businesses with a turnover up to $10 million in 2016/17. Further tax concessions will apply in future financial years.
Date of effect: 1 July 2017
- The annual cap on concessional (pre-tax) super contributions will reduce to $25,000, regardless of age.
- Concessional super contributions may exceed the annual cap if certain conditions are met.
- Those aged between 65 and 74 will be able to make super contributions without meeting a work test.
- Tax deductions will be claimable for personal contributions regardless of employment status.
- A lifetime limit of $1.6m will be placed on the amount of superannuation that can be transferred to start pensions.
- Earnings on investments held in ‘transition to retirement’ pensions will be taxed at 15% (currently 0%).
Measures not announced or affected
- Negative gearing
- Age pension and other social security benefits
Changes effective 1 July 2017
The following superannuation reforms are proposed to apply from 1 July 2017.
Cap on concessional contributions
The annual cap on concessional super contributions will reduce to $25,000, regardless of age. This change will reduce the amount of concessional contributions that can be made each year without a tax penalty. There will, however, also be the opportunity for certain people to contribute more if they haven’t fully utilised the cap in previous financial years—see below.
Concessional contributions include:
- salary sacrifice
- superannuation guarantee
- personal contributions claimed as a tax deduction, and
- certain other
Currently the cap on concessional contributions depends on age—see table below.
|Table 1: Concessional contribution caps|
|Age||Annual cap amount|
|In 2015/16 and 2016/17||From 2017/18|
|48 or under||$30,000||$25,000|
|49 or over||$35,000||$25,000|
‘Catch-up’ concessional contributions
Concessional super contributions may exceed the annual cap if:
- the annual cap in previous financial years is not fully utilised, and
- the superannuation balance is less than $500,000.
Only cap amounts unused from 1 July 2017 can be carried forward for up to five years.
This measure will help eligible individuals who have not been able to utilise the caps due to broken work patterns or competing financial commitments, to make additional or ‘catch-up’ super contributions.
Additional tax on concessional contributions
An additional 15% tax on concessional contributions will be payable by those earning more than $250,000 pa. Currently this additional tax, which is, broadly speaking payable on top of the standard maximum tax rate of 15% on concessional contributions, only applies to those earning more than $300,000 pa.
|Table 2: Tax on concessional contributions|
|Income¹||Tax on concessional contributions made within the cap|
|In 2015/16 and 2016/17||From 2017/18|
|$250,000 to $300,000||15%||30%|
- Including concessional contributions
Contributions between ages 65 and 74
Those aged between 65 and 74 will be able to make super contributions regardless of whether they work or not. Currently, you need to work 40 hours in 30 days in the relevant financial year to make super contributions in this age bracket.
Tax deduction for super contributions
Tax deductions will be able to be claimed for personal contributions regardless of employment status. Currently only self-employed people (eg sole traders) and those who earn less than 10% of total income from employment sources are eligible to claim a tax deduction.
Superannuation pension limits
A lifetime limit of $1.6m will be placed on the amount of superannuation that can be transferred to start pensions. This limit will be called the ‘transfer balance cap’.
Earnings on investments held in pensions (other than transition to retirement pensions—see below) will continue to be taxed at 0%. Earnings on any balance that needs to remain in superannuation will continue to be taxed at 15%.
People with existing pensions over $1.6 million will need to reduce the balance below this limit by 1 July 2017 to avoid penalties.
Transition to retirement pensions
Earnings on investments held in ‘transition to retirement’ pensions will be taxed at 15% (currently 0%). A transition to retirement pension is a pension that is started with superannuation money when you have reached your preservation age, which is between 55 and 60 depending on date of birth. Once permanently retired (or another condition of release is met), it is expected that the underlying earnings will then be taxed at 0%.
Change effective immediately
Changes to non-concessional contributions
A lifetime non-concessional contribution (NCC) cap of $500,000 will apply from 7.30 pm on 3 May 2016. All NCCs made on or after 1 July 2007 will count towards this lifetime cap.
NCCs include personal contributions made where no tax deduction is claimed, contributions made on behalf of a spouse and certain other amounts.
Any contributions made after commencement exceeding the lifetime limit (as well as assumed earnings on these amounts), will be subject to penalty tax if not withdrawn.
These measures will replace the current NCC cap of $180,000 pa, or $540,000 over a three year period if certain conditions are met.
Personal tax rate changes
Date of effect: 1 July 2016
The income tax threshold at which the 37% tax applies will increase to $87,001 pa, from the current $80,001 pa. There are no other changes to marginal tax rates. Individual taxpayers with an income below the new threshold will not receive any tax cut. Those currently receiving above $80,000 pa will receive a tax saving. The maximum tax saving is $315 pa.
Other personal tax matters
The table below summarises some other personal tax issues raised and their implementation dates.
|Table 4: Other personal tax matters|
|Date of effect||Measures||Detail|
|1 July 2017||Spouse superannuation tax offset||· The spouse income threshold will increase from $10,800pa to $37,000pa
· The maximum tax offset will remain at $540
|1 July 2017||Temporary Budget Repair Levy||This levy, which is 2% of taxable income in excess of $180,000 will expire on 30 June 2017, as legislated.|
Company tax rate
Date of effect: 1 July 2016 and beyond
The tax rate that applies to small business companies will reduce to 27.5% for businesses with a turnover up to $10 million in 2016/17 and will be extended to larger business thereafter.
Measures not announced or affected
No changes will be made to negative gearing.
No changes were announced that effect age pension eligibility or payment rates. Some important changes to the aged pension assets test have, however, already been legislated that take effect on 1 January 2017. These changes could impact benefits.
The information contained in this Federal Budget Analysis is current as at 3 May 2016 and is prepared by MLC Technical, part of GWM Adviser Services Limited ABN 96 002 071749, registered office 150-153 Miller Street North Sydney NSW 2060, a member of the National Australia Bank Group of Companies.
Any advice in this Federal Budget Analysis has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs.
Past performance is not a reliable indicator of future performance.
Before acquiring a financial product, you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.
A staggering 20% of Australian families will be affected by the death of a working age parent, or a serious accident or illness that leaves a household member unable to work1
Insurance to protect you and your family is particularly important. Did you know that less than a third of Australian families have Income Protection or Total and Permanent Disability (TPD) insurance2.
When tragedy strikes or unforeseen circumstances take hold, the last thing you want to be concerned about is money. Having enough cover means you don’t have to worry and you can feel reassured your family’s future is secure.
A clever way to insure
Buying your insurance through your super fund makes good financial sense, as you may be able to take advantage of a range of tax concessions generally not available when insuring outside super.
For example, if you’re an employee and are eligible to make salary sacrifice contributions you may be able to buy insurance through a super fund with pre-tax dollars.
These concessions can make it cheaper3 to insure through super, or help you get a level of cover that may not otherwise have been affordable.
Alternatively, super can make insurance more affordable if you don’t have sufficient cash-flow to fund the premiums.
Instead of making additional contributions to cover the cost of the insurance, you can arrange to have the premiums deducted from your existing account balance.
Without insurance, if something unforeseen should happen your family’s savings could run out quicker than you expect and you might face financial difficulty long before you intend retiring.
Of course, everyone’s situation and requirements are different, so for a review of your personal circumstances, please contact TOPS on 07 3871 1671.
1. The NATSEM/Lifewise Underinsurance Report, National Centre for Social and Economic Modelling, Feb 2010.
2. FSC formerly known as IFSA, Securing Australians Financial Wellbeing, 2007.
3. This will usually also be the case if the sum insured is increased to make a provision for any lump sum tax that may be payable on TPD and death benefits in certain circumstances.
4. It’s important that you don’t erode your super balance as a result of having premiums deducted from super. This can be prevented by ensuring sufficient contributions are made to cover premium deductions.