MONEY MATTERS PAUL CLITHROE NO PLANS TO RETIRE? DON’T BANK ON IT AND THE SAVINGS ADVICE WE LOVE TO HATE.
A NEW STUDY BY THE COUNCIL ON THE AGEING (COTA) SHOWS THAT AUSTRALIANS ARE WORKING FOR LONGER – OFTEN OUT OF PERSONAL CHOICE.
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he age at which we can claim the age pension has been slowly increasing. It’s currently 66, but it will be age 67 by mid-2023, and that’s seeing more of us working later in life. These days, less than one in two (49 per cent) people aged 65 have retired, down from 60 per cent in 2018. It goes to show how our views on retirement are evolving. For some, working for longer is a financial necessity. But plenty of over-50s like the mental and social stimulation that keeping a hand in the workforce provides. The COTA report shows one in four over-50s have no plans to retire at all. The problem is that life doesn’t always go according to plan. Ideas of working well into your 60s can easily be derailed by the unexpected. Unfortunately, ill health is the leading reason why people retire earlier than they had planned – or wanted to. Figures from the McKell Institute show that in 2017, over 300,000 50-64-year-olds were forced into early retirement due to ill health or disability. The financial impact can be devastating, with these premature retirees having around $115,000 less in super savings compared to if they’d remained in the workforce until age 65. While this highlights the value of taking good care of our personal wellbeing as we age, it also reinforces the need to look after our financial health. In particular, I’m talking about embracing opportunities to grow super savings because you may need to rely on that money a lot earlier, and for a lot longer, than you anticipated. On the plus side, since 1st July, employer super contributions have climbed from 9.5 per cent of your base wage or salary to 10 per cent. Even better, the annual limit on before-tax super contributions has risen from $25,000 to $27,500. That’s a good opportunity to review your salary sacrificed super contributions – or talk to
your employer about kick-starting salary sacrifice to grow your nest egg. It’s a very tax-friendly way to add to your super. With tax refunds starting to flow over the next few weeks, using your refund to make a before-tax super contribution can be a smart way to get plenty of bang for your buck. You may be able to claim the contribution as a tax deduction in the current financial year, potentially pocketing a bigger refund this time next year. Personal super contributions also have a welcome impact on your retirement savings. A 50-year-old who gets into the habit of using a tax refund of, say, $2,000 to make a before-tax super contribution each year, can have an extra $35,000 in super by age 67. Meantime, while we all know saving is good for our financial health, when it comes to saving money, some pieces of advice are better left unsaid. Research by Finder shows certain pearls of wisdom just don’t hit the mark. One in two Australians say the most annoying piece of savings advice is being told to cancel their TV subscription services. The next pet peeve – reported by two out of five people, is being told to take care of their own grooming needs at home, presumably saving on the cost of a trip to the beauty parlour. All these responses are fair enough. Sure, it pays to sweat the small stuff. But not many people build personal wealth on the foundation of giving up Netflix, and there can be ways to lower costs without feeling deprived – like sharing a TV subscription account with friends and family. On the flipside, the most appreciated savings advice, cited by 77 per cent of Australians, is recommendations to cook at home instead of eating out or ordering takeaway. Tips to track spending is another favourite (74 per cent), and
happily there are plenty of free apps to do just that. One piece of advice that has stood the test of time is the value of setting a budget. On one hand, budgeting confronts us with just how much money slips through our fingers – and how little we often have to show for it. But that’s the whole purpose – getting the jolt is good for us. Budgeting also encourages us to take a controlled approach to spending and saving, enabling us to reach short, medium and long term goals, which might otherwise never be more than a pipedream. The beauty of budgeting is the freedom it provides to allocate money towards ‘fun’ expenses, without feeling guilty or thinking that you’re putting your financial future on the line. It’s also a tool to break free from the stress of living pay day to pay day – something that’s a reality for 21 per cent of Australians according to Canstar’s Consumer Pulse report. Long story short, I’m a fan of budgeting. It lets you see where your money is going, and where you can cut back on the least necessary areas so there is something left over to save. At that point you’ve got control of your money, and it’s a lot easier to have control of your life.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
