Many people are confused and worried about how the proposed budget changes might affect their super savings. Given this environment of change, it’s important to have a look at how to best structure your superannuation with your long-term goals in mind and the financial provisions you should put in place for your retirement, writes Pauline Vamos.
One thing to remember is that the announced budget measures will need to pass through both houses of parliament to become legislation and most changes aren’t likely to start till 1 July 2017. But there are some steps you can take now to make sure you’re super is working for you.
- Add up your concessional contributions
Include all contributions made before tax such as salary sacrifice or employer Superannuation Guarantee contributions and/or personal tax deductible contributions (if you’re self-employed). The current cap for the 2016-17 financial year is $35,000 for over 50s.
- Consolidate your super
One of the most important things you can do, at any time, is check that your entire super is in one account. This is easier to manage and will reduce the fees you will pay if you have numerous accounts.
- Check your life insurance cover
With tax refunds relating to death benefits potentially ending from 1 July 2017, consider increasing your life insurance.
- Add up your non-concessional contributions
If you’ve made any large after-tax contributions, ask the Australian Tax Office to calculate your contributions to see if you’re under the proposed $500,000 lifetime cap.
What’s next?
Once you’ve taken these initial steps it’s time to take a more in depth look at your super to see if your current arrangements still meet your needs.
Evaluate your long-term plan
If you’re in a higher income bracket or you have a large super balance, you could be taxed at a higher rate. Now is a good time to speak to your fund or a financial adviser to ensure you are getting the best growth options for your nest egg.
The bank is a terrific place for your everyday spending money but it shouldn’t necessarily house all or most of your investment or retirement savings.
The majority of superannuation funds invest members’ money into different asset classes and you can choose what type of account is best for you.
It’s always important not to put all your eggs in one basket when it comes to investment. Some assets can be volatile, but they are often the assets that will give you the best returns over the long-term.
Don’t just rely on conservative cash investments, if you invest in cash and term deposits your money may run out pretty quickly. These must be balanced with assets that are less risky.
Get a guaranteed income with annuities
If you want a worry free income, annuities can be a very good option. Put simply, an annuity will give you a guaranteed income (lifetime or fixed-term pension) for a defined period of time.
Annuities are available from a select group of funds and will give you peace of mind with a steady income stream setup to suit your needs – fortnightly, monthly, a number of years or even your lifetime.
The beauty of annuities is everything is wrapped into one; you don’t have to worry about interest rate movements or additional fees. The downside is the investment returns can be low and if you die early you lose all your capital.
If you did set this up for a guaranteed period, if you die this will continue to be paid to your beneficiary – spouse or dependent.
Check fees and most importantly your returns
One of the best features of our super system is that generally you can choose which fund you invest your superannuation in. Make sure you shop around to ensure you’re getting the best value for money. Each fund will offer different options, benefits and fee structures and it’s up to you to decide which one is the best fit for your particular circumstances.
Different funds also make different returns, which for many people is a key factor in determining which fund they choose. The benefits you’re receiving need to be weighed up against the cost. Contact your fund or look at your recent super statement to understand what fees apply to your current fund.
Superannuation fee structures are complex, so for a guide on the fees you may be paying visit Super Guru.
Make arrangements for power of attorney
We never want to consider what happens if we’re not able to make decisions for ourselves, but trust me, you’ll be pleased to have your house in order if you do.
Planning ahead may save you and your family from legal and financial burdens in the unlikely event of an accident or sudden illness.
Think about drawing up a power of attorney – this is someone you trust to make financial decisions on your behalf and will give you peace of mind that your affairs are being kept in order.
On top of this, why not explain your financial state of affairs and superannuation to your other half? In lots of relationships there’s one partner who runs the accounts, with the other not across the details. But what happens if one day they do need to know and you’re not there to explain the workings to them?
Why not make a point of sitting down to discuss your assets, investments and superannuation with your partner or family? It may seem like a nuisance now, but once it’s done, it will be one less thing to worry about as you enjoy your retirement years.
ABOUT
Pauline Vamos
Chief executive officer of the Association of Superannuation Funds of Australia (ASFA), Pauline Vamos is a qualified lawyer and has more than 20 years’ experience in the financial services industry. Pauline is a member of the board of the Banking and Finance Oath.
Association of Superannuation Funds of Australia (ASFA)
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral and non-party political national organisation which aims to advance effective retirement outcomes for members of funds.
[…] In the meantime, here are ASFA’s tips on making your super work for you. […]