Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (20)
Similar to Presentation on superannuation and retirement income for people age 50 plus
Similar to Presentation on superannuation and retirement income for people age 50 plus (20)
Recently uploaded
Recently uploaded (20)
Presentation on superannuation and retirement income for people age 50 plus
- 1. Activ8 your planning! Name Date
- 2. 2 Equipsuper Pty Ltd ABN 64 006 964 049, AFSL 246383 is the Trustee of the Equipsuper Superannuation Fund ABN 33 813 823 017. This document and any information provided with it is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the appropriate Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Equip is licensed to provide personal and general superannuation advice under its AFSL. Member Advisors are employees of Equip. For more information about the remuneration of Equip and its employees, please refer to the Equipsuper Financial Services Guide. Equipsuper Financial Planning Pty Ltd (ABN 84 124 491 078, AFSL 455010) is licensed to provide financial planning services to retail and wholesale clients. Equipsuper Financial Planning Pty Ltd is owned on behalf of Equipsuper Pty Ltd (ABN 64 006 964 049, AFSL 246383) as the Trustee of the Equipsuper Superannuation Fund (ABN 33 813 823 017).
- 3. 3 Thinking of retirement Source: Forethought Research, 2009
- 4. 4 Take charge for a brighter future.
- 5. 5 Let’s talk dollars $33,509 $23,283 ASFA Retirement Standard (May 2014), Centrelink (March 2014) $57,817 $42,254 Singles Couples Comfortable lifestyle Modest lifestyle
- 6. 6 But…it really depends on your lifestyle 65% - 80% of pre-retirement income
- 7. 7 Amounts needed to fund retirement Couples income p.a.^ Super required to last 20 years* Super required to last 30 years* $58,000# comfortable $406,000 $568,000 $70,000 $661,000 $947,000 $85,000 $989,000 $1,387,000 $100,000 $1,279,000 $1,744,000 ^ Combined super income and Age Pension. * Superannuation savings required # Note that the Association of Superannuation Funds of Australia (ASFA) publishes a guide to how much people need in retirement – people with a comfortable lifestyle in mind would need approximately $58,000 (for couples) and $42,000 (for singles), respectively. For more information on the ASFA retirement standard, go to www.superannuation.asn.au/resources/retirement-standard. The example is for illustrative purposes only. Individuals are retired and 65 years of age on 1 July 2014. They own $10,000 in home contents, have $30,000 in cash in an account earning 4.35%, a $15,000 car, and own their $500,000 home outright. The return earned on their account based pension investment portfolio is 6.37% p.a. Living expenses increase by 2.8% p.a. They have no other sources of income other than the Age Pension and their account based pension. Current Age Pension rules are assumed to apply in the future. Age Pension rates as at March 2014. Source: Equip
- 8. 8 Amounts needed to fund retirement Singles income p.a.^ Super required to last 20 years* Super required to last 30 years* $42,000# comfortable $339,000 $481,000 $55,000 $615,000 $873,000 $70,000 $925,000 $1,235,000 $85,000 $1,180,000 $1,547,000 ^ Combined super income and Age Pension. * Superannuation savings required # Note that the Association of Superannuation Funds of Australia (ASFA) publishes a guide to how much people need in retirement – people with a comfortable lifestyle in mind would need approximately $58,000 (for couples) and $42,000 (for singles), respectively. For more information on the ASFA retirement standard, go to www.superannuation.asn.au/resources/retirement-standard. The example is for illustrative purposes only. Individuals are retired and 65 years of age on 1 July 2014. They own $10,000 in home contents, have $30,000 in cash in an account earning 4.35%, a $15,000 car, and own their $500,000 home outright. The return earned on their account based pension investment portfolio is 6.37% p.a. Living expenses increase by 2.8% p.a. They have no other sources of income other than the Age Pension and their account based pension. Current Age Pension rules are assumed to apply in the future. Age Pension rates as at March 2014. Source: Equip
- 10. 10 Plugging in some of your details…
- 11. 11 …gives you a glimpse into your financial future
- 12. 12 A little extra can make a big difference Pre-tax (“concessional”) Subject to a 15% contributions tax* After-tax (“non-concessional”) • $30,000 max. • $180,000 max. per financial year; • $540,000 max. over three financial years if you are under age 65. • $35,000 Age 50+ from 1 July 2014 *Individuals with an income (including concessional contributions) greater than $300,000 pay 30% contributions tax on those concessional contributions over the $300,000 threshold.
- 13. 13 Stash more money, pay less tax $50,000 $40,000 $30,000 $20,000 $10,000 $0 +31% 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Super Non-super +35% Source: Equip. Assumes $250/month contributions, compounding at 6% net of fees and taxes to age 65. Tax bracket for non-super savings is 32.5%. Amounts shown are in today’s dollars (CPI 2.5%).
- 14. 14 Save on tax in super Super Outside of super Savings $1,000 $1,000 Tax* ($150) ($370) Net savings $850 $630 Earnings -- 10% a year $85 $63 Tax on earnings ($12.75) ($23.31) Total $922.25 $669.69 Source: Equip. Tax in super for contributions and earnings is 15%. Tax on savings outside of super is the marginal tax rate. Assumption: 37% (income $80,000+).
- 15. 15 Earn a pension income while working Transition to retirement pension (TRP): flexible way to move from work into retirement • Continue full-time work, reduce your tax rate, boost your super • Move to part-time work, replace lost salary with a pre-retirement pension, improve your lifestyle
- 16. 16 Maintain your income, grow your super! A possible strategy Contributions into super Tax Take home salary With a transition to retirement pension Contributions into super Tax Take home salary Standard approach
- 17. 17 Earn a pension income while working John, 60 years old Salary: $75,000 p.a. gross; $57,578 net Salary sacrifice Salary -- $75,000 Total net income $57,578 ($27,875) TRP account Net salary income $47,125 Reduced salary income (reduced income tax at marginal rate) TRP income $17,965 Income (at concessional tax rate) $5,729 annual extra retirement savings = Source: Equip. Also see Activ8 fact sheet Transition into retirement.
- 18. 18 It can make a difference! $500,000 $450,000 $400,000 $350,000 $300,000 $488,300 60 61 62 63 64 65 No TRP strategy TRP strategy started at 60 $455,824 Source: Equip. Same assumptions as previous slide; TRP impact over 5 years until John turns 65; benefit difference with additional super contributions (same take home pay).
- 19. 19 Adjusting your portfolio to your income needs Possible objectives Growth Growth Stability Liquidity Stability Growth Early working life / mid career Late career Retirement
- 20. 20 Smoothing out the bumps: Equip’s Diversified options
- 21. 21 Smoothing out the bumps
- 22. 22 Keep your money working Sources of retirement income Contributions + pre-retirement earnings Post retirement earnings Source: Securing Retirement Incomes (Mercer Report), 2010
- 23. 23 When it’s time to collect your super Your options: • Leave your money in super • Take it out of super as cash • Convert it into an income stream o Account based pension o Annuity • A combination of the above
- 24. 24 Consider an income stream • An ABP provides you with a regular income in retirement. • If you’re over 60, income from your account based pension is tax-free, as are investment earnings in the fund.
- 25. 25 But there is more to an ABP You’re in control of every facet of your ABP: • How much you receive each year (subject to legislated minimum); • How often you receive payments; • How your money is invested; • Lump sum withdrawals for special projects, purchases or holidays; and • Who receives your money if you die.
- 26. 26 Strategies to make your money last Objective: Strike a balance between income stability and capital growth over time Possible approach: 3-bucket strategy
- 27. 27 How it works Liquidity Stability Growth To meet short-term income needs To provide some stability over the shorter term To help savings keep growing and last longer
- 28. 28 How it works Pouring from one to the other Provide income for immediate future. Grow tax-free investments. Sealing in income Don’t spill too much Dealing with overflow Income drawn from liquidity bucket, which is not subject to ups and downs. Stable bucket helps to even out the highs and lows of investment markets. Rebalance annually
- 29. 29 Making your money last longer • At retirement, your super may reach a high watermark • Employing an income stream and the right investment strategy may allow you to stretch your money longer
- 30. 30 Your options with Equip when you retire Equip’s pension products A tailored financial plan Equip MyPension Account Based Pension Equip Financial Planning
- 31. 31 You can stay with Equip for life Even when you leave your employer, your super can remain with Equip • Same investment options • Same fees • Insurance automatically continues • Have your new employer contribute to your Equip Personal account
- 32. 32 #1 – Increase your retirement savings. #2 – Think about your transition to retirement. #3 – Kick your investments into gear. #4 – Consider a regular income in retirement. 4 BIG IDEAS! Seek advice when and if necessary.
- 33. 33 Member support and advice Helpline 1800 682 626 Member adviser 03 9248 5923 Financial planning 1800 065 753 Administration support and information about Equip Strategies for your Equip superannuation account Financial complexity Need Financial plans for all aspects of your financial life
- 34. 34 Annual review Financial planning process Process starts here Discuss plan 1st appointment Annual review Implement agreed recommendations Request appointment Strategy planning Gather information
- 35. 35 How can we help you? Our services include • Financial planning • Superannuation • Retirement planning • Redundancy planning • Wealth creation • Wealth protection For an appointment - call 1800 065 753 - email fpappointments@equipsuper.com.au
- 36. 36 Equip members receive an 8.3% discount on Medibank health cover. Travel cover. Competitive banking products and services (savings and term deposit accounts, home loans and credit cards). Discounted services to will preparation and estate services (Victoria only). Member Privileges Equipsuper does not sponsor, endorse, sell, or promote or recommend the products and services offered by these providers.
- 37. www.equipsuper.com.au Helpline 1800 682 626
Editor's Notes
- For many of us, retirement won’t be anything like it was in the olden days, when people, after spending the better part of their lives with one employer, received a gold watch and were perfectly happy to leave that part of their lives behind them once they turned 55 or 60. Retirement is not so clear cut these days. Some of us may never want to fully retire or choose to work part time or volunteer. Many of us actually like what we do, and we define a good part of ourselves through our work, or the things we can teach others. Some nearing retirement age may still have substantial financial obligations, such as mortgages, and might not be able to leave the work force in their early 60s. Everyone’s circumstances are unique and different. What comes to your mind when you are thinking about your retirement? We have actually done some research: For people 50 and up, it is “security” and “money” – things they were still working on and aspiring to. For people who have already made the plunge and retired, the list was topped by “travel” and “freedom.” Many of you are now in that “security and money” seeking mode, to ensure you can afford living your life during your golden years. Over the next few minutes, we want to provide you with some big ideas on how you can activate your financial planning for your retirement, as you start easing out of the work force.
- To give you an idea, in Australia, a couple needs more than $56k a year to live comfortably, and more than $32k if they have a more modest lifestyle. The age pension falls short of both targets. People seeking a comfortable lifestyle will need twice as much as what the government is willing to give them. Current age pension rates (including supplement) Singles $21,020 Couples $31,700
- So clearly putting more money away should benefit you in the long run. Short term, however, there is also something in it for you. Your extra contributions to your super can be made on a pre-tax, or concessional level – the government calls this salary sacrificing. There are caps on how much you can contribute. This strategy is appropriate for you if you are in a tax bracket that’s above 15% -- essentially, if you make more than $37k. By contributing to your super pre-tax, you effectively lower your overall tax rate. You can also contribute to your super after tax. Again, there are limits to how much you can contribute. You may have come into an inheritance, for example. By moving your money into super, you are moving it into a concessional tax environment.
- Assumptions: Contributions $250/month, return 6%, CPI 2.5%, tax bracket for non-super savings 32.5% -- amounts are in today’s dollars There is still plenty of time to up your super balance. You might want to know why putting money away in your super account is more efficient than elsewhere. Why not put your money into a term deposit, or, if you have more risk appetite, into your brokerage account? Any employer super contributions going into your super account are taxed at 15%, and capital gains are also taxed at that level. If you put the same amount of money into a bank account or a brokerage account, your deposits come out of income taxed at our marginal tax rate, which for most people will be in the 32.5% to 37% tax bracket. Furthermore, any gains or interest in your super account is taxed at the concessional tax rate of 15%; outside of super, these are generally taxed at higher rates. In your super, you can invest your extra money in a steady cash strategy, or opt for more aggressive growth options, suiting your individual risk profile. In our example, assuming the same rates of return inside and outside your super, your savings yield 31% more at age 60, and 35% more at age 65. $50k sounds like a lot of money. However, you can consider a transition-to-retirement pension, which can both boost your retirement savings before you leave the workforce, and allow you to earn your income more tax effectively. You might very well want to park the better part of your salary in your super account!
- We have provided (will provide) you with some worksheets that give you an example of how a TRP looks like in more details. Let’s look at the example of John. John is 60 and earns a salary of $75k. He sets up a TRP and sources some of his income from the TRP. His salary is kept at the same level as it would be without the TRP throughout his working life. He is thus able to boost his super balance. *** Assumptions: 6.5% return earned on TRP account (60-65 / 5-year period).
- Let’s assume a similar example. In this one, John has $315k at age 60. In the scenario depicted by the blue line, his employer makes SG contributions on his behalf, and John doesn’t make any extra contributions. In the red-line scenario, he maxes out his concessional super contributions starting at age 60, and starts a TRP. By the time he retires at age 65, he’s got $30,000+ more in his super account, while keeping his take-home salary the same. So, in summary, it may be possible to maintain your income stable while paying less tax and increasing your superannuation savings. Remember, whether this will work for you will depend on your personal circumstances. In particular, it will be influenced by how much you earn, how much you have in super and so on. Talk to your financial advisor. *** Assumptions: $315k in super at age 60. 6.5% return earned on TRP account (60-65 / 5-year period); 6% earned on accumulation account.
- You don’t have to be an investment professional to invest your super money. Equipsuper offers a range of different investment options, all professionally managed, to help you diversify and match your investment goals and your risk tolerance. I am showing you here our Diversified options. These invest across a range of assets, such as Australian and overseas equities, Australian and overseas fixed interest, property, infrastructure and cash. For example, Balanced Growth, the middle option in this diagram, is our default investment option. Its target is to invest 30% of every super dollar in Australian shares (that’s the burgundy colour on the chart), 30% in fixed income (the grey bar), 25% in overseas shares (the bar in bright red), and the remaining balance in property and alternative investments, such as infrastructure. You will see that our other Diversified options invest into these different assets at slightly different proportions. Equipsuper also allows you to manage your own asset allocation by choosing a mix of sector specific options which are allocated to particular asset classes. If you choose this route, you should ensure you have a plan in place to regularly monitor your asset allocations, as different levels of performance between asset classes can substantially change the proportions of your exposure to them.
- With life expectancy now in the mid-80s, many people will have a long retirement ahead of them, and will need to continue growing their super, even if they are no longer contributing to it. Let’s look at some compelling numbers! A recent study by Mercer shows that only a fraction of retirement income is actually generated by the contributions members have made over the years. It is investment returns that produce the bulk of their income; with a very substantial component of that being earned after retirement. This may come as a surprise for you, but it makes sense if you are considering that your account balance is likely to be at its peak when you retire. These findings also reinforce the fact that investment strategy decisions are important – even after you retire. As you are planning on drawing income from your super, keep in mind that your money will still work for you even if you don’t contribute any longer to your super. *** Mercer report, page 22. Projection assumptions: 9% contributions, from age 21, 4% pa wage increases, no employment break, 7.5% pa net investment return pre-retirement, 6.5% pa net investment return post retirement from age 67 retirement draw-down 60% of pre-retirement salary thereafter increased in line with inflation of 2.6% pa.
- See? Super is not all that complicated. You just need to activate your money and make it work for you. To summarize, here are a few big ideas to take home with.