Unit 7a Superannuation and independencePresentation Transcript
GENC3003Personal Financial Planning Andrew Hingstonandrew.firstname.lastname@example.org Unit 7: Superannuation and independence
2 Discussion What do you think most Australians think it means to be “financially independent”? How do they think they can achieve it?
3 Financial independenceWhat is it? When the cash that you receive from your investments each month is more than your monthly living expenses. You don’t have to work to pay for your living expenses! “Rich” ≠Financial Independent “Rich” could mean high income from work But … are they spending all that they earn? What happens if they lose their job? “Rich” could mean lots of assets or a nice house But … how much money have they borrowed? Your home does not generate cash to put food on table!
4 Financial independenceHow to get it? Two ways to get cash for living expenses “People at work” – your salary from labour “Money at work” – your investment earnings Source: “Rich Dad Poor Dad” The keys to financial independence Consistently save/invest 10% of your salary Never spend the “capital” of your investments … until cash from investments > living expenses Keep savings for a car or holiday completely separate to these “investments”
5 Financial independenceWhy I don’t want it in the next 5 years What personal sacrifices would I have had to make? 100% leisure time gets boring pretty quickly People seem to lose self-respect and significance when they are not busy doing things. Other people don’t respect others who are not busy doing things.
6 Financial independenceThe role of superannuation “Superannuation” are savings set-apart for retirement Called “pension plans” in other countries Your super is kept separate from your other finances.You can’t use it on holidays and cars while you are young! Your employer makes regular contributions for you (9% of your people-at-work income) which are concessionally taxed.
7 Your super investments build up over 40+ years through contributions (people-at-work) and returns (money-at-work). The returns are also concessionally taxed. When you stop work (no more people-at-work income), your superannuation investments generate cash flow to cover your living expenses (money-at-work). This regular cash flow from your super investments is tax-free (after 1/7/07).
8 Chunks of a pie Plan to be Generous Plan to be Content Plan for theFuture 1. Plan to be Generous Taxes support the community Support family and charities 2. Plan for the future
House paid off
Super for financial independence
Insurance to protect family and assets
Plan for death
Save for big expenses
Invest savings by time horizon: - fixed interest - shares, property - managed funds
3. Plan to be content
Manage your living expenses
The residual pie … not the first part
Focus on contentment … not upgrades
Focus on people … not possessions
Track expenses … cut back by 10%
Never pay interest … except investments
4. Grow your pie Cash flow from labourCash flow from investments
9 Financial independenceSuperannuation … the good Regular savings paid for you by employer Concessional tax on money going into super Concessional tax on investment returns while inside super Tax-free withdrawal of superannuation after age 65 (or age 60 if you have retired) Good investment options that stop people gambling on stupid investments
10 Good investment returns You can’t usually withdraw super until you turn 60! The rules help Australians to be self-controlled and not to dip into it! The government is trying to make super more attractive because they can’t afford the Age Pension in 10 years.
11 Financial independenceSuperannuation … the ugly The superannuation rules are very complicated and can be confusing. But have been greatly simplified recently! A lot of super funds are available leading to confusion. It is difficult to compare and choose the best fund. It can be very difficult to consolidate multiple accounts into one fund.
12 Some super funds have high fees and poor returns. Some funds make you have life insurance when you don’t need it. You can’t usually withdraw super until you turn 60! The Government keeps changing the rules which can make it confusing.