Your Super and Retirement Update 2017 by YourLifeChoices

MARCH 2017

Your super and retirement update 2017

How will July super changes affect you?

he imminent changes to superannuation rules will probably have you doing one of two things – burying your head in the sand or running around in a panic. Neither is the correct response, however, you may well ask yourself what they mean for you and what action, if any, you need to take. In association with our sponsor, AustralianSuper, YourLifeChoices has taken each of the major changes and assessed how they may affect your retirement savings and income. The information in this eGuide will help you to evaluate what you can do to ensure that the changes don’t derail your retirement plans and whether or not you should seek advice from a professional financial expert. We’ve also taken some of the perennial superannuation concerns and simplified them so that you can, from this eGuide, gather all the information you need to ensure you maximise your super balance and that it lasts the duration of your retirement. By understanding the existing rules and how they will change, you can navigate the often-bumpy road to retirement with minimal detours along the way. Debbie McTaggart Managing Editor

Contents Super changes simplified Get to grips with the changes that will take effect from 1 July 2017

Make the most of your retirement Follow these five steps to make your retirement a good one

Your super and the Age Pension How your superannuation is assessed when it comes to applying for an Age Pension

Is your TTR still a good strategy? What the changes will mean for your retirement transition

Super, your investment and retirement Do you have to re-evaluate your investment strategy?

Why super is still tax-effective Changes may be on the way but panicking won’t help

Can you make your super last longer? Are there ways you can ensure you don’t outlive your savings?

Finding trusted financial advice What to look for when seeking financial advice

Can you access your super early? Could financial difficulty be solved by early access to your super?

How much do you need in retirement? Are you lifestyle expectations compatible with your budgetary constraints?

Resources Useful resources at the click of your mouse

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YourLifeChoices Your super and retirement update 2017

Super changes simplified Super rules will change on 1 July 2017, so why not find out how you may be affected?

ince they were announced as part of the 2016/17 Federal Budget, the changes to superannuation legislation have caused much confusion and concern. The following simple explanations will help you find out which changes apply to you and how you may be affected.

$1.6 million transfer balance cap – 1 July 2017 Individuals, both current retirees and those yet to enter retirement, will only be able to transfer $1.6 million (total across all accounts) to retirement phase accounts, which are tax free. For those who currently have more than $1.6 million in a pension account, the excess will need to be withdrawn and invested by other means, or reverted back to the accumulation phase, where it will be subject to 15 per cent earnings tax. Earnings after 1 July 2017 will not require to be withdrawn and the cap will be indexed in line with CPI, in increments of $100,000.

End of tax exemption for transition to retirement (TTR) pensions – 1 July 2017 For those with a TTR pension, the removal of the tax exemption on these pensions means that 15 per cent tax will be paid on the earnings, similar to the way in which superannuation during the accumulation phase is taxed.

Reduction of concessional contributions caps – 1 July 2017 One annual cap of $25,000 will be applied to concessional (before tax) contributions, effectively reducing the current cap from $30,000 for those under 50 years of age and $35,000 for those over 50.

Increased contributions tax for high-income earners – 1 July 2017 The income threshold over which higher contributions tax is paid will be lowered from $300,000 to $250,000. For those earning over $250,000, all concession contributions will be taxed at 30 per cent, rather than 15 per cent. Funds that were previously exempt will also be subject to this measure.

Reduction of non-concessional contributions cap – 1 July 2017 The current annual cap of $180,000 for nonconcessional (after tax) contributions will be reduced to $100,000. This also has an effect on the ‘bring forward’ rule, under which you can contribute three years’ worth of contributions in any financial year, providing you are under 65 and do not make any further non-concessional contributions over the three-year period. An additional rule has been applied whereby you can only make nonconcessional contributions if your superannuation balances total less than $1.6 million. 4

YourLifeChoices Your super and retirement update 2017

Refund of contributions tax paid for low-income earners – 1 July 2017 Previously known as the Low Income Super Contribution (LISO), this was slated to cease on 1 July 2017. The concept will continue in the form of a refund of contributions tax paid for low-income earners and will be known as the Low Income Superannuation Tax Offset (LISTO). Low-income earners with an adjustable taxable income of $37,000 or less will receive a refund of up to $500 into their superannuation account.

… the introduction of catch-up concessional contributions could help boost super balances. Increased income threshold for spouse contribution tax offset – 1 July 2017 The income threshold under which a contributing spouse can claim the spouse superannuation tax offset – up to $540 – will be increased from $13,800 to $40,000.

Increased access to tax-deductible contributions – 1 July 2017 Tax-deductible contributions will be permitted for all individuals under the age of 75 who make personal superannuation contributions. This will help those who are self-employed or employed and don't meet the current 10 per cent income test, or those who work for employers who don't have salary-sacrificing arrangements.

Catch-up concessional contributions – 1 July 2018 For those who have taken a break from work, or have previously been low-income earners unable to salary sacrifice into super, the introduction of catch-up concessional contributions could help boost super balances. Any unused portion of the concessional cap can be carried forward on a rolling basis for a period of five years. However, this is only available to those who have super balances totalling less than $500,000.

Other measures:

Removal of the anti-detriment provision – 1 July 2017 Removal of pension payment treatment as lump sum for tax purposes – 1 July 2017 Extending the tax exemption for various types of retirement products – 1 July 2017 YourLifeChoices disclaimer

YourLifeChoices Your super and retirement update 2017

Sponsored message from AustralianSuper

Five simple steps to make the most of your retirement AustralianSuper’s Paul Schroder talks about the five simple steps you can take now to help you make the most of your future.

lanning for retirement can be daunting. So where do you start? Well there are five simple steps that you can take to help ensure you are on the right track and it’s never too late, or too early, to start preparing. Having a retirement plan is important for each and every one of us. And it’s not as difficult as it seems. There are five easy steps that you may consider taking: • choose a fund you trust that has lower costs and better investment earnings* • consolidate your super in one account • contribute as much as you can** • check your insurance to make sure you have the right level of cover • continue with your fund in retirement.

Setting yourself for retirement These five ‘C’s are a simple way to help ensure people are in a strong financial position going into retirement. It will allow you to set financial goals that are specific, measurable, and achievable. Writing down these goals, and regularly referring back to them, will allow you to track your progress and have a better understanding of your financial profile. When drawing up your goals, ask yourself the following questions: What will I need to live on in retirement? Consider how long you might need your retirement savings to last. With current life expectancies, and depending on when you retire, your retirement income could need to last 20 years or longer. How much super will I need? Whatever your retirement plans, you’ll need money put away to meet your daily expenses, as well as any unexpected costs. How much you actually need will also depend on any outstanding debts you might have. Will I receive a Government Age Pension? Find out if you’re eligible for the Age Pension – but don’t rely on it as your sole income as government policies can change. Instead, consider using your super to top up any Age Pension for which you may be eligible. 6

YourLifeChoices Your super and retirement update 2017

Start building your super savings Even small savings today mean you could have more for retirement down the road. To make the most of additional money paid into super, it’s best to think about not just how much, but also how you contribute – before or after tax. For some people Transition to Retirement (TTR) can be a great way to grow their super savings while they’re still working. Once you reach your preservation age you could: • access your super early • potentially save tax if you are over 60, and • grow your super. TTR strategies can be complex and it’s a good idea to speak to a financial adviser to see if it is right for you.

Manage your retirement income When you’ve reached the age when you can use your super and have either permanently retired or changed jobs after turning 60, you can access your super as: • a regular income • a one off lump sum, or • a combination of the above. And don’t forget – before making any big decisions about accessing your super, it’s always a good idea to seek help or advice. * Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns. ** You should consider your debt levels before adding to your super. Paul is the Group Executive of Engagement, Advocacy and Brand at Australia’s largest superannuation fund, AustralianSuper, and has 20 years’ experience in the financial services sector. AustralianSuper is a profit-for-member organisation and manages more than $100 billion of members’ assets on behalf of more than 2 million members from across 220,000 businesses. One in 10 working Australians is a member of AustralianSuper – the nation’s largest super fund. This information may be general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.

Your super and the Age Pension When it comes to your application for the Age Pension, it’s vital to fully understand how your superannuation will be assessed.

long with personal savings and superannuation, the Age Pension completes the three pillars of Australia’s retirement income system. Therefore, it’s important to understand how superannuation is assessed when applying for an Age Pension. When you first apply for an Age Pension, you will be assessed under both the asset and income tests. Your entitlement will be assessed according to the test that produces the lower payment. For example, if, under the asset test, you are assessed as receiving a fortnightly payment of $400, but under the income test you would only receive $380, then you will be paid under the income test, and subjected to the associated rules.

How are your super investments assessed for the Age Pension? As you will have to reach Age Pension age to apply for this government benefit, your superannuation will be assessed under both the income and asset tests. You can start your claim 13 weeks prior to when you will reach Age Pension age. If you have not yet commenced an income stream (pension phase), your super balance will be counted as an asset. Under the income test, your superannuation balance will have deeming rates applied to it in order to calculate an assumed rate of return. If you have commenced the pension phase and you are receiving an income from your super, then the date you commenced your income stream will determine how it is assessed. Under the asset test, allocated pensions commenced after 20 September 2007 and accountbased pensions commenced after 1 January 2015, will be assessed as an asset. Pensions commenced before these dates may be fully or partially excluded from the asset test. Under the income test, income streams are subjected to deeming rules and the notional income is then assessed. For those who commenced an income stream and claimed an Age Pension prior to 1 January 2015, different rules may apply.

What about my partner’s superannuation? If you are considered by Centrelink to be in a relationship, either married, de facto or same-sex, then you will be assessed as part of a couple. Your partner’s superannuation may be assessed depending upon their age and the phase his or her super is in. If your partner is under Age Pension age and has not commenced an income stream, then his or her superannuation will not be assessed as part of your Age Pension claim. However, if your partner has reached Age Pension age, or has commenced an income stream, then his or her superannuation will be assessed by the same means explained above. Of course, superannuation is only one aspect of what is assessed when claiming an Age Pension. Other assets you hold and income you receive, as well as whether you’re a homeowner or not, will determine whether you receive an Age Pension and if so, how much. Income and asset thresholds YourLifeChoices disclaimer

YourLifeChoices Your super and retirement update 2017

Is a TTR strategy still an effective retirement tool? The rules for transition to retirement strategies are changing, so Noel Whittaker looks at whether TTRs are still a useful strategy.

ast February, I raised the possibility that, as part of changes to superannuation Transition to Retirement pensions (TTRs) would come under attack. It's a forecast that proved to be correct, with the 2016–17 Federal Budget making substantial changes to this much-utilised retirement strategy. The big question now is whether TTRs are still an effective wealth-building tool. The answer is yes – even though their benefits have been somewhat reduced. The essence of a TTR is that you start a pension from your superannuation fund once you reach your preservation age. Your preservation age is determined by your date of birth, as the table below details: Date of birth

Preservation age

Before 1 July 1960

1 July 1960 – 30 June 1961

1 July 1961 – 30 June 1962

1 July 1962 – 30 June 1963

1 July 1963 – 30 June 1964

After 30 June 1964

This gives you partial access to your super, even though you have not satisfied a condition of release, such as retirement, which would enable you to withdraw your funds when you wished. Currently, being able to access your superannuation at preservation age, has the bonus that your super fund becomes a tax-free fund once the TTR is commenced – which means higher after-tax returns.

… a TTR does offer a lifeline for people who are strapped for cash. Unfortunately, the ability to have a tax-free pension fund in conjunction with a TTR has been taken away, effective 1 July 2017. Also, the income stream from a TTR has ceased to be exempt for those aged 60 and over. It will now be taxed at your marginal rate less a 15 per cent rebate. However, if you have non-taxable components in your fund, they do reduce the taxable component of the TTR income stream. The good news is that a TTR still gives you access to your super while you are working, and also enables you to take advantage of the difference between the 15 per cent tax on contributions to super and your marginal rate.

Helping John access cash John is 58 years of age, with an annual salary of $100,000. His super fund has a balance of $300,000 and receives $9500 a year in employer superannuation guarantee contributions. Under the rules that come into force on 1 July 2017, when the concessional cap reduces to $25,000 a year, John will still be able to contribute $15,500 a year to superannuation using salary sacrifice. The contributions tax would be $2325, which is much less than the tax of $6045 he would incur if the money was taken as salary. However, he may not be able to maintain his lifestyle if his salary is reduced by a net $9455 a year 8

YourLifeChoices Your super and retirement update 2017

Is a TTR for you? ($15,500 less tax gain of $6045). This is where the TTR becomes a handy tool, because it enables him to start a pension from his super fund to make up any shortfall in household income. John could simply start a TTR for $12,000 a year – the minimum required – use $9455 to make up his cash shortfall and re-contribute $2545 as a nonconcessional contribution on which no contributions tax is payable. Look at the outcome. John has maintained his net take-home pay, and has added $3720 to his super ($15,500 voluntary contribution minus $2325 contributions tax minus $12,000 TTR plus $2545 after-tax contribution). It's money for nothing. Even though I strongly believe that your superannuation should be preserved until you retire, a TTR does offer a lifeline for people who are strapped for cash.

Solving Mary’s financial crisis Mary is 60 years of age with $400,000 in super. She wishes to continue working but is having problems meeting her mortgage payments because she

overextended herself financially to help out one of her adult children. She cannot access her super until she retires or turn 65. However, she could start a TTR with10 per cent of her superannuation balance, which is the maximum allowed. This would provide her with a tax-advantaged income of $40,000 in the first year and go a long way to solving her financial problems. When the financial crisis is over, she could stop the TTR, or use the strategies mentioned in John’s case study to increase her contributions without reducing her take-home pay. Despite the continuing tightening of superannuation concessions, there are still some great strategies available for those who take good advice. Ensure you are one of those people who make the effort to do so. Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Noelwhittaker.com.au YourLifeChoices disclaimer

YourLifeChoices Your super and retirement update 2017

Super, your investments and retirement You may have had your retirement plans all sewn up but, as Russell Lees explains, changes to super may mean you have to change direction.

ongratulations, you’re retiring (or maybe already retired). You’ve worked hard all your life, and now it’s time to let loose. It can be a very exciting time, but it can also be quite daunting. It’s the last phase of your life, so you’ll need to think about a range of issues such as retirement planning, superannuation – in particular the recent changes to super laws, asset allocation, liquidity, receiving a pension, working in retirement and whether you have enough on which to retire. These are all important points that require careful thought, but look on the bright side; it’s just you, the universe and a whole lot of spare time to do whatever you like. Sounds great, but it’s not all fun and games. Soon-to-be retirees will need to look at their investment nest egg to make sure it’s sufficient to support their chosen lifestyle. New research shows that one-in-five retirees will run out of cash and more than half will draw down above the regulated minimum from their superannuation accounts. That means many will need to rely on the Age Pension. It’s a scary thought.

First, let’s look at the most frequently asked question – how much do I need for a worry-free retirement? While everyone’s definition of ‘worry-free’ differs, the majority of Australians can retire comfortably on $1 million. This translates to a retirement income of $55,000 per year if you get your portfolio correctly positioned. Holding $1 million in cash will only provide an income of $15,000. Using term deposits will bring your income up to $20,000, still not a great lifestyle income.

… let’s look at the most frequently asked question – how much do I need for a worry-free retirement? These days, retirees are forced to take on higher levels of equity risk. It used to be that you invested in bonds for income and equities for growth, but since the GFC, it’s been a case of investing in bonds for growth and equities for income. Today, a quality portfolio of Australian blue-chip stocks will provide an income yield of over five per cent which is attractive, given cash rates remain under two per cent. A balanced portfolio split 30 per cent into defensive assets and 70 per cent into growth assets will provide a portfolio yield of around 5.5 per cent. If you’re in the ‘planning for retirement’ stage, ensure that you have worked out your investment objectives to give your portfolio goals to work towards. How long do I have until retirement? What level of contributions can I make? How much income do I need? These are all important questions that will help you work out how much capital is needed at retirement. After estimating whether it can be achieved, ask yourself if you can afford to take less risk or whether you need to be more aggressive to achieve your goals. If your total superannuation balance is less than $500,000, make sure you take advantage of the new catch-up contributions. From 1 July 2019, an individual can pay catch-up concessional

YourLifeChoices Your super and retirement update 2017

contributions (using unused portions of the annual concessional caps from one or more of the previous five years) just before the start of the financial year. Note – an individual can only start carrying forward unused cap amounts from 1 July 2018. For those approaching retirement, it’s time to review your investments and be comfortable with your portfolio allocation. Retirement means commencing an ongoing income stream from your super. Does your super produce sufficient income to cover your annual pension? If not, you’ll be drawing down your capital for your income needs. Ask yourself: what adjustments can you make so that your investments produce sufficient income? What happens if one of your investments blows up? Are you appropriately diversified so the effect is minimal on the portfolio’s income? If you’re currently running a transition to retirement pension (TTR), you have until 1 July 2017 to review the merits of continuing this strategy. For those do continue, you’ll lose the zero per cent tax benefit on the earnings of your fund. For many, a TTR will no longer be an attractive strategy.

Finally, for retirees currently drawing a pension from their super, if you hold more than $1.6 million in your pension account, you’ll need to review your options prior to 30 June 2017. A popular strategy is to roll the excess, over $1.6 million, into a separate super fund and hold your low-growth investments in this fund, retaining the higher growth investments in the tax-free pension super fund. This option isn’t suitable for everyone, but for some it may be the best option to getting your higher growth investments retained in a zero-tax pension fund. Just remember your super is your long-term savings vehicle that will provide you with the income you need to live the comfortable life for which you have worked so hard. If you’re approaching retirement and getting to that final phase of your life and don’t know what to do, now is the time to act. Don’t put things off or believe everything will fall into place once you retire. It won’t. Russell Lees is a Partner and Senior Adviser at Sornem Private Wealth. He specialises in managing portfolios for private clients. Russell is also a Director of the Australian Investors Association – Australia’s leading not-for-profit investors’ organisation. YourLifeChoices disclaimer

YourLifeChoices Your super and retirement update 2017

Why super is still tax-effective Adam Gee looks at three of the major changes to super that take effect in three months’ time and explains why there’s no need to panic.

hile there has been a significant amount of discussion within the media in relation to the changes to superannuation that will come into effect on 1 July 2017, there is no doubt that superannuation is still one of the most taxeffective ways to invest your money. The Federal Government announced three key changes to superannuation that will take effect in approximately three months. These are: 1. the introduction of a lifetime limit in relation to balances able to be transferred into pension products; 2. changes to the tax treatment of Transition to Retirement (TTR) pensions; and 3. the reduction of the current contribution caps for both before and after tax contributions. Most people are sick of the Government’s constant tinkering with superannuation, however, this article will demonstrate that, despite these changes, superannuation continues to be a highly tax effective investment for most people. Let’s consider each of these changes individually:

Introduction of a limit on the amount that can be transferred into a pension product As many will be aware, there are significant tax advantages in relation to monies invested from superannuation into a pension product. The key advantage is that the investment earnings on money invested in a pension product are completely tax free, which compares to tax of 15 per cent on earnings in a superannuation account and tax at an individual’s marginal tax rate for most earnings on investments held outside superannuation. Given that the absence of tax payable on investment earnings in pension products is so generous, particularly for those with very large balances, one of the key announcements by the Federal Government was that, from 1 July 2017, a maximum amount of $1.6m could be transferred into a pension product. 12

YourLifeChoices Your super and retirement update 2017

Any amount in excess of the $1.6m could either remain within superannuation account or could be withdrawn completely and invested outside of superannuation. While most individuals might not even dream of having $1.6m in their superannuation account and hence won’t be affected by this change, as any investment earnings on their pension product will still not attract tax, there will still be some effect for those who have put a reasonable extra amount into their superannuation and have accumulated more than $1.6m.

Most people are sick of the Government’s constant tinkering with superannuation … While the amount of tax for these individuals will be higher, leaving any amount more than $1.6m within a superannuation account will ensure that they can continue to take advantage of the generous tax concessions for superannuation, as compared to an investment outside superannuation.

TTR s n o i Pens

Returns

Salary ce sacrifi

Tax

How can Samantha manage a super balance in excess of $1.6 million? Let’s assume that Samantha has contributed extra throughout her working life and, when she turns 65 on 1 July 2017, she has accumulated $2.5m within her superannuation account. Samantha has two options in relation to the way in which she can invest this amount, as follows: a) S amantha can invest the maximum in a pension product and leave the remaining amount in her super account; or b) Samantha can invest the maximum in a pension and take the remaining amount out of super and invest it outside the superannuation environment. Let’s then assume that over the next 12 months, Samantha earns 10 per cent* before tax on her pension account and her super balance, as well as the money she invested outside super, and that this is the only income she receives. The tax consequences of options A and B are outlined in the table below: Samantha’s super options

Option (a)

Option (b)

Amount within pension account

$1600000

Amount within super account

$900000

Amount held outside super

$900000

Earnings on pension (10%)

$160000

Tax on pension earnings (0%)

Earnings on super (10%)

$90000

Tax on super earnings (15%)

$13500

Earnings on investment outside super (10%)

$90000

Earnings on investment outside super (marginal tax rate)

$22732

Total gross earnings from all sources

$250000

Total tax payable

$13500

$22732

Net earnings

$236500

$227268

Difference

+$9232

As can be seen from the table above, Option A, where Samantha left the amount more than $1.6m in her super account reduces her tax bill by more than $9000 more than under Option B, where she took this money out of the superannuation system.

Interestingly, if Samantha decided to take the whole $2.5m out of super and invest it herself, the tax saving would be more than $78,600 (calculated as $92,132 (which is the tax payable on earnings of $250,000 outside superannuation) less the $13,500 tax payable within her super and pension products). YourLifeChoices Your super and retirement update 2017

Changes to tax on TTR pensions In a further lowering of the tax concessions available within superannuation, the Federal Government will now tax TTR pension earnings at the rate of 15 per cent. They were previously tax-free. As with the lifetime limit in relation to pension balances, while this does reduce the tax concessions available, the TTR pension remains an effective investment for individuals. Many people use TTR pensions to reduce their income tax by making salary sacrifice contributions to superannuation, while replacing some or all their employment income with payments from the TTR pension. The following example of Tom’s TTR shows how this works, and assumes an individual with a TTR balance of $150,000 which achieved earnings of 10 per cent* during the year: Tom’s TTR options

No TTR

TTR Used

a. Member’s salary

$100000

b. Salary sacrifice contribution

($15000)

c. Pension payment from TTR

$15000

Total income (a -b + c)

$100000

Taxable income (a - b)

$100000

$85000

d. Tax payable

$26632

$20872

Tax saving

$5760

Earnings on TTR

$15000

Tax on TTR earnings pre-1 July 2017

Tax on TTR earnings post 1-July 2017

$2250

Total tax saving pre-1 July 2017

$5760

Total tax saving post-1 July 2017

$3510

* For ease of calculation, 10 per cent earnings are quoted in both examples. This is not an indication of actual earnings that can be received.

As can be seen from the table above, even though the tax saving was reduced after the change to the tax on a TTR pension, these arrangements remain highly tax effective and can, if used correctly, reduce an individual’s tax bill materially.

Lowering of the contribution caps Given the generous tax concessions available to superannuation, the Government has once again tightened an individual’s ability to contribute larger annual amounts to superannuation. The concessional contribution cap, which encapsulates all employer contributions and salary sacrifice contributions, will be reduced from the current $35,000 per annum to $25,000 per annum from 1 July 2017. Similarly, the non-concessional 14

YourLifeChoices Your super and retirement update 2017

cap, which measures all after-tax personal contributions, will also be reduced from $150,000 per annum to $100,000 per annum from 1 July 2017. This will ensure that the cost of future tax concessions given by the Government remain somewhat limited, but will also make it harder for individuals to build a greater nest egg to self-fund their retirement. Adam Gee is the Chief Executive Officer of SuperRatings (www.superratings.com.au), a ratings, research and consulting company focusing purely on superannuation. Adam has more than 20 years of experience within the superannuation industry and holds a Bachelor of Science, majoring in Psychology, a Graduate Diploma from the Financial Services Institute of Australasia, and is a Graduate of the Australian Institute of Company Directors. YourLifeChoices disclaimer

Can you make your super last longer? Once you’ve done all you can to maximise your super balance, how can you ensure it lasts as long in retirement as you do?

hen saving for retirement the focus is largely on doing what you can to boost your superannuation balance. Once you enter retirement, the focus naturally switches to how you can make the superannuation you have last longer. The first step should be objectively evaluating your budget in retirement. This should include how much debt you have, ongoing expenses and the possibility of one-off expenses arising. If you have considerable debt, be it a mortgage, credit card or loan, you may be tempted to withdraw a lump sum from your super and pay it off. However, you should assess whether the interest you will save by doing so will be greater than the investment returns you would otherwise receive on this lump sum. Another factor to consider when assessing how much income you will need is how long you will live in retirement. While there’s a generalisation that 15 to 20 years is what can be expected, the reality is that the longer you live, the greater your life expectancy. If you’re interested in calculating how long you may live, and therefore how many years you will spend in retirement, you can use the Shape Analyser tool at Mylongevity.com.au Once you have a firm understanding of what your regular expenses will be and how long you will live in retirement, you can then look at the best means to fund your chosen lifestyle for the anticipated number of years. Superannuation is only one element of income in retirement. A Government Age Pension, personal savings, investments outside super and continued earnings from work could all be combined to provide your income in retirement. Converting your super into an income stream could be the easiest way to provide a regular income in retirement. There are two types of products you can consider: an account-based pension or an annuity. Account-based pensions not only provide a regular income, they also give you flexibility to access your savings when you need a little extra money. Your

balance continues to be invested and the earnings added to your account, which can help extend your savings. An annuity pays a guaranteed income for a defined period of time at a fixed rate of return. While you have peace of mind that your money won’t run out or be affected by market forces, an annuity can lack flexibility, with limitations on withdrawing money. Once you have calculate how much total income you will receive from your income stream, you can then use one of the many calculators available online, such as Moneysmart’s Retirement Planner, to gain an indication of how much Age Pension payment you may be due. It should also be noted that any Age Pension claim will be assessed under the asset test as well as the income test. So, the answer to the question is yes, with an understanding of your ongoing expenses, chosen lifestyle and how to maximise your income outside super, you can make your super last longer. YourLifeChoices disclaimer

YourLifeChoices Your super and retirement update 2017

What to look for when seeking financial advice Scandals in the financial planning sector may be a turn-off so Kevin Moore explains how to obtain advice you can trust.

ith nearly 4 million working Australians aged 45 years and over¹ looking to retire within the next 20 years, getting good financial advice will play a critical role in helping many achieve their retirement goals. But for many, knowing who to trust and turn to for financial advice can be the real challenge. With the number of financial advice scandals hitting most of our major banking institutions in recent times, it makes sense to apply some checks and balances before you seek advice.

A formula for seeking trustworthy advice Kevin Moore is an authorised representative of Industry Fund Services and provides advice to AustralianSuper members. He offers his formula below for getting financial advice you can trust².

Check qualifications and experience Make sure the adviser has the right qualifications and experience to do the job. This ensures they will understand what’s required and not miss anything important. I’d ask what qualifications they hold that are directly related to financial planning, and whether they’re a member of the Financial Planning Association of Australia (FPA). Its website fpa.com.au also has a list of financial planner members. Information about qualifications and experience of advisers is also available on the ASIC MoneySmart website at moneysmart.gov.au .

Do they have a licence?

adviser is competent and licensed to give advice in the area specific to your needs. For example, advice on direct shares, direct property or selfmanaged superannuation funds, etc. Read the Financial Services Guide (FSG) from your adviser and find out what services they are authorised to provide.

Check the costs Find out which product fees and costs apply, such as platform fees, ongoing adviser review fees or any other fee that will have an affect on your investment performance. Financial advisers must tell you if they receive any payments for recommending a particular product. And of course, if the adviser does receive such payments, there could be a conflict of interest.

Ask the hard questions on incentives or bonuses Ask how the financial adviser is paid and what, if any, other bonuses they may receive for providing advice. An adviser’s recommendations may be affected by the remuneration they receive for the advice they provide to you. Your decision to trust an adviser needs to be based on a full understanding of the remuneration they receive.

To give financial advice, an adviser must have an Australian Financial Services Licence (AFSL), or be an employee or authorised representative of someone who has an AFSL. Information about advisers is available on the ASIC financial advisers’ register on its MoneySmart website. So make sure the financial adviser has the knowledge to match the products and services you need at moneysmart.gov.au .

Remember, financial advice can help you: • budget and manage your money • choose the right investment strategy • plan for your retirement • protect you and your family • make the most of your super.

Understand their specialty

² Kevin Moore is employed by AustralianSuper and is an Authorised Representative of IFS. Any views expressed in this article are Kevin’s and are not the views of IFS. A copy of Kevin’s FSG is available by calling 03 8648 3998.

Most financial advisers, like chefs, teachers or doctors, concentrate on specific areas within their profession, so it’s important to make sure that an 16

YourLifeChoices Your super and retirement update 2017

¹ Source: www.abs.gov.au Retirement and Retirement Intentions, Australia, July 2012 to June 2013

This information may be general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.

Can you access your super early? Accessing your superannuation early should never be considered an easy way to get you out of financial difficulty. So what are the rules?

uperannuation is a long-term means of saving for your retirement, but if you’re struggling financially, surely you should be able to access your super early to ease the burden? Not necessarily so. To be granted access to your superannuation, you are required to satisfy a Condition of Release. If you haven't reached 65, your preservation age, or retired permanently from the workforce, then the conditions under which your superannuation can be released are limited to: • compassionate grounds • severe financial hardship • terminal medical condition • temporary or permanent incapacity • balance of $200 or less • departing Australia permanently if you’ve been here on a temporary basis

Compassionate grounds In some instances, such as paying for medical treatment or making a loan payment to save you from losing your home, you can make a request to the Department of Human Services for the release of an amount of superannuation to cover such costs.

Severe financial hardship If you can demonstrate that you have been receiving eligible Government income support payments continuously for 26 weeks and are not able to meet reasonable living expenses, then you can contact your superannuation fund to request a lump sum withdrawal. This is limited to one withdrawal in a 12-month period and is subject to a minimum of $1000 and maximum of $10,000.

Terminal medical condition In the event of a diagnosed terminal medical condition, which will result in your death within a 24-month period, you can request from your superannuation fund early access to your superannuation savings. Your condition must be certified by two doctors, one of whom must be a specialist in the field.

Temporary or permanent incapacity In regards to accessing your superannuation early due to temporary incapacity, you must be unable to work or have the need to work fewer hours. This type of super withdrawal will be paid as regular payments and will be taxed as a standard super income stream. For those with a permanent incapacity to work, you must satisfy your fund that you will never be able to work again in a role that you are fully qualified to do. Two medical practitioners must certify your condition and the withdrawal can be paid as a lump sum or as regular payments.

Balance of less than $200 If you cease employment and have a balance of less than $200 in your superannuation fund, then you may be able to withdraw this amount, tax free.

Departing Australia permanently If you have been working in Australia as a temporary resident, then you may be able to apply to take your super with you when you depart. While you may consider that you meet one of the conditions outlined above, being granted early access to your superannuation is not guaranteed. Accessing superannuation early should only ever be considered as a last resort. Find out more at ATO.gov.au YourLifeChoices disclaimer

YourLifeChoices Your super and retirement update 2017

How much do you need in retirement? Rather than ask ‘how much is enough for retirement?’, maybe you should be asking these tough questions instead?

t used to be $640,000 that was quoted as being enough in retirement savings, but then we had the ‘magical’ figure of $1 million. And now, with retirement pension accounts being capped at $1.6 million, many are asking themselves if this is the amount needed to enable them to fund their retirement. However, the amount you actually need depends on how prepared you are for retirement and what your vision of retirement entails.

Ditch the debt or keep working? Entering retirement with any debt, be it credit card, mortgage or personal loans, will make achieving an affordable retirement incredibly difficult. The reality is that you really shouldn't be considering retirement if you’re carrying so much debt that you worry about paying it off. Unless your retirement nest egg is edging towards the ‘magical’ $1 million mark, a few more years at work may be necessary.

Home – do you own or rent? Of course, whether or not you own your home outright will make a huge difference to how much income you need in retirement. The amount quoted by the Association of Superannuation Funds of Australia (ASFA) to live a modest or comfortable lifestyle doesn't take into consideration having to pay mortgage or rent.

Living the highlife or just above the breadline? If you’ve always lived frugally, then it’s unlikely that you’ll be switching to the champagne and caviar lifestyle once you retire. However, if you’re used to travelling frequently, eating out and replacing your car every few years, then you will need to consider whether you can afford to maintain this type of lifestyle.

Worker bee or idle existence? For some, not working another day in their life is a truly daunting prospect; whether it’s the financial, social or mental stimulation they get from being in the workforce. While for others, hanging up their ‘work boots’ can’t come soon enough. If you’re able to maintain an income in retirement, then the pressure of saving a certain amount for retirement is somewhat alleviated. 18

YourLifeChoices Your super and retirement update 2017

How does your super balance compare? Rather than assuming everyone has more savings in super than you, you should ask yourself how your super balance compares to others in the same position. For instance, in 2013/14, the average super balances at retirement (assumed to be 60–64 years of age) were $292,500 for men and $138,150 for women. The median balance, which is a better reflection of how much people actually have, is a much sorrier story, at $100,000 for men and $28,000 for women. To make the comparison more valid, responses to YourLifeChoices recent Retirement Insights Survey, revealed that when it comes to superannuation and investment balances: • 19.65 per cent have less than $100,000 • 10 per cent have between $100,000 and $199,000, and • 8.45 per cent have between $200,000 and $299,000. So almost 40 per cent of the population has less than $300,000 in superannuation and investments, while only 6.6 per cent quote more than $1 million.

Budget or bust?

What really are your assets and liabilities?

Of course, the best way to ensure you have ‘enough’ money in retirement is to make a budget and stick to it. For some clever tips on how to create your own budget, why not read How to budget (in retirement)?

Although you may think you’re across the value of your assets and, to maybe more importantly, liabilities, it’s actually quite easy to overlook something important. This can prove costly when assessing how much you owe, in order to work out your eventual retirement income. This simple table will give you a starting point from which you can base your calculations and it’s useful to keep handy, update quarterly and maybe even let your nearest and dearest have a copy.

Unless you have a clear idea of your current monthly income and expenditure, you are not ready to contemplate life on a fixed income.

How much do you have? VALUE OF ASSETS

You

Your partner

Joint ownership

Family home

Contents

Motor vehicle 1

Motor vehicle 2

Boat/caravan

Other

TOTAL (A)

VALUE OF EXISTING INVESTMENTS

You

Your partner

Joint ownership

Investment property

Superannuation funds

Annuities or pensions

Term deposit(s)

Managed investments

Cash in bank

Other

TOTAL (B)

TOTAL ASSETS (A) + (B)

VALUE OF LIABILITIES

You

Your partner

C $ TOTAL JOINT ASSETS

Joint ownership

Current home loan balance

Current Investment loan balance

Current personal loan balance

Combined credit card limits

Lease/hire purchase balance

Other

TOTAL (D)

D $

TOTAL NET VALUE OF ASSETS = (C) - (D) YourLifeChoices disclaimer

$ TOTAL JOINT NET VALUE OF ASSETS

YourLifeChoices Your super and retirement update 2017

Published by: Indigo Arch Pty Ltd Publisher: Kaye Fallick Managing Editor: Debbie McTaggart Copy Editor: Haya Husseini Designer: Word-of-Mouth Creative Phone: 61 3 9885 4935 Email: admin@yourlifechoices.com.au Web: www.yourlifechoices.com.au All rights reserved, no parts of this book may be printed, reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, without the permission in writing from the publisher, with the exception of short extractions for review purposes. IMPORTANT DISCLAIMER No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is distributed on the terms and understanding that (1) the publisher, authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, financial, professional or other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a subscriber or reader of this publication or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no publisher, author, consultant or editor shall have any responsibility for any act of omission of any author, consultant or editor. Copyright Indigo Arch Pty Ltd 2017 This eGuide has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The views in the articles are those of YourLifeChoices and not those of AustralianSuper, unless otherwise stated. The articles contain general information and you should consider your personal financial situation before making a decision.

Resources Super changes The superannuation legislation changes will affect the majority of Australians of working age and above. To find out more detail about their impact, visit ATO.gov.au.

Age Pension eligibility By inputting some simple figures, you can calculate if you are likely to receive an Age Pension on top of your super. Age Pension (Centrelink) Estimator.

Save a little extra Even a small amount of additional contributions could see your superannuation balance grow over time. AustralianSuperâ&#x20AC;&#x2122;s Contributions Advisor calculator will give you an indication of how best to do so.

Super comparison How does your super fund compare to the best performing funds on the market? SuperRatings offers independent information on returns, fees and market analysis. SuperRatings.com.au

Don't underestimate the value of good advice When asked, many Australians will claim to have a good understanding of their financial position and how to manage their retirement investments. However, keeping up to date with changing rules can make it all the more complex. Find out more about the advice options offered by AustralianSuper.

YourLifeChoices Your super and retirement update 2017