Being in control of your finances makes you feel good, but the twists and turns of 2020 have meant this isn’t always possible. We look at some of the year’s top challenges for personal finance and how to manage them as we move into 2021.

Mental, physical and financial wellbeing are interconnected – and in 2020, we’re feeling it more than ever. Research conducted by AMP has found that severe and moderate levels of financial stress are impacting 1.8 million Australian workers. In total, 50% of all Australian workers reported some level of stress about their financesi.

With the 2020 COVID-19 pandemic producing economic shockwaves most could never have predicted, avoiding this stress isn’t always easy.

Find out what steps you can take to start 2021 with your finances – and your wellbeing – in check.

If you’ve… had your cashflow impacted

Many Australians lost their job or had work hours reduced in 2020, through no fault of their own. While government stimulus measures such as the JobKeeper supplement gave a boost to millions of household budgets, the amount will be tapering off again in early January before wrapping up at the end of Marchii. Changes like these may have a significant impact on your personal cash flow.

If this financial situation sounds familiar, the first step is to revisit your budget – key your numbers into this calculator for a snapshot of your expected new income and your expenses. Next, review your spending habits and determine where you can save money and bring expenses in line with your current or projected cash flow. Following the 50/20/30 rule could be a practical place to start.

If you’ve… taken a hit to your super balance

The COVID-19 Early Release Scheme – designed to assist Australians facing financial hardship by giving them early access to their superannuation funds – has provided immediate relief for more than 3 million peopleiii.

If you made an early super withdrawal, you may like to consider how you could rebuild this money when you’re financially secure, whether that’s through additional personal contributions, spousal contributions, government assistance or super consolidation.

This is particularly important for women, with research showing that pre-COVID-19, Australian women retired with an average of 25% less super than men. In 2020, this gap grew to 29%, meaning women typically enter retirement with almost one-third less money than men.

Even if you haven’t accessed your super early, this year’s global financial fluctuations may still have affected your retirement savings balance.

Whether your superannuation account has been depleted by early access or falling sharemarket prices (or both), if you’re close to retirement, you may need to defer your plans to leave the workforce. Alternatively, look at strategies to transition out of full-time work so you can ease into retirement with sufficient finances to live the life you want.

If you’ve… gotten into or increased debt

Around three quarters of Australian households have some kind of debt, whether credit cards, home loans or student loans. In fact, the average household owes $168,600iv.

This year, there have been additional reasons to consider taking on more debt: 42% of Australian employees say their finances have been negatively impacted by the pandemic through business and employment disruptionv.

However, if your accounts have been overdrawn or you run late on repayments, it could impact your credit score, and then your ability to get a future loan. You might consider these simple strategies to manage your debt – from consolidating debts to evaluating which debt to pay off first.

If you’ve… been caught short

Australians are banking money at a record rate, with research showing household savings as a share of gross disposable income reached a high of 7.9% this year, compared to 2.7% in the prior yearvi. But while this is the average, it’s certainly not true for all households.

Data collected by the Australian Bureau of Statistics in August 2020 showed that 14% of Australian households fear they will not be able to pay their bills on time under current economic conditionsvii, and that 64% of the Australians receiving the JobKeeper payment were receiving less income than their usual pay. These concerns spotlight the need that now, more than ever, is the time to have savings tucked away for a rainy day.

Unexpected car trouble, those extra school fees you hadn’t budgeted for, an unexpected medical or vet bill – emergency savings can cover many unforeseen costs and may save you from falling into debt when you can least afford it.

Creating an emergency fund doesn’t necessarily mean depriving yourself of everyday enjoyment – it simply requires a realistic assessment of your income and spending habits, with plans in place to reach your goals. Learn why you need an emergency fund and how to build one fast.

Whatever 2021 throws your way, it’s important to have an expert in your corner to provide guidance and a helping hand. We are here for you.

i AMP Newsroom (2020): 1.8 million Australian workers suffering prolonged financial stress, costing $31 billion in lost productivity

ii The Treasury: Economic Response to the Coronavirus

iii Australian Prudential Regulation Authority (November 2020): COVID-19 Early Release Scheme – Issue 28

iv Australian Bureau of Statistics (2018): Household Debt and Over-Indebtedness in Australia

v AMP Newsroom (2020): 1.8 million Australian workers suffering prolonged financial stress, costing $31 billion in lost productivity

vi IBISWorld (September 2020): Households Stash Cash as COVID-19 Bites.

vii Australian Bureau of Statistics (August 2020): Household Impacts of COVID-19 Survey.

©AWM Services Pty Ltd. First published December 2020

As you approach retirement, it could be a good idea to consider giving your super a boost.

If you’re looking at retiring in the near future, your savings will soon turn into an income stream. So the more you’ve saved, the better. Here are some ways you could top up your retirement savings.

1. Make the most of after-tax contributions
Making personal contributions to your super from your after-tax money can be one way to boost your super. These are known as non-concessional contributions and, while there is no tax deduction available, an annual cap of $100,000 applies (i). If you’re under 65, though, depending on your overall super balance, you may be able to bring forward up to two years of this cap, allowing you to contribute a total of $300,000 at a time. For more information check out the ATO website.

If you have super assets of $1.6 million or more as at 30 June of the previous financial year, you can’t make after-tax contributions to your super or you may be penalised.

2. Consider tax-effective contributions like salary sacrifice
If you’re an employee, making voluntary contributions from your before-tax salary to your super (also known as salary sacrifice) could not only help you boost your super but also potentially reduce the amount of tax you pay. That’s because salary sacrificed contributions are taxed at 15% (ii) when received by the fund, which is potentially lower than your personal marginal tax rate (iii). These types of ‘concessional’ contributions are capped at $25,000 per financial year, including ‘superannuation guarantee’ contributions from your employer..

And if you’re self-employed you don’t need to miss out. You can make personal contributions to your super (using your own cash) and claim a personal tax deduction of up to $25,000 as a concessional contribution(iv). This option is also available to employees so they can choose between a salary sacrifice arrangement and personal deductible contributions.

3. Review your investment options
While the contributions you make may have a significant impact on your super balance when you retire, the investment returns generated by your super fund also matter, as well as how long your money was invested. Check whether your super is invested in appropriate options based on your needs and financial circumstances such as age, goals and your level of risk tolerance. If you’re unsure, contact your super fund or a financial adviser for guidance. It’s worth reviewing your investment options regularly.

4. Consider spouse contributions
In some circumstances, you may be eligible for a tax offset if you make an after-tax contribution to your spouse’s super (husband, wife or de facto) and satisfy eligibility criteria. If you make after-tax contributions to your spouse’s super fund, you may be able to claim an 18% tax offset on a contribution of up to $3,000 when completing your tax return at the end of the year (v).

From 1 July 2020, to receive a spouse contribution your spouse must be under the age of 67, or if your spouse is aged 67 to 74 they must meet the requirements of the work test. The work test broadly requires that they are in paid employment (or self-employment) of at least 40 hours within a 30-day period.

To qualify for the full tax offset, which works out to be $540, your spouse’s income must be $37,000 or less. Their income must be less than $40,000 for you to receive a partial tax offset.

5. Look into downsizer contributions
You may be able to top up your super with the proceeds from the sale of your home. If you’re 65 or over, you can make an after-tax contribution into your super account of up to $300,000 from the sale proceeds of your home if you have owned the property for at least 10 years. Couples can contribute $300,000 each, regardless of their work status, super balance or history of contributions.

Contact us if you’d like some assistance making the most of your super in the lead up to retirement.

i https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=3

ii https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Tax-on-contributions/

iii https://www.ato.gov.au/rates/individual-income-tax-rates/#Residents

iv https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=4#Super_for_the_self_employed

v https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Super-related-tax-offsets/#taxoffset

©AWM Services Pty Ltd. First published August 2020

Making an extra voluntary contribution now might improve your lifestyle once you retire.

A new year’s as good a time as any to make plans. How about a gift to your future self by maximising your retirement contributions?

It’s not as far-fetched or self-absorbed as it might seem.

If you think of this as investing in your future self or your loved ones, it could make good sense. We’re used to spending on education and training, which are also investments in tomorrow. And which really matters more, upgrading to a flashier car today, or buying a jetpack* a few years down the line?

There’s no time like tomorrow

There are a number of ways you can contribute more to your super, to take advantage of time and the magic of compound interest.

These include salary sacrificing, and a range of tax-deductible, spouse and downsizer contributions, as well as government co-contributions.

Things to keep in mind

What you do right now affects how well you can live in future. So, before you decide to gift your future self, think carefully about the right course for you.

If you’re thinking about making extra contributions towards your retirement, make sure you’re across the super contribution rules.

For instance, if you go over the super contribution limits, additional tax and penalties may apply.

Remember that the value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.

The government sets general rules about when you can access your super, which means you typically won’t be able to access your super until you retire. If you’re over 65 and making contributions, you generally need to satisfy work test requirements and be under age 75.

Extra contributions may also affect any rainy day savings you set aside for emergencies, so do your homework before you commit to your future self.

The not-so-silly season

Many of the presents we buy for ourselves and loved ones date quickly – that new smartphone isn’t new for long. Increasing retirement contributions may delay gratification but pay dividends down the line.

If you have some years to go before you retire, you may even be able to retire sooner if you increase your contributions now.

If you need assistance in topping up your super to maximise your contributions we can help.

*jetpacks not guaranteed

©AMP Life Limited. First published November 2019

When it comes to superannuation, most funds offer a range of investment options.

If there’s one thing certain in life it’s change. And generally your attitude towards saving and investing will change as you get older.

How your super is invested when starting your first job may not be the right approach when you’re approaching retirement. Luckily you can change your investment options at any time and this could make a real difference to how much money you have when you retire.

There are usually several different investment options to choose from. If you haven’t selected an investment option, you’re probably invested in your fund’s default option, which will generally take a balanced approach to risk and return.

To get up to speed on your super investment options, we’ve answered three common questions: how your money is invested, the different options available, and how your stage of life may influence your preferences.

What do super funds do with my money?

Typically, no less than 9.5% of your before-tax salary (if you’re eligible) is paid into super, which is then taxed at a maximum of 15%. Your super fund will invest this money over the course of your working life, so you can hopefully retire comfortably.

Your super fund will let you choose from a range of investment options and generally the main difference will be the level of risk you’re willing to take to potentially generate higher returns.

If you’re not sure what you’re invested in, contact your super fund. You may also be able to see your current investment option by logging into your super fund’s online portal – this may also give you a current balance and other information such as your projected super savings over a lifetime.

What are the super investment options I can choose from?

Most super funds let you choose from a range, or mix of investment options and asset classes. These might include ‘growth’, ‘balanced’, ‘conservative’ and ‘cash’ but the terms can differ across super funds. Here’s a small sample of the typical type of investment options available:

    • Growth options aim for higher returns over the long term, however losses can also be notable when markets aren’t performing. They typically invest around 85% in shares or property.

 

    • Balanced options don’t tend to perform as well as growth options over the long term, but the loss is also less when there are market downturns. They typically invest around 70% in shares or property, with the rest in fixed interest and cash.

 

    • Conservative options generally aim to reduce the risk of market volatility and therefore may generate lower returns. They typically invest around 30% in shares and property, with the rest in fixed interest and cash.

 

  • Cash options aim to generate stable returns to safeguard the money you’ve accumulated. They typically invest 100% in deposits with Australian deposit-taking institutions, such as banks, building societies and credit unions.

Super funds may have different allocations, so it’s important to read your super fund’s product disclosure statement before making any decisions. It could be a good idea to consider factors such as your current stage in life, and future plans and goals before choosing the super investment option that’s right for you.

What’s the right investment option for me?

Choosing the most suitable investment option generally comes down to your goals for retirement, your attitude to risk and the time you have available to invest.

If you’re young, you may have more time to ride out market highs and lows, and therefore be willing to take on more risk in the hope of achieving higher returns.

If you’re closer to being able to access your super, you may prefer a conservative approach as a share market crash could be harder to recover from than if you’re 20 years away from retirement.

While many people put off thinking about super, being informed and engaged from a young age and throughout your career may make a big difference to the returns generated and your final super balance.

©AMP Life Limited. First published December 2019

What is financial wellness?

How you feel, is your wellness. How you feel about your money is your financial wellness. This can be measured by the financial wellness index, which measures a person’s satisfaction with their current and future financial situation.

Some days you might feel confident you can meet your needs within the boundaries of your current income, whereas other days you may feel like you don’t have nearly enough funds in order to do so.

The truth is, you’re not alone. Nearly 2.5 million Aussies say they feel moderately to severely financially stressed, even though financial stress has been decreasing year-on-year in Australia.i

Improving your financial wellbeing

On a positive note, research identified that those who have been financially stressed in the past were often able to recover through changes to their behaviour and mindset.ii

Here are some suggestions of things you could do (if you aren’t already) which may help you to improve how you feel financially.

1. Create a budget that works for you

When it comes to creating a budget, try jotting down into three categories – what money is coming in, what cash is required for the mandatory stuff (such as bills), and what dough might be left over (which you may want to put toward existing debts, savings or your social life).

Writing up a budget may take an afternoon out of your diary, but it will help you to more easily identify where there’s room for movement. For instance, could you reduce what you’re spending on luxury items, subscription or streaming services, eating out or clothing?

2. Consider rolling your debts into one

If all the small debts you once had, have multiplied and grown into bigger debts – you could look to roll them into a single loan, and reduce what you pay in fees and interest.

This could help you to save a significant amount of money (depending on what you owe) and make it easier to manage your repayments, as you’ll potentially only need to make one monthly repayment rather than having to juggle several.

The main thing to ensure is you are paying less than what you are currently when it comes to interest rates, fees and charges, and that you’re disciplined about making your repayments.

3. Try to save a bit of money regularly

Even a small amount of cash deposited on a frequent basis could go a long way toward your savings goals, with a separate research report indicating the average savings target for Aussies is a bit over $11,000.iii

Some tips people said helped them along the way was transferring spare funds into an actual savings account, setting up automatic transfers to their savings account (so they didn’t have to move money manually) and putting funds into an account which they couldn’t touch.iv

4. Set aside some emergency cash

With research showing that an emergency fund of between $4,000 and $5,000 is generally enough to cushion most working Aussies when it comes to unexpected expenses, it’s probably worth some thought.v

An emergency stash of cash could give you peace of mind and reduce the need to apply for high-interest borrowing options should you be faced with a busted phone, car tyre, or bad landlord.

5. Be open to talking money with your partner

One in two Aussie couples admit to arguing about money,vi so if you haven’t already, it might be worth sitting down to ensure you’re on the same page and that both parties’ goals are being considered.

6. See if you can get a better deal with your providers

You more than likely have several product and service providers, and figures show you could save more than a grand annually on energy alone just by switching from the highest priced plan to the most competitive on the market.vii

Again, this may take a couple of hours out of your day, but the savings you could potentially make may make a real difference to what you cough up throughout the year.

7. Don’t be afraid to seek financial assistance

If you are struggling to make repayments, you may be able to seek assistance from your providers by claiming financial hardship.

All providers must consider reasonable requests to change their terms in instances where you may be suffering genuine financial difficulties and feel help would enable you to meet your repayments, possibly over a longer period.

Of course it also helps to have an expert on your side and we are here to support you to achieve and maintain financial wellness.

1, 2, 5 AMP’s 2018 Financial Wellness in the Australian Workplace Report, pages 7, 8, 14

3, 4 MoneySmart – How Australians save money infographic

Finder – Heated conversations: 1 in 2 Aussie couples argue about finances paragraph 1

Mozo – Sick of high energy bills? Aussies willing to change providers could be saving over $1,000 a year paragraph 2

©AMP Life Limited. First published October 2019

By replacing your home loan with a new one, you could take advantage of a better deal.

Even if you secured a competitive package when you first took out your home loan, it’s worth reviewing each yeari to make sure the interest rates, fees, features and terms & conditions continue to meet your needs.

And with interest rates at an all-time low in Australiaii, now may be a good time to refinance your home loan as you may be able to pay off your home loan sooner.

What is refinancing?

Refinancing is where you replace your existing home loan with a new one that’s ideally more cost-effective and flexible.

Why should you refinance?

You want to pay less. If you can find a lower interest rate, you could save money and reduce your monthly repayments. Even a 0.5% reduction on your interest rate could save you tens of thousands of dollars over the life of your loan.

You want a shorter loan term. When interest rates are down, you may be able to reduce the term of your loan—from 30 to 25 years for instance—without too much change to your repayments, meaning you may be able to pay off your home loan sooner.

You want access to better features. You may be looking for further cost savings and greater flexibility with the help of added features, such as unlimited additional loan repayments, redraw facilities, an offset account or the ability to tap into your home equity.

You want a better deal, more flexibility or security. Converting to a fixed, variable or split-rate interest loan may provide you with these things.

You want access to your home equity. Equity can be used to secure finance for big ticket items such as an investment property, renovations or your children’s education. This can be risky though because if you don’t make the repayments, you could lose your home as a result.

You want to consolidate existing debts. If you have multiple debts, it could make sense to roll these into your home loan if you’re diligent with your repayments. This is because interest rates associated with home loans are generally lower than other forms of borrowing.

What you need to think about when refinancing

Do you know what you want?

If you’re looking to refinance, do you know what it is you’re after—a lower interest rate, added features, greater flexibility, better customer service or all of the above?

Do the financial benefits outweigh the costs?

You might be able to save money over the long term by refinancing, but the upfront costs can still be expensive. For this reason, it’s a good idea to investigate where costs may apply, or be negotiable—think discharge fees, registration of mortgage fees and break costs if you have a fixed-rate home loaniii. Also think about application costs if you swap lenders—establishment or application fees, legal fees, valuation fees, stamp duty, and lender’s mortgage insurance if you borrow more than 80% of the property’s valueiii.

Have you spoken to your current lender?

Before you jump ship, it may be worth a chat with your current lender as they might be willing to renegotiate your package to retain you as a customer.

Has there been any change to your personal situation?

An application process if you want to refinance will apply. This means your lender will take into account things like your employment situation, additional debts you’ve taken on, or if you’ve got a growing family as all these things can affect your borrowing potential.

Like to know more?

It’s important to evaluate the pros and cons if you are considering refinancing. These can be complex so you may wish to speak to us.

https://www.finder.com.au/how-to-review-your-home-loan

ii http://www.rba.gov.au/statistics/cash-rate/

iii https://www.finder.com.au/how-much-can-i-save-refinancing

©AMP Life Limited. First published December 2019

Running your own super fund means you have extra responsibilities as a trustee 

If you’re running your own self-managed superannuation fund (SMSF) you’re likely to be acting as both a member and a trusteei. The two roles are very different.

    • As a member you’re making and receiving contributions to build your wealth and save for a comfortable retirement.

 

  • But as a trustee you’re responsible for making sure the SMSF complies with various rules and regulations.

It’s important to know which hat you’re wearing, particularly when you’re making sure that contributions to your super fund conform with the rules. As a trustee you need to be able to spot an incorrect contribution and make sure it’s refunded in time.

There are two scenarios when a contribution can be refunded:

1. The SMSF isn’t allowed to accept the contribution under the Superannuation Industry (Supervision) Act and Regulations. This depends on factors including:

    • your age

 

    • whether you meet a work test if you are older than 65 but not yet 75

 

    • the type of contribution, and

 

  • whether you have provided your tax file number (TFN) to the SMSF.

Contributors to an SMSF can include employers, spouses and parents for their children. Here are some examples of invalid contributions that cannot be accepted by a super fund and must be refunded.

    • Mark is 75 and makes a personal contribution.

 

    • Sally is 66 and hasn’t worked for several years but makes a personal contribution.

 

    • Nick hasn’t provided a TFN but makes a personal contribution.

 

  • Peta makes a spouse contribution for her husband who is 67 and hasn’t worked for several years.

And here are some examples of valid contributions that are not refundable.

    • Tran makes a personal non-concessional contribution of $400,000.

 

    • Makayla has a total superannuation balance of $1.8 million and makes non-concessional contributions of $200,000.

 

  • Frank is 60, retired and makes non-concessional contributions of $200,000.

It’s also important to keep up to speed with changing laws around SMSF contributions. For example, until 1 July 2017, an SMSF couldn’t accept a contribution that was larger than the member’s non-concessional limit, which was $180,000 for over 65s and $540,000 for under 65s.

2. The SMSF can make a refund under the legal principle of restitution for mistake.However, it’s not enough simply to spot an error. You’ll need to prove it’s a legal mistake, which could be either:

    • a payment meant for someone else—such as rent wrongly paid to a super fund instead of a landlord, or

 

  • when the contributor wrongly thought they had a legal obligation to contribute.

You’ll also need to make sure you take action quickly. As a trustee, you are responsible for refunding such contributions no more than 30 days after becoming aware that a troublesome contribution was received by the SMSF.

Ways to help you stay compliant

    • Get some advice before making super contributions.

 

    • Engage with a professional fund administrator to help keep your eye on the ball.

 

  • Put in place some checks and balances to work out the types of contributions your SMSF can and can’t accept.

If you miss something, a range of possible penalties could apply.

i Or a director of a corporate trustee. Many SMSFs have a corporate trustee of which the member(s) is/are directors (as required by law).

©AMP Life Limited. First published October 2019

If your goal is to save for the future, or perhaps start putting away for your children’s education – then unless you plan on putting your savings under your mattress, the sooner you start the better.

That’s because you could be missing out on earning compound interest along the way that could make a stark difference to the overall amount you save.

The difference between simple interest and compound interest

There are two main types of interest:

Simple interest is where a one-off interest payment is made at the end of an agreed, set period of time.

For example: if you invest $10,000 in a term deposit at 5% interest per annum, and don’t withdraw any money, then you’ll have $12,500 at the end of 5 years. That’s because the 5% annual interest rate is worked out based on the value of the initial investment and paid in full at the end.

Simple interest earnings over five years

Compound interest is where interest is paid in regular intervals, building on top of earlier interest paid. The result is a snowball effect of interest earning interest.

For example, (using the same figures as the simple interest example above), an initial investment of $10,000, earning 5% interest per annum with compound interest paid monthly, will give you $12,834 after five years. That’s because every month the interest earned was earning more interest.

Compound interest earnings over five years

Compound interest will continue to build on itself in this way, assuming nothing changes. How quickly it grows will depend on when you start your savings plan, what the interest rate is, and whether you make contributions (or withdrawals).

Compound interest can help your savings grow faster than simple interest. It’s when interest earned on savings is reinvested, building on top of earlier interest received. The result may lead to a snowball effect of interest earning interest.

How to work out compound interest on your savings

The easiest way to work out how much compound interest you could earn on your savings, is to use an online compound interest calculator, that can do it for you.i

Saving for the future

If you’re interested in using compound interest to help your savings grow, then the sooner you start, the better. That’s because, like any good snowball, the earlier it starts rolling, the more snow it will collect along the way.

For example, if you were keen to put aside money for your child’s education, and from the day your child was born, you put $10 per week into a bank account paying 6.25% pa, then by the time they turned 25, their savings would be $31,259. Of that, the interest earned would be $18,372 – outweighing the overall deposits made along the way.*

If you started saving later, when your child turned 10, with a first deposit of $5,000, then by the time your child turned 25, they would have savings of $25,611. Of that, the interest earned would be about equal to the overall deposits made, and your savings would be about $6,000 less than if you’d started earlier, without an initial deposit.*

Tax on compound interest

It’s worth remembering that like any income, compound interest earnings must be declared to the tax office, even if it’s savings for a child.

Who declares the interest earned, depends on who owns or uses the funds of that account. You can find out more about the tax requirements from the Australian Tax Office.

Note: This example uses the ASIC Money Smart Calculator featuring an effective interest rate of 6.43%.i It’s important to remember that a model is not a prediction and uses assumptions. Results are only estimates, the actual amounts may be higher or lower.

i ASIC Money Smart Compound Interest Calculator – https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator

Can you recite the last line of Gone with the Wind? If not, you’ll find the answer at the end of this article.

If you scrolled down straight away, you might be too keen for your own good. We’ve all heard that patience is a virtue, and it can even save you money.

For people figuring out how to fund the lifestyle they’d like in retirement, now’s a good time to remember the benefits of delayed gratification.

That’s because instant gratification is the enemy of hitting your long-term goals, the things you’ve worked so hard to achieve. You might find that passing up something less important now will give you something more important when you retire.

Instead of deciding which new European car will make you the envy of your neighbours, you might imagine your grandkids running around with their own replica vehicles – or even a pony.

Why we want it now

It’s only human to want things straight away. Evolution has given us a desire for immediate rewards. We’ll eat the food in front of us if we’re not sure where the next meal’s coming from. Most other animals simply act on these impulses, they don’t know any other way. But we can imagine the future.

When it comes to finance, people don’t always make rational decisions, which is why some areas like house purchases usually have cooling-off periods. As you get closer to retirement, it’s good to think closely to make every buying decision count.

None of us knows exactly how long we’ll be retired. Here are some ways you can resist the temptation to spend too much before your income changes.

Picture this

If you find it hard to respond to the urge to buy right now, it might be easier if you visualise what you want. Whether it’s that trip to Broome you’ve promised yourself or outings with your grandkids, pick one of your big goals and stick a picture of it under your fridge magnet.

A picture of a camel train on Cable Beach will look nicer than that unpaid invoice for that impulse extra bookshelf you didn’t really need.

Tell your friends

Your partner, family and friends can all help you get there. If you’re planning to renovate or downsize when you give up work, you might get some great tips for reliable tradies from those who have been there and done it.

Tell your family and friends your plans and see how your objective becomes theirs, bringing you useful advice and encouragement. You don’t have to reach your goals all on your own. Even the solo round-the-world sailor has a support team.

You might find it useful to talk to someone who is already retired about what they’d have done differently. Many people wish they’d put more aside to live more comfortably.

Shop around

There’s never been more choice than these days of online shopping. Although this means more temptation. it’s also never been easier to price check whatever you have your eye on. So, keep an eye on price comparison sites and discount codes to find the deal that’s right for something you really need now.

As advertisers get more and more personal data, they’re better at targeting what we want, and using techniques to persuade us to buy right now. Saving 10% off in the end-of-financial year sale still leaves 90% to pay, which might be worth several months of household bills down the line. Think of your other goals so you use the value scale that’s right for you.

What a difference a day makes

Taking time to reflect often changes the choices you make. Wait 24 hours and you might find you can do without that extra pair of shoes, when next day you come across three pairs you’ve hardly worn.

Many consumer goods are marketed to persuade you that you need something right now. Think of those shopping channel ads where they’ll throw in an extra mophead if you buy that new cleaner within the next 10 minutes. Make sure you really care about that mophead before you commit.

You can still pop the bubbly

Decide what you will keep doing. You might be able to do without your gym membership or trip to the symphony, but if you really love it, then it might be a false economy. Reaching your goals means you can still stay happy and healthy.

If you hit your plan you can reward yourself along the way. If you’ve cut out takeout coffee, then once a quarter you might have high tea at a smart hotel within your means. You’ll look forward to it more and celebrate reaching another milestone along the way.

And the last line of Gone with the wind?

Scarlett O’Hara says, “Tomorrow is another day.”

Now you can put more into super at the concessional rate of tax, starting from the 2019-20 financial year

Putting more money into the tax-friendly framework of superannuation to help you enjoy a fulfilling retirement… it’s one of those things that seems like a no brainer, especially with the benefit of hindsight.

In a recent report Australians in retirement said that making extra super contributions was the most common change they would make if they could have their time again.

So the theory’s all well and good. But back in the real world it’s not always so easy.

There are times in our lives when it may be hard to free up the funds for super.

  • When you’re taking time off work to care for a newborn baby
  • When you’re looking after elderly relatives
  • When you’re concentrating on reducing the mortgage, paying the bills and simply putting food on the table.

But there may be other times when you have more capacity to direct some money into super.

The good news is that new legislation means you may be able to put more into super at a concessional rate of tax.

But first, a reminder about the super taxation rules.

What are concessional contributions?

Concessional contributions into super get special tax treatment. For most of us, that means you’ll pay less tax on your super contributions than you do on your income.

Concessional contributions can generally be made two ways.

  • By you through personal deductible super contributions.
  • By your employer through salary sacrifice or super guarantee (SG) payments.

There’s a cap on how much can be put into your super at the concessional tax rate each year. The cap has fluctuated over the years but at the moment it’s $25,000.

Until recently, your cap was reset every year – so if you didn’t put the full $25,000 into super you lost your entitlement to any unused amount. But if you’re eligible, you can now carry forward any unused amount for up to five years.

Who is eligible to make catch up concessional contributions?

It’s a good idea to be across the rules so that you can plan ahead.

  • The ability to make a catch-up concessional contribution applies to people whose total superannuation balance was less than $500,000 on 30 June of the previous financial year.
  • The five-year carry-forward period started on 1 July 2018 so the 2019-20 financial year is the first one when you can actually make extra concessional contributions using any unused super contribution cap.
  • Work test rules still apply for people aged 65 or over.
  • The usual notice requirements continue to apply for personal deductible contributions.
  • Unused amounts can be carried forward regardless of your total superannuation balance but expire after five years.

 

How to boost your super in the lead-up to retirement – Ashlea’s story

Ashlea knows she needs to save for a comfortable retirement. But right at the moment she’s paying for the kids’ education and then there’s the mortgage to cover. It’s not the right time. So Ashlea makes do with her employer’s SG payments of $5,000 a year.

Fast forward three years and things have changed. Ashlea’s youngest daughter has just graduated from high school, she’s chipped away at the mortgage on the family home and she’s secured a promotion at work so she’s earning more income. It’s the right time to start playing catch-up with her super.

Until recently, Ashlea would generally have been limited to the $25,000 concessional contribution cap. But now she can use her unused cap amounts from previous years to put more into her retirement savings.

She could put as much as $85,000 into her super as concessional contributions—that’s her unused cap amounts from the previous three years added to the current year cap.

She decides to make a personal tax deductible super contribution of $45,000 on top of her $5,000 SG payment so this means she still has $35,000 in unused contributions that will roll over to the following year.

However, if her extra payments take her super over the $500,000 threshold, she wouldn’t be able to use the unused concessional contribution amounts in future years unless her balance falls below $500,000 again. Please see the table below.

2018-19 2019-20 2020-21 2021-22
SG payment $5,000 $5,000 $5,000 $5,000
Extra
contributions
$0 $0 $0 $45,000
Total
concessional
contributions
$5,000 $5,000 $5,000 $50,000
2018-19 2019-20 2020-21 2021-22
Unused cap
rolled over
$20,000 $40,000 $60,000 $35,000

The new rules could prove particularly useful for anyone who’s spent time out of the workforce to catch up with their super, as well as people approaching retirement wanting to maximise their retirement savings and minimise their tax.

What other ways can you boost your super?

There are plenty of other ways to boost your retirement savings.

  • You can make super contributions to a lower earning spouse and receive a tax offset.
  • You can receive a government co-contributions if you earn below a certain amount.
  • You can contribute up to $100,000 to your super as a non-concessional after-tax contribution. If you’re under 65, you can bring forward two years of this cap, allowing you to contribute a total of $300,000 at a time.

 

©AMP Life Limited. First published April 2019