No matter what your financial or life situation, there are a number of simple strategies to boost your savings and financial security, as these Australians’ stories show.
Seeking financial security? Be inspired by these three real-life examples as Industry Super Australia’s Gemma Pinnell provides suggestions on how they could take control of their finances and superannuation.
Married with kids
Sam is 36, married, with three young children, and is currently on maternity leave. While she plans to return to work when her baby turns one, she is concerned about falling behind in super payments while on maternity leave, and being able to save enough to renovate to accommodate her growing family.
Gemma says that, generally, the earlier anyone starts taking control of their super, the more likely they will be better placed come retirement.
“It’s important to not treat super as something that only needs to be thought of when you retire – by then it could be too late,” she says.
“Women are, on average, retiring with 42% less superannuation than men. There are many factors behind this; one of these being that women tend to take on the role of primary caregiver when they have children. Taking time out of the workforce plays a role in women’s superannuation balances being lower on average (super is not required to be paid on maternity leave).”
However, Gemma says there are a number of things women on maternity leave can look at doing to ensure their super doesn’t fall behind.
“Once Sam is back at work, she could consider salary sacrificing part of her wage each week into her superannuation fund. Depending on her income, this may also make her eligible for the government’s co-contribution.
“Another option could be for Sam’s partner to make a spouse contribution to her super account. Again, whether this is suitable will depend on how much she earns. A final option could be for her to look at splitting her partner’s contributions, so a portion of their superannuation goes into her account each pay cheque.”
To check the tax benefits of salary sacrificing, Gemma recommends using this calculator.
Single and self-employed
Matt is 28, single and currently renting. He is a contractor and sole trader working in the gig economy so his biggest challenge is the nature of his work: his earnings can fluctuate significantly from year to year. His main concerns are saving for a home loan deposit, paying off his car loan and still being able to afford to travel.
Gemma says that the gig economy is changing the workforce landscape.
“Unlike a typical Monday to Friday job with regular salary payments and superannuation contributions, people working in the gig economy have flexible working hours and a changing income. This can make future budgeting difficult.”
Being self-employed and a contractor, Matt does not receive super contributions from his employers. Gemma says he could consider making super contributions himself – along with saving up for holidays and paying off his car loan.
“One way to look at doing this is to consider if this was a 9-to-5 job, how would contributions be made? Either by regular 9.5% contributions when you get paid or a lump sum once a quarter. Matt may also be able to claim tax deductions for contributions and he will also need to remember there is a limit on the contributions that can be made annually.
“A lot of people don’t think that they can afford to contribute anything to their superannuation. However, by looking at how much larger your super balance could be at retirement just by contributing the cost of two coffees a week into it, you may change your mind.”
To calculate how much super Matt could be contributing each time he gets paid, Gemma recommends this calculator.
Kate, 54, and Tom, 57, are married and have almost paid off their mortgage. Both are still working full-time but Kate would like to cut back to part-time work, with plans to retire at 60. Tom plans to continue working full-time until he is about 65. The couple want to be able to retire comfortably and still have quality of life and travel, so their main goals are maximising their super during their final working years.
Gemma says it’s important for Kate and Tom to consider if they want to use the Age Pension as part of their retirement income.
“As you get closer to retirement, it’s important to be aware of what age you can actually access the Age Pension,” she says.
“Budgeting can be so important, and perhaps even more so when it comes to retirement to ensure there is enough money available throughout your retirement years. This will assist you in working out how much you will need in your superannuation account to last your retirement. You can then start figuring out how you can get to that sum while you’re still working.”
To boost Kate and Tom’s superannuation while they are still working, Gemma suggests considering they make extra contributions either before tax, through salary sacrifice, or after tax.
“If they run their numbers and it looks unlikely that Kate will be able to retire before 60 but she wants to cut down on the hours she works, she could look at doing atransition to retirement strategy,” Gemma says.
“This means she can start accessing her super but ease off from full-time work without impacting her quality of life and allowing her super balance to remain invested.
Rather than taking a lump sum from their superannuation at retirement, Gemma says another option to consider is taking out an account-based pension, also known as an income stream, from their superannuation.
“Kate and Tom could receive a regular income from their super (which could also be combined with the Age Pension if they’re eligible) while the rest of their superannuation balance remains invested.”
“In retirement, any assets you own will affect whether or not you are eligible to receive the Age Pension. Your eligibility is worked out by how much income you earn from employment, investments and any superannuation income streams; and how much your assets, including investment properties, are worth. Your family home is not included in the assets test.”
This article was first published by The Guardian on 6 March 2019. The information referred to may change from the date of publication and care should be taken when relying on such information. The information in this article has been prepared without taking into account personal objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation and needs and seek financial advice whenever necessary.
*The above material, whilst correct at the time of publication may include references or statements which are no longer current.