The retirement income system explained

In Australia there is a three ‘pillar’ retirement income system, which includes:

◆ Savings – such as voluntary contributions to super and homeownership

◆ Compulsory superannuation – payments made by your employer during your working life

◆ Age Pension – Government support for eligible people over 67 years old

Most older Australians will use all three pillars at some point in their retirement to fund their lifestyle, so to best plan ahead you need to understand a bit about each of the income streams.

The three income streams also show why it is important to have more than just your superannuation to fund your retirement years.

Together, the income streams will fund your everyday expenses, bills, medical costs and lifestyle activities.

Achieve your goals with clarity and confidence.

Planning your financial future can feel complex, overwhelming and sometimes confusing.

It is important you have access to advice that is practical and customised to meet your individual needs. Advice that will help you achieve your financial goals.

Armstrong Consultancy Services (ACS) has been providing expert financial advice and guidance to its clients for over 25 years.

Voluntary savings

It’s never too early to start saving for retirement. Even if you are only able to save a little each week or month it will all benefit you when you stop working.

Voluntary savings include more than just the cash you put away though, and also refer to additional superannuation contributions such as salary sacrificing and personal contributions, as well as any investments you have.

ACS bring their extensive knowledge and experience that will afford you the opportunity to receive financial planning customised specifically for you with a clear focus on achieving your financial goals.

4 Be clear on your objectives and how they’ll be achieved.

4 Secure a financial strategy that suits your unique needs and goals.

4 Enjoy peace of mind knowing you are on the right track.

Derek Armstrong Masters Financial Planning

02 8860 9160 derek@armstrongcs.com.au

Derek Armstrong (ASIC No. 244641) is an Authorised Representative of Paragem Pty Ltd. AFSL 297276.

Investments like your home are also considered savings because they reduce your ongoing costs in retirement.

To diversify your savings, rather than putting all your eggs in one basket with only savings in the bank, you might benefit from growing your investment through additional property or shares.

Talk to a financial advisor about the options you have for investment and growing your savings.

Compulsory superannuation

Employers have been required to pay the superannuation guarantee for all employees since 1992.

Super is a minimum amount per hour worked that is put into your super account by your employer over your working life.

The purpose of this super guarantee is to ensure part of every working person’s salary is set aside to fund their retirement. However, many people retiring currently have not benefitted from the super guarantee for their entire career because of its introductory date and they may have to rely on other income streams.

In most cases you cannot access your superannuation until after the age of 55. See page 15 for more information on accessing super and the age restrictions.

Although you won’t be accessing your super until later in life, it is important to keep track of when you are being paid super, the returns your account is making, market fluctuations and whether you may need to change super providers.

Age Pension

It’s not always possible to reach retirement with enough savings or superannuation to live on, and many people also run out of savings several years into their retirement due to a range of unexpected costs – like serious health conditions.

This is where the Age Pension comes in to support those who can’t afford to self-fund their retirement life.

It is a safety net funded by the Government and can be received in full or in part by people over the age of 67. It is important to note that the Pension is only designed to help people to live modestly, not comfortably, which is why you need to optimise other income streams while you can.

Your income or assets determine if you are eligible for the Age Pension and how much you receive.

Financial safety net

All three income streams together create a financial safety net for older Australians.

If your savings don't last you in retirement, then you can rely on your superannuation, and if your superannuation doesn't last, you can rely on the means tested Age Pension. And generally, these three pillars work together, not separately. When you are approaching your retirement, you should be considering each of these pillars and how they will work in your retirement plan.

How expert advice can help

It can be hard to be confident in your retirement planning with all the options that are out there and how different your situation can be to your friends and family.

The best course of action is to get expert help with your financial planning through engaging a financial advisor or consultant.

These experts are obligated to put you in a better financial position and should always have your best interests at heart.

Be open with your financial advisor so they know your exact situation and can give you the most appropriate advice.

Choosing an advisor

There are a number of questions you can ask to find a financial advisor that will suit you best, as some advisors may have different specialities.

These questions are:

◆ What are their credentials and are they registered as a financial advisor?

◆ Do they have expertise in retirement financial planning?

◆ How do the fees and charges work for their services?

◆ Is the service on an ongoing basis or is it a once-off service?

◆ How will they provide their advice? Will it be in writing and will there be multiple options? Will it be easy to understand?

A good financial advisor will also ask you questions to inform the advice they give you, such as what your goals are and whether you are aiming for a comfortable or modest retirement lifestyle.

It may be helpful to talk about what you imagine your retirement to look like, rather than focusing on a figure of money you will need, and let the financial advisor help you work out how you will get to your vision of retirement.

Preparing to meet your advisor

The more you prepare for the first meeting with your financial advisor, the better their picture will be of where you are at, what you want to achieve and how they can help you.

Bringing documents that show the detail of your current financial position, including income and assets, will give your financial advisor an understanding of whether you are on track to retire.

These documents include:

◆ Statements of your accounts, including superannuation, current savings, and any other bank accounts

◆ An overview of your current investments, such as stocks, bonds or your housing portfolio

◆ Your current salary or pension statements

◆ A fortnightly or monthly overview of your expenses, including food, accommodation, travel and insurance

◆ Any outstanding debts you have, like mortgage or car repayments

◆ Your tax statement from the last year

◆ Any other important information, such as inheritance or trust, your Will, or life insurance

Once your financial advisor has analysed your current situation, you can ask them some questions to understand yourself where you are at and how to get to a financial position you would like to be in:

◆ How does my current financial situation look?

◆ Am I on track to meet my goal?

◆ If I am not meeting my goals, what can I change to get back on track?

◆ How are my investments looking?

◆ What is the next step from here? You are likely to need to meet with your financial advisor more than once, because financial situations can be complicated and you need time to plan out your retirement. But after the first meeting, there will likely be something you can take away to work on and most people will need to make changes to investments, current expenditure or super contributions.

Above all, your financial advisor should not leave you feeling stressed or out of your depth and should assure you that you can either meet your goal or make changes to put yourself in a better position for the future.