Author: MWP Financial

The time has come. You’ve worked hard over the years contributing to your superannuation to build up your retirement savings.

Now you need to think about the best way to convert your savings into an income stream that replaces your regular pay cheque.

Here are six ways you could generate a steady and reliable source of income in retirement:

1. An account-based pension allows you to access some of your super savings as an income stream while investing the remaining balance. You can choose the amount and frequency of pension payments to meet your financial needs in retirement. It’s important to consider factors such as investment options, fees and tax when selecting a provider.
2. The Australian Government provides the age pension to eligible individuals who have reached the qualifying age and meet income and asset tests. The age pension offers a regular income stream to supplement your retirement savings. It’s crucial to understand the eligibility criteria and work with a financial adviser to maximise your entitlements and enjoy a seamless transition into receiving the age pension.
3. Investing in dividend-paying stocks or managed funds can be a valuable source of income during retirement. Dividends are regular payments made by companies to shareholders, providing a potential income stream. Seek professional advice to identify companies with a history of consistent dividends, while considering the level of risk that aligns with your financial goals.
4. Investing in rental properties can generate a steady income stream for retirees. Australia’s property market has historically shown growth, making it an attractive option for long-term investment. But it’s essential to thoroughly research the market and consider the pros and cons of using property to fund retirement.
5. Exploring part-time employment or leveraging your expertise through consulting can offer an additional income stream during retirement. Continuing to work not only provides financial benefits but also keeps you engaged and socially connected. Identify opportunities that align with your skills and interests, allowing you to strike a balance between work and leisure.
6. Annuities provide an income for life or a specified period, offering protection against market fluctuations. Talk to a financial adviser to determine the most suitable type of annuity that aligns with your income goals and risk tolerance.

We can guide you through the complexities of retirement planning and help you generate an income stream to enjoy a financially rewarding and worry-free retirement.

Current as at Jul 2023

Knowing how much money you might need, how long it will last can be tricky.

Working out how much is enough for retirement depends on many factors, such as your lifestyle, plans for the future, and the number of years you’ll spend retired. Additionally, estimating how much you’ll have when you plan to retire depends on factors such as your current salary, super balance and assets. With so many factors, it’s easy to see why you might need a retirement calculator to get an idea of your retirement savings needs.

By using retirement calculators you can get an indication of whether there’s a shortfall between how much you are estimated to have and how much you’ll need in retirement, and put a plan in place to address the situation.

How much is enough for retirement?

The Association of Superannuation Funds of Australia (ASFA) estimates that Australians aged around 65 who own their own home and are in relatively good health, will need the following amount of money each week and year in retirementⁱ:

Couple		Single
Comfortable Lifestyle	Modest Lifestyle	Comfortable Lifestyle	Modest Lifestyle
$1,350.23	$877.55	$957.94	$608.91

A modest lifestyle is considered better than living on the age pension, while a comfortable lifestyle means someone can afford a good standard of living, be involved in a broad range of leisure and recreational activities and travel domestically and occasionally internationallyⁱⁱ.

For Australians on above-average incomes, another rule of thumb to estimate how much money you’ll need in retirement is to assume you will require 67% (two-thirds) of your pre-retirement income to maintain the same standard of livingⁱⁱⁱ.

What are your retirement lifestyle expectations?

Ultimately, how much money you’ll need for your own retirement is very personal, and will depend on your own situation, wants, needs and lifestyle expectations. It may help to factor in your day-to-day spending habits, your recreational activities and hobbies and whether you’ll be entering retirement debt-free.

How long will you work for?

The age at which you retire can have a significant impact on how much money you have and how much money you need in retirement. It can depend on factors such as your health, debts, super balance, age you can access your super, whether you have dependants, and your partner’s retirement plans (if you have one).

How long will you be retired?

Keep in mind that if you’re planning to retire at around age 65, it’s likely you’ll live for another 20 years or so. Men aged 65 can expect to live to 84.6 years, while women can expect to live to 87.3 years^iv.

How much money will you have in retirement?

The money you use to fund your life in retirement will likely come from a range of different sources including the following:

Superannuation

Knowing your super balance is a crucial part of planning for retirement, as it’s likely to form a substantial part of your retirement savings.

Age pension

Depending on your circumstances and assets, you could be eligible for a full or part age pension, or alternatively, may not be eligible for government assistance at all.

Investments, savings and inheritance

You may be planning to downsize your house, sell shares or an investment property, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. Or perhaps an inheritance or the proceeds from your family’s estate may help you out in your later years.

How retirement calculators can help

Meet Mac. He’s 51, married and planning to retire at age 65.

To work out how much Mac might need in retirement, he uses a retirement calculator. Mac is hoping for a comfortable standard of living in retirement, and the calculator estimates this will cost him $1,154.49 a week – or $60,033 a year. He’s also planning on buying a new car and doing some travelling once retired, and thinks he’ll need $40,000 for these one-off expenses. Based on a life expectancy of 81 years, the retirement needs calculator estimates he’ll need a total of $993,473 to fund his retirement.

So how much might he have in retirement, and how long is his money likely to last, based on his current and expected financial situation?

Mac currently has $172,000 in superannuation invested in a balanced investment option, an annual pre-tax salary of $82,000, shares worth $20,000, and the couple owns their family home. Based on this information, the retirement simulator calculates he’ll retire with savings of $294,944. Based on his expected expenditure in retirement outlined above, the retirement simulator estimates his money will only last until age 71, leaving him with a funding shortfall of 10 years in retirement.

While this news may seem scary, it’s not an uncommon situation. Luckily, finding out about the possible shortfall now means there may still be ways to boost his savings before retirement.

What do you do if you won’t have enough to retire?

If, like Mac, you’re facing a shortfall in retirement, there are several things you can do to get your retirement on track. You could consider boosting your super through additional contributions, delaying your retirement, adjusting your retirement lifestyle expectations, or selling other assets.

Simply by having an idea of your current and projected retirement savings, you could work to improve the situation. The earlier you start, the easier it may be for you to reach your retirement goals.

Contact us to see how we can help.

i, ii https://www.superannuation.asn.au/resources/retirement-standard
iii https://moneysmart.gov.au/grow-your-super/how-much-super-you-need
iv https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy

Generally, you can, but there may be other things to consider.

When you access your super at retirement, depending on your age and personal circumstances, your super fund may ask you to sign a declaration stating you intend to never return to work again. However, there could be compelling reasons as to why you might go back in the future.

Figures from the Australian Bureau of Statistics reveal financial necessity and boredom are the most common factors prompting retirees back into full or part-time employmentⁱ. Whatever your motivations might be, if it’s something you’re considering, there are things you should be aware of.

What is your situation?

I reached my preservation age and declared retirement

If you reached your preservation age (which will be between 55 and 60, depending on when you were born) and declared you’d permanently retired, this would typically have given you unlimited access to your super.

Your intention to retire must have been genuine at the time, which is why your super fund may have asked you to sign a declaration stating your intent.

Depending on your circumstances, you also may be required to prove your intention to retire was genuine to the Australian Taxation Office.

I stopped an employment arrangement after I turned 60

From age 60, you can stop an employment arrangement and don’t have to make any declaration about your retirement or future employment intentions, while gaining full access to your super.

If you’re in this situation, as there was no requirement for you to declare your retirement permanently, you can return to work without any issues.

I’m aged 65 or older

When you turn 65, you don’t have to be retired or satisfy any special conditions to get unlimited access to your super savings, so regardless of whether you’re accessing super or not, you can return to work if you choose to.

What happens to your super if you return to work?

Regardless of which group (above) you fall into, you may have taken your super as a lump sum, income stream, or potentially even a bit of both.

If you chose to withdraw a regular income stream from your super savings and are wondering whether you can continue to access these periodic payments, the answer is yes you can – and that’s irrespective of whether you return to full or part-time work.

What are the rules around future super contributions?

Unless you plan on being self-employed and paying your own super, your employer is required to make super contributions to a fund on your behalf at the rate of 10.5% of your earnings (increasing to 11% from 1 July 2023).

This means you can continue to build your retirement savings via compulsory contributions paid by your employer and/or voluntary contributions you make yourself.

Note, once you reach age 75, you’re generally ineligible to make voluntary contributions (unless they’re downsizer contributions), while compulsory contributions paid by an employer under the super guarantee (if you’re an employee) can still be paid no matter how old you are.

Could returning to work affect your age pension?

If you’re receiving a full or part age pension from the Government, you’d be aware that Centrelink applies an income test and an assets test to determine how much you get paid.

Your super, as well as any new employment income will be considered as part of this assessment, so make sure you’re aware of whether earnings from returning to work could impact your age pension entitlements.

If you’re eligible, the Work Bonus scheme reduces the amount of employment income, or eligible self-employment income, which Centrelink applies to your rate of age pension entitlement under the income test.

Where can you go if you need a bit of help?

For information and tips around re-entering the workforce, check out the Department of Education, Skills and Employment website, which includes a Mature Age Hub, as well as details around the government’s Jobactive initiative and New Business Assistance for those looking to become self-employed.

There are also websites like Older Workers and Seeking Seniors, which focus specifically on mature-age candidates.

If you have further questions on how a return to work could impact you, speak to us today.

©AWM Services Pty Ltd. First published Jul 2022
i ABS – Retirement and Retirement Intentions, Australia

Term deposits offer certainty and savings accounts offer flexibility. Here are some other common features and benefits of each.

Putting your money into a savings account, or a term deposit, are two common methods of saving. Working out whether either of these options are right for you depends on your personal and financial circumstances, as well as your savings goals.

To look at this simply, a separate savings account where your money is readily accessible might be useful for a short-term goal. A term deposit, where your money may be tied up for a longer period of time in return for generally higher interest, could be a more suitable option for a longer-term goal.

Term deposits

Term deposits work by locking your money away for a certain timeframe (or ‘term’) in exchange for a fixed interest rate return at the end of that term. A general rule of thumb is the longer the term, the higher the interest rate. Terms vary, but usually range from as short as one month to as long as five years.

They’re worth considering if you’re looking to get an exact amount by a certain date, and don’t need to access the money before the agreed term ends.

Pros

• There is more certainty involved with the return on term deposits than most savings accounts as the interest rate is guaranteed.
• Usually, these accounts come with no set-up fee. They often offer a higher rate of return to compensate for your money being out of reach for the entire duration of your term.
• You don’t need to worry about fluctuations in the Reserve Bank of Australia’s (RBA) cash rate.
• If interest rates fall during that time, you’re likely to do relatively well with a locked-in rate.

Cons

• If the cash rate rises, you won’t be able to obtain the benefit of that increase for your term deposit.
• Your money is locked away for the full term.
• You’ll have to give notice to access it early, usually around 31 days.
• You’ll have to pay a penalty fee or earn less interest if you take your money out before the end of the term.
• A minimum initial deposit is required, which can vary widely.
• There’s no option to top up funds once you’ve opened a term deposit.

Interest rates on term deposits

With a term deposit, the length of the term has a corresponding interest rate. You can choose the term, or the length of time you want and the amount you want to deposit based on your needs.

When should I open a term deposit?

Term deposits can be useful when you’re looking for certainty about the rate of interest your money will earn. So, if your goal is to buy a car but you want to wait until the end of the next financial year to grab a bargain, you might plan for a term deposit that matures around then.

Savings accounts

Savings accounts are more flexible than term deposits. A savings account can be useful when you want to put your money away and have it earn some interest with the peace of mind that you can also access your funds as and when you need to.

Pros

• You can deposit or withdraw money at any time.
• You may be able to link to an everyday transaction account.
• Interest rates may rise, giving you a greater return on your initial deposit.

Cons

• Interest rates may fall, giving you less than you expected at the outset.
• If you withdraw funds you may lose interest for that month, or whatever length of time applies to your account.
• You may be required to make minimum monthly deposits to earn bonus interest rates.
• You may need to maintain a certain balance to avoid any potential fees or loss of interest rate benefits.
• Some savings accounts may limit access to money to encourage you to save, through no debit card or ATM access

Interest rates on savings accounts

Standard savings accounts usually offer low fees and immediate access to your money, but you may get a lower interest rate compared to a term deposit.

Interest rates are quoted per annum, applied as a percentage to the money you have in your savings account on a daily basis, and credited monthly.

As the name suggests, high-interest savings accounts typically have higher interest rates, but there may be penalties for withdrawing your money before a set period of time has passed, or if you don’t meet the required number of debit card purchases or ongoing minimum deposit requirements.

What to consider before opening a savings account?

Things to consider:

• fees charged
• interest rates
• how accessible your money is
• whether you can set up an automatic direct debit, and
• whether there’s a minimum amount you need to deposit each month.

There’s a variety of savings accounts in the market so use this checklist to help find the right savings account for your situation.

How fees compare

Term deposits usually come with no set-up fee. However, if you need to withdraw your money before the maturity date, you’ll likely have to give notice in advance of your withdrawal and pay a fee or earn less interest.

Some savings accounts attract set-up fees and may also include anything from monthly account keeping fees to withdrawal fees.

So, when it comes to comparing accounts, make sure you’re across any potential fees or charges your provider may apply to your account.

©AWM Services Pty Ltd. First published May 2022

Sidestep the shock of unexpected bills by smoothing out payments and making regular, automated instalments that can be planned well in advance.

Ever experience that sinking feeling when you’ve opened a bill that you can’t possibly afford to pay? The shock of receiving a big bill – or worse, a number of them arriving at the same time – can be extremely stressful. Thankfully, by setting up bill-smoothing payments you may avoid these bombshells.

What is bill smoothing?

The goal of bill smoothing is to make budgeting easier by setting up regular, automated payment plans for businesses you normally get bills from, like electricity, gas, water and telecommunications companies. This way, you’re not forced to pay the whole, unknown amount in one go, and face fewer unexpected fluctuations.

How do I set up bill smoothing?

There are two simple ways:

1. Have your utility provider set it up for you

If you have trouble paying your bills, you may be able to implement a formal bill-smoothing plan by talking to your utility providerⁱ and asking them to set it up for you. The provider will tally up your spending over the last year and divide it by 12 months to get a monthly average – you can organise weekly or fortnightly calculations if you prefer. You then organise automated direct debit payments of this amount from your everyday account.

In theory, you’re paying more when your usage is lowest, contributing to a nice surplus that can cover usage at its peak. If you end up contributing more money than your actual bill amount, you’ll be rewarded with a refund or credit. You can also press pause on payments and restart them when you’ve used up your credit. On the flipside, if the cost of your energy, gas or water usage is greater than expected, you may be left with a ‘settlement’ bill at the end of the year to cover additional costs.

2. Set it up yourself

Complete the bill-smoothing process yourself, working out your average weekly, fortnightly or monthly spend. It’s a good idea to add in a buffer, say 5–10%, to cover things like annual rate increases.

Once you’ve figured out the amount and frequency, pay that amount into a separate bank account you set up specifically for this reason. Then, you should have accumulated enough funds in this account to cover your bills.

You can do this with pretty much everything you spend money on, from your groceries to your rent, car registration, mobile phone and rates.

Why set up payment plans?

Because it’s a great feeling when you get a ‘bill’ that’s in credit. It can also mean reduced credit card payments, if you’ve been using them to cover bills in the past. And while you’re talking to your utility providers about payment plans, you can potentially save even more money by asking them about switching you over to a better plan.

Should I try bill-smoothing payments?

Bill-smoothing payments work well for a wide range of people including those with irregular incomes, people on tight budgets, and those who wish to add a layer of discipline around paying bills and managing their money.

A few more things to consider about bill smoothing

One potential downside of formal bill smoothing is you may miss out on bank interest that you would otherwise earn from having the money sit in your account, rather than in the account of the company you’re paying. Which is why doing it yourself, informally, is quite appealing. You can try paying money into a separate bank account, this way you’re earning interest while still contributing to a purse that’s set up specifically to cover your bills, and nothing but your bills.

Contact us today if you’d like to talk about your financial situation.

©AWM Services Pty Ltd.

i Origin Energy, Red Energy, AGL, Power Direct, Diamond Energy, Click Energy

When thinking about your retirement, financial and non-financial considerations will all play a part, and thinking ahead could create more certainty. Below we explore some of the things you may want to think about, whether you’re deciding for yourself or helping a loved one weigh up the pros and cons.

Are you thinking about downsizing your home, relocating or both?

For many Australian’s, retirement may be an ideal time to downsize, possibly relocate somewhere new, or both, while freeing up a bit of extra money. Either way, there will be a variety of things to consider.

Financial considerations

• • What are the property and rental prices like in the area you’re looking at, and are they affordable.

• • How does the general cost of living stack up when it comes to groceries, eating out, transport and health.

• • What out-of-pocket expenses might you be looking at, such as removalist fees, stamp duty if you’re planning on purchasing a home in Australia, and things like connecting and disconnecting utilities.

• • Consider whether the money from your potential property sale could affect the results of income and asset tests for any Age Pension entitlements you may be eligible for.
  • If you’re 60 or over and eligible, you may want to make a downsizer contribution into super. This is where older Aussies can put up to $300,000 into their super (or up to $600,000 per couple) using money from the sale of their main residence, noting various rules apply.

Non-financial considerations

How far the property you’re looking at is located from family and friends, and whether you know anyone in the place you’re thinking of moving to.

• • What local amenities are nearby, such as supermarkets, restaurants, transport and hospitals.

 

• • Whether the area is big on community events and if there are recreation facilities nearby (like parks, libraries, or leisure centres) and club associations you may want to join, like Leagues or Rotary.

 

• • What the weather is like throughout the year and whether it’s going to suit you.

 

• • How the job market stacks up in case you decide to step back into the workforce.
  • What the crime rate is like.

If you’re not too sure about some of these things, that’s okay. However, if you are thinking about moving to an area that you’re not familiar with, it might be worth trialling where you’re thinking about moving to, by visiting the neighbourhood a few times, or even taking a short break and renting there for a while.

Are you thinking about making modifications to your existing property?

Rather than moving, you may be thinking about making modifications to your existing home to make it more accessible for what you might need in your future years. For instance, you may be considering installing handrails and ramps, widening doorways, installing emergency alarms, monitoring systems or even adding sensor lights. This could also delay the potential need to move into an assisted living facility down the track, and the good news is, if this is something you’d like to do, there may be government subsidiesⁱ to help you cover the costs.

For more information, you can either check out the government’s My Aged Care website or call 1800 200 422.

Are you thinking about moving into a retirement village?

If you’re looking to downsize or reduce your responsibilities (your home might be getting too big to manage), you may be considering moving into a retirement village. to care for themselves.

Retirement villages have different living options and offer a range of leisure, social and support services, depending on whether you’re choosing an independent living centre or an assisted living arrangement.

Independent living centres typically have minimal assistance in day-to-day living but plenty of medical and recreational facilities, such as community halls, bowling greens, libraries and pools.

Assisted living centres generally offer more support with house responsibilities and maintenance, such as housekeeping, cleaning or preparing meals.

Payment models for retirement villages

There are many different payment models when it comes to retirement villages, depending on whether it’s an independent living or assisted living centre. However, some typical costs you may come across include an entry contribution, an exit fee and ongoing charges to cover things like maintenance and general services provided by the village.

How different villages charge can vary significantly, and some residents may be subject to different payment models or special levies, which could also change over time. This is why it’s important to read the fine print and consider speaking to a legal professional before signing anything.

Are you thinking about the potential of living in an aged care home?

By considering your options in aged care earlier rather than later, you may be able to provide yourself, or a loved one, with greater flexibility and freedom down the track. The other thing worth noting is that moving into an aged care facility might not be the only option, with the government providing various services that could help you to stay at home for longer.

Help at home

If you’re generally able to manage, but require assistance with daily tasks, like shopping, cooking, home maintenance, personal care, travel and social activities, there are various home-care services that could support you, so you may continue to live independently in your own home.

Short-term care

Short-term care services provide support for a set period of time. There are three types of short-term care available, including:

• • Short-term restorative care, which provides a range of services to help prevent or slow down difficulties with completing everyday tasks.

• • Transition care, which is an after-hospital service available while you recover, and which can be provided in your own home or a live-in setting for 12 to 18 weeks.
  • Respite care, which provides support for you and your primary carer when your carer has other duties to attend to, or if they’re away.

Aged care homes

An aged care facility (or nursing home) is typically where you live in a full-service residence and receive ongoing care and support while you live there. These aren’t the same as retirement villages or other independent living centres, which provide facilities but not necessarily the same level of support and care that you may need later in life. If you think this is the best option for you or your loved one, it’s a good idea to research and visit several residences to find the right fit.

Eligibility for different services

To be eligible for various government aged care services, you must meet certain criteria and pass an assessment process. This can be organised through the government’s My Aged Care website or by calling 1800 200 422.

Also keep in mind, that the costs of different aged care services vary and will depend on the care you’re eligible for, the provider you choose and your financial situation.

©AWM Services Pty Ltd. First published Jul 2022

i My Aged Care – Commonwealth Home Support Programme

Ahh retirement! You may have been dreaming about it for decades. You visualise yourself putting away your uniform, high-vis or corporate gear, farewelling that lovely boss of yours and spending the rest of your days swinging in a hammock by the ocean somewhere.

As the dream teeters on reality, you can’t help but contemplate the debt you’re yet to pay off and how it might create roadblocks for the things you may still want to do – the family barbecues, the weekend getaways, possibly even helping the kids out.

While many Aussies will carry some debt into retirement, the good news is, there are many things you could do now while you’ve still got time on your side and are earning an income.

1. Crunch the numbers and get organised

• • Work out what debts you have and what they total

• • Compare what you earn, owe and spend and consider where you might be able to cut back

• • Look into whether you could benefit from rolling your debts into one loan

• • Pay your debts on time to avoid additional charges

• • Consider paying the full amount outstanding on your credit card(s), rather than the minimum owing

• • Look at whether you could afford to make extra repayments

• • Shop around for providers with lower interest rates and no annual fees

 

• If you’re experiencing financial hardship, talk to your providers, as most can assess your situation and help you find alternative payment plans.

2. Get serious about having a budget

If you’re approaching retirement, you may be prioritising things such as living costs, day-to-day bills, health care and helping the kids, if you have them. With many Aussies looking at a retirement (which in reality, could span a few decades), another thing to give some thought to is recreation and your social life.

A good starting point when it comes to setting up a workable budget (so you can manage the things mentioned above) is figuring out what money you have coming in, what expenses you’ve got and what you might be able to put aside.

Perhaps you’re wondering how much money you’ll need to retire on?

According to ASFA’s March 2022 figures, individuals and couples around age 65 who are looking to retire today would need an annual budget of around $46,494 or $65,445 respectively to fund a ‘comfortable’ lifestyle.ⁱ

To live a ‘modest’ lifestyle, which is considered slightly better than living on the age pension alone, individuals and couples would need an annual budget of around $29,632 or $42,621 respectively.ⁱⁱ

3. Consider what money you might have access to when you stop work

The money you use to fund your life in retirement will likely come from a range of different sources, including the following:

Super – Generally you can start accessing super when you reach your preservation age, which will be between 55 and 60, depending on when you were born. Knowing your super balance is a crucial part of planning for retirement, as it’s likely to form a substantial part of your savings.

If you’ve got more than one super account, there may also be advantages to rolling your accounts into one, such as paying one set of fees. However, there could be certain features lost in the process, such as insurance, so make sure you’re across everything before you consolidate.

Investments, savings, inheritance – You may be planning to sell or use income you’re generating from shares or an investment property or use money you’ve saved in a savings account or term deposit to contribute to your retirement. An inheritance or proceeds from your family’s estate may also help in your later years.

The government’s Age Pension – Depending on your circumstances, as well as your level of income and assets, you could be eligible for a full or part age pension from age 65 to 67 onwards (depending on when you were born), or you may not be eligible for assistance at all.

4. Know where your money is sitting and what it’s doing

Having spare money sitting in the one place might not be the best thing. For instance, if you’ve got cash in a transaction account, could you be earning more if it was invested elsewhere, or even placed in an offset account linked to your home loan (if you have one) to reduce what you pay in interest?

Looking at different investment options inside your super could also potentially generate better returns. Do keep in mind though, that a more conservative approach may be a better option as you get older, as when you’re younger, you generally have more time to ride out market highs and lows.

5. Think about downsizing your home or refinancing

You might also be interested to know that when you reach age 60, you can make a tax-free contribution to your super of up to $300,000 using the proceeds from the sale of your home (if you’ve owned it for 10 years and it’s your main residence). There will be potential advantages and rules however that you’ll need to be across.

Refinancing, whereby you replace your existing home loan with a new one, could also create cost benefits and more financial flexibility.

Remember, your living arrangements in retirement should be based on more than just your finances. Your health, partner, family and what activities you want to pursue once you stop work will play a part.

6. Contemplate working a bit longer

This could help you to boost your savings as well as your super balance, so that you have a more comfortable lifestyle in retirement. In fact, the main reason most older Aussies say they want to stay in the workforce is financial securityⁱⁱⁱ.

It’s also interesting to note, retirement isn’t necessarily a one-time event, particularly when it comes to the 45 to 54 and 55 to 59 age groups, with as many as 26.7% returning to employment annually^iv.

Meanwhile, regardless of whether you’re still working full-time, part-time or casually, if you do plan on working for longer, a transition to retirement strategy (whereby you may be eligible to access a portion of your super ahead of retirement) could potentially help you to pay off debt, without reducing your take home pay, or help you to improve your super savings.

If you need help managing financially, we’re here to help.

©AWM Services Pty Ltd. First published Jul 2022

i, ii ASFA Retirement Standard – March 2022 figures

iii Australian Bureau of Statistics – Retirement and Retirement Intentions

iv The Household, Income and Labour Dynamics in Australia (HILDA) Survey pages 65, 67

The economic impact of COVID-19 has been keeping a lid on interest rates in recent years. But they were on a downward trajectory even before the pandemic, with the last increase coming in late 2010. In fact, interest rates have been so low, for so long, that a generation of Australian home buyers have grown up with no experience of rising rates.

But sadly, all good things must come to an end. Interest rates have begun to rise following the Reserve Bank of Australia’s (RBA) decision to increase the cash rate for the first time in over a decade. And with high household debt levels, it could make life difficult for millions of Australians as regular mortgage repayments start to increase.

But the good news is, there are ways you can structure your home loan and adjust your spending to help with rising repayments as the new rate landscape takes shape.

What’s the official cash rate?

The official cash rate sets the interest rate for overnight transactions between banks. It’s a tool used by the RBA to influence economic activity and manage inflation.

An increase in the official cash rate generally means arise in the cost of borrowing money. So, when the RBA changes the official cash rate, the banks tend to follow suit and change their lending rates.

How do banks set interest rates?

The official cash rate isn’t the only factor that influences bank lending rates, but it’s one of the most important.

To make money, banks need to lend money out at a higher rate than they borrow – this is why the interest rate you receive on your savings account tends to be lower than the interest rate you pay on your home loan. So, an increase in the cost of borrowing money can affect you in different ways, depending on whether you’re a saver or a borrower.

If you have a savings account or you’re thinking of taking out a term deposit, you could start to receive more interest on the money you’ve lent to the bank. But if you have a home loan you could start to pay more interest on the money you’ve borrowed from the bank.

Why are interest rates rising?

The RBA is looking to control inflation in a bid to stabilise the Australian economy, which is seeing higher prices, lower unemployment and signs of potential wage growth.

What do rising rates mean if you have a home loan?

If you have a variable rate loan, or your fixed rate loan is about to reach the end of its term, you may find your repayments increase and you have less discretionary income to spend on other things.

What can you do to reduce the impact of rising interest rates?

1. Tailor your home loan to suit you

The way you structure your home loan could help you pay less interest in the long run and take years off your mortgage. As we see rates start to increase, it’s a good idea to think carefully about what type of loan best suits your needs – fixed, variable, or split. It’s a big decision and could have a significant impact on your future repayments and household budgeting as rates rise.

Fixed rate loans

A fixed rate loan has a set rate even if interest rates rise.

• • You can lock in your interest rate for a period – generally one to five years – depending on factors such as the total amount borrowed and the overall loan term.
  • You can choose to fix your rate again at the end of the fixed-rate term, or let it roll to a variable rate.

A fixed rate home loan not only gives you the certainty in your repayments, but it could also help you manage your household budget more easily. However, you usually don’t get the flexibility to make extra repayments so you can’t pay off your loan faster by making additional repayments. And you might also be up for break costs if you want to make any changes such as exiting your loan before it ends.

Variable rate loans

The interest rate you pay over the life of your loan can change as banks vary their lending rate. So, if rates rise, so will your repayments.

A variable home loan can be more difficult to budget for, but tends to be more flexible so you may be able to:

• • make extra repayments to pay your home loan off faster
  • access these extra repayments via a redraw facility
  • open an offset account, which you can link to your home loan to reduce your interest.

Split loans

A split loan can help to manage the risk of higher repayments by letting you fix some of the loan and leave the rest variable. This could give you the best of both worlds, as a split-rate loan allows you to have rate and repayment certainty on the fixed-rate loan, while taking advantage of the flexibility on the variable-rate loan.

2. Check your spending

Creating a budget could help you get across how much income you’ve got coming in, how much you need for the essentials and where the rest of your money might be going.

This will help you identify if there’s any room for movement and if you could potentially add a little bit extra to your repayments. AMP’s Budget calculator could help you crunch the numbers.

©AWM Services Pty Ltd. First published Jun 2022

With rising rates putting pressure on household finances, it could help to look at ways to save more and spend less

So…the era of rock bottom interest rates is finally coming to an end.

The Reserve Bank of Australia’s (RBA) decision on 3 May to raise the official cash rate by 0.25% to 0.35% is the first increase since late 2010.

With Australia one of the most highly leveraged countries in the worldⁱ and the average mortgage for owner-occupied properties standing at almost $600,000 – an increase of 18% over the past yearⁱⁱ – any increase in home loan repayments could see millions of householders scrambling to pay the bills.

Fortunately, there are ways you can help to relieve the stress on the household budget.

If you have the flexibility, you could adjust your home loan – either by fixing part of your mortgage to reduce the impact of further rate increases, or by reducing your repayments if you’re paying more than the minimum required (although bear in mind this means you’ll take longer to pay the loan off and pay more interest over the life of the loan – so, in the long run, this may not benefit you).

Or you could look at where you might be able to make other savings in your household budget.

Three steps to creating a budget

Spend less, save more. It sounds easy. But it can be tough to find ways to cut back, particularly when you need to allocate more of your income to mortgage repayments.

The best way to start is by creating a budget.

A budget is a great way to set down how much you’re spending (your outgoings) and how much you’re getting in income (your incomings).

1. 1. Calculate your income. Include everything – any money you earn from an employer, any money you receive from the Government and any money you earn from investments.
   2. Work out your expenses. Look at what you spend and don’t miss anything out – you might be surprised at what you could cut back on.
   3. Use an online budgeting tool. AMP’s Budget Planner Calculator or MoneySmart’s Budget planner can help you work out where your money is going.

Ways to cut your spending

You could divide your spending into different buckets – essentials like home loan repayments, grocery bills, utilities, transport and medical expenses – and discretionary spending like eating out, travelling and leisure activities.

Whether it’s regular payments or your entertainment spend, there could be ways to save more as interest rate rises start to bite.

• • Could you shop around for a better deal on utility bills like gas, electricity and water?
  • Could you drive a bit less or even consider whether you need a second car if you have one?
  • Could you shop at a more affordable supermarket or buy in bulk to make savings?
  • Could you cut back on paid subscription services in favour of free TV-on-demand services like ABC iView?
  • Could you take advantage of cheaper deals when going out like midweek specials at local cinemas and restaurants?
  • Could you look at cancelling memberships you’re not using in favour of cheaper options – instead of the local gym you could take up cycling or running.
  • Could you manage any other debts better by consolidating them into a single loan so you’re paying less interest?

We understand that even with a strict household budget, it can still be difficult to make ends meet, particularly if your home loan repayments are increasing. We are here to help.

©AWM Services Pty Ltd. First published Jun 2022

i OECD, Household debt 2022

ii Borrowing big: Australia’s average mortgage size is now just shy of $600,000. Mozo. 19 Jan 2022

Billions of dollars in super contributions go unpaid every year. Here’s how you can find out if you’re getting paid what you’re owed and what you can do if you’re not.

A while back, a mate of mine posted on social media that she was owed over $10,000 in super from a former employer, who had since shut up shop (money she may never see when she does eventually retire).

Responses from friends revealed she wasn’t alone, with one person commenting that, like her, they still hadn’t received their unpaid super money, with employers who go out of business sometimes harder to chase up.

The good news, according to the ATO’s last count, is that around 95% of super contributions were being paid by employers, but on the flipside that did leave around $2.5 billion in unpaid superⁱ.

If you’re not sure if you’re getting paid what you’re owed, here’s what you need to know and what you can do if something doesn’t look right (keeping in mind, the sooner you act, the better).

Who’s most at risk?

In the past, the ATO has indicated that about 50% of super debts it deals with relate to insolvency (in other words, companies that don’t have the cash to meet their obligations)ⁱⁱ.

On top of that, data from ASIC indicated non-payment of super was more likely to happen in certain industries – hospitality, construction and retail to name a fewⁱⁱⁱ.

What should your employer be paying you?

Generally, if you’re earning over $450 (before tax) a month, no less than 10% of your before-tax salary should be going into your super under the Superannuation Guarantee.

It’s also important to note that from 1 July 2022, changes to super will see more people become eligible for contributions from their employer, as the minimum income threshold of $450 per month will be removed.

Meanwhile, if you’d like an estimate of how much super your employer should have paid into your super account, try the ATO’s estimate my super tool.

How can you check if you’re getting paid the right super?

Start by looking at your payslips and know that while super contributions may be listed on your payslip, this doesn’t always mean money has been deposited into your super account.

With that in mind, you’ll want to check your super statements, call your super fund, or log into your super account online to see exactly what you’ve been paid.

Another thing to be aware of is even if your wages are paid weekly, fortnightly or monthly, super contributions only need to be paid into your fund four times a year (at a minimum) on dates determined by the ATO.

What should you do if something doesn’t look right?

• • If it looks like you haven’t been paid what you should’ve, speak to the person who handles the payroll at your work, as there may be a simple explanation.

 

• • If you’re not satisfied with what they tell you, you can lodge an unpaid super enquiry with the ATO. You’ll need to give your personal details, including your tax file number, the period relating to your enquiry and your employer’s details. You can also call the ATO on 13 10 20.

 

• It’s worth contacting your super fund too, as your employer may have a contractual arrangement with your super fund, which means your super fund may be able to follow up any unpaid super on your behalf.

©AWM Services Pty Ltd. First published Apr 2022

i Australian Taxation Office (ATO) – Superannuation guarantee gap (figures related to 2018-19)

ii, iii The Association of Superannuation Funds of Australia (ASFA) media release – Unpaid super – workers deserve better