YOUR GUIDE TO LIFE AFTER WORK · at retirement. • For a comfortable retirement, a single person will require a super balance of $545,000 at retirement and a couple needs $640,000

YOUR GUIDE TO

LIFE AFTER WORK

GENERATION X

APRIL 2019

2 3

YOUR GUIDE TO LIFE AFTER WORK: GEN X

CONTENTS

Introduction 4

Super’s role in gaining your independence 6

Caught between competing priorities 10

This is the average super balance for your age 16

Case study: How this self-employed muso got on top of his super 22

Women still have a crushing super gap 24

Case study: How this single mum is planning for an independent post-work life 32

Super is still seriously tax-friendly 36

FAQS on insurance and super 40

How to handle super in a divorce 44

Property versus super 50

Case study: How John started early to secure a comfortable post-work life 54

What’s life really like on the age pension? 56

Have you got the right super investment strategy? 60

BORN BETWEEN 1965 AND 1980, GEN X COVERS ANYONE AGED BETWEEN 39 AND 54 IN 2019.

WELCOME

Of all valuable assets Australians come to own throughout their lives, none is more overlooked than superannuation.

Your guide to life after work is one part of ANZ’s campaign to help us all take control of the wealth we accumulate in superannuation, and ensure we take appropriate care of it for our future financial wellbeing.

On the following pages, we will:

• address the common mistakes people make when planning for their retirement

• profile how people your age are taking control to get more out of their super savings

• explain ways to achieve a happy independent life after work.

After all, retirement is a chapter in your life unlike any other, where you should have the financial independence and time to focus on yourself and your loved ones, shaping life as you wish.

A secure super balance is important in achieving financial independence and the freedom that comes with it. Yet, all too frequently we hear stories of Australians retiring with inadequate superannuation savings.

A few simple decisions now can make a big difference later in life, such as rolling multiple super accounts into one and being mindful about what your super savings are invested in.

No working Australian is too young to make superannuation a financial priority. Nor is anyone too old to start making the most of what they have.

In this guide you’ll find inspiring stories from people of all backgrounds who are following different approaches to make their super what they want it to be – and you can too.

Alexis George Deputy CEO and Group Executive, ANZ

4 5


Research commissioned by ANZ makes it clear that independence – both now and in the future – is a priority for the vast majority (71 per cent) of Australians.

The study shows that most Australians feel independent in their current lives, and most believe that money plays an important role in gaining and maintaining that sense of independence.

However, most Australians don’t fully understand how superannuation fits into this picture.

More than one-quarter of us don’t even know how much super we have, and many of us are wildly wrong about how much we’ll need each year to enjoy a satisfying, independent post-work life.

What independence means to usANZ’s in-depth survey of 1000 Australians in March 2017 found ‘independence’ is a priority for most Australians. The majority (73 per cent) of Australians define being independent as being “secure, safe, happy and responsible for their own lives” because they can look after themselves financially.

Women are significantly more likely to feel that independence means “not having to rely on others”, while men feel that “being in control” describes it best.

6 7


SUPER’S ROLE IN GAINING YOUR

INDEPENDENCE

Many Australians are putting their future independence at risk because they don’t fully

understand the important role of super, writes Gayle Bryant.

• Most (72 per cent) of us are concerned about whether we’ll have adequate funds for retirement – suggesting we don’t have an actual plan in place.

• About 38 per cent of us believe a super balance of less than $300,000 will be enough to retire on – which is an unrealistically low estimate.

• More specifically, 31 per cent of Australians aged 18 to 34 believe they’ll need less than $100,000 – when in fact $100,000 would only last a couple of years.

• A quarter of us have more than one super account – meaning multiple fees and charges are eating up more of our savings than they should be.

• Fifteen per cent of us don’t even know our super balance – which indicates that we’re not actively managing it to secure the independence we say we want.

• And one in eight of us either doesn’t know what super is for or believe it has no purpose – when in fact its specific purpose is to ensure our future independence.

What we get wrongThis lack of understanding and engagement is a major concern, because our super is critical to our future independence.

Katrina Horrobin, from The Association of Superannuation Funds of Australia (ASFA), says financial independence is very important to all Australians in retirement, but not everyone achieves it.

“The age pension is sufficient to avoid absolute poverty in retirement, but just avoiding poverty is not a goal that Australians aspire to,” she says.

“Superannuation is the key to financial independence and to a life of greater dignity and comfort in retirement.”

So why do so many of us value our financial freedom, yet remain largely disengaged from our super, not understanding it fully and not taking care of it?

Horrobin says many people simply aren’t aware of how much money they need to retire.

How much super do you need for a comfortable life?To help educate people, ASFA has developed guidelines on the super balances required in retirement. These figures assume you’re a healthy 65-year-old who owns your own home outright at retirement.

• For a comfortable retirement, a single person will require a super balance of $545,000 at retirement and a couple needs $640,000. This allows for a broad range of activities and a good standard of living.

• For a modest retirement, both singles and couples need $70,000 at retirement. The lump sum required is relatively low due to the fact that the base rate of the Age Pension (plus various pension supplements) is sufficient at this budget level. However, this only allows for fairly basic activities and spending levels.

• Renters will need more than $1 million in savings when they retire. In fact, leading industry research firm Rice Warner says $1 million is the ideal figure for a comfortable retirement, even for those who own their own homes.

Throughout our lifestage retirement guides, we provide guidance on how you can take control of your super – regardless of what stage of your working life you’re currently at.

By giving your superannuation some attention now, you have the opportunity to ensure you’ll meet whatever lifestyle goals you have. It really is one of the easiest ways to achieve financial freedom – and therefore independence – in retirement.

Now’s the time to take charge.

How money relates to independenceAnd what role does money play in people’s feelings of independence?

• One-third of Australians say independence means “financial freedom”.

• For 30 per cent, it means “having enough money to live my life”.

• And about 20 per cent say independence means “not having any debt”.

Super-charged independenceDespite our clear feelings about independence and financial security, when it comes to getting a grip on how super fits into that picture, things start to go fuzzy for Australians.

Almost all Australians say they are thinking about the money they’ll need in retirement, but far fewer are clear about where they’ll get that money from.

In fact, superannuation is a key long-term saving strategy for exactly that purpose – for 20 per cent of us, it’s our only strategy. Despite this, only about 40 per cent of us see our superannuation as a key asset in our plans to live a fully independent life.

8 9


Life is busy and expensive in your 40s. Members of Generation X – born between 1965 and 1980, and now aged 39 to 54 in 2019 – are juggling work and family commitments and making compromises on a range of competing priorities.

Now in their peak years of both earnings and expenditure, Gen Xers still have a decade or three to go before they’ll be able to access their superannuation and any age-pension benefits.

But while it’s easy to put off making decisions about retirement with so much else going on, there are life-changing benefits to establishing a solid financial plan now.

Gen Xers have time to accumulate big savingsMaximising contributions to the tax-advantaged superannuation system will turbocharge savings and lower tax. Additional contributions will add up after 15 to 30 years of compound growth.

For example, if a 45-year-old on an income of $90,000 can salary-sacrifice $10,000 a year into their super fund, they’ll forego just $6415 in take-home pay but boost their superannuation balance by $8500 over the year.

10 11

YOUR GUIDE TO LIFE AFTER WORK: GEN XBias and barriers break a girl’s great start in life

CAUGHT BETWEEN

COMPETINGPRIORITIES

This financially stressed generation needs to make the most of their peak earning years,

writes Zoe Fielding.September 2018

If they can maintain that for the next 20 years while earning a 7 per cent return from their super fund, their total of $170,000 in extra contributions will more than double to almost $350,000 due to compound interest. (Use MoneySmart’s compound interest calculator to try out your own calculations.)

Many Gen Xers are already in a reasonably sound financial position, having benefited from having super throughout most if not all of their working lives. The superannuation guarantee – under which employers must now pay 9.5 per cent of an employee’s salary into their nominated super account – was introduced in 1992, when the oldest members of this generation were in their late 20s.

And those who bought property in their 20s and 30s got in before the housing boom so have also benefited from rising home prices.

Gen X faces huge financial pressureAustralian social researcher Mark McCrindle says that while these factors have boosted the wealth of Gen X, this age-group faces financial challenges that previous generations didn’t.

“While this generation has had super for most of their working lives, it wasn’t at the amount that it is today when it began,” he says.

“This generation also has longevity gains [in life expectancy], and has expectations for retirement that are far beyond what was traditional. So they are looking at playing a bit of catch-up [with their super].”

Gen Xers can expect to live more than 20 years in their retirement, so their savings will have to stretch. Their own parents are also living longer, so they can’t rely on an inheritance any time soon to top up their retirement savings.

In addition, with kids now moving out of home later, Gen X parents are supporting their children for longer. And with parents of teenage kids now dealing with rising expenses such as school fees, utility bills and housing costs, the increased cost of living has hit Gen X the hardest, McCrindle says.

According to the 2018 State of the Credit Card Market Report by Finder.com.au, Gen X also has the highest level of credit-card debt of any age group, with 24 per cent carrying a balance of more than $5000.

McCrindle explains a possible reason for this. “Generally they’re moving into being two-income households, but they’ve got higher costs: pay TV, digital devices for school, private school fees, trips and travel as a family … There are new categories of spending in addition to the older ones,” he says.

One in three Australian high-school students attends a non-government school, up from three in 10 two decades ago, Australian Bureau of Statistics (ABS) data shows.

Working families with younger children – aged five and under – spend an average of 7 per cent to 8.5 per cent of their annual income on childcare, according to the 2017 Household, Income and Labour Dynamics in Australia (HILDA) survey. That’s up from 2002–03 when childcare

costs were between 5.7 per cent and 6.4 per cent of annual incomes.

Housing is also taking up a larger chunk of income. ABS data shows that only 12 per cent in this age group owned their home outright in 2015–16, and 56 per cent had a mortgage.

Essential retirement-planning tasks for Gen XersGen Xers need a plan to ensure they can repay their mortgage and other debts before retirement, while building a nest egg that will provide for a comfortable future lifestyle.

Setting a retirement date – however far in the future – can help with making necessary financial decisions, such as how much to save considering the need to cover long-term healthcare and insurance costs, as well as tax planning.

It’s also important to understand and plan for the impacts of unexpected events such as unemployment or illness.

The bottom line is that Gen Xers still have plenty of time to set themselves up for the future – but they do need to start now.

Gen Xers need a plan to ensure they can repay their mortgage and other debts before retirement, while building a nest egg that will

provide for a comfortable future lifestyle.

12 13


http://Finder.com.au

GEN X

RETIREMENT-READY CHECKLIST:

Use a retirement calculator to work out much super you’ll have at retirement. If there’s a shortfall, see a financial planner to come up with a plan.

Work as a team with your partner to even up your super balances.

Take advantage of tax concessions – consider salary-sacrificing or putting windfalls (such as bonuses or tax returns) into super.

Take out appropriate insurance cover, either inside or outside of super.

Pay down your debt before retirement: credit cards, personal loans and mortgage, etc.

A divorce can be a shocking blow to your finances. In this situation pay clear attention to your super.

Work out if your super balance will cover a modest or comfortable retirement. Do you have enough to avoid relying on the age pension?

Check your super investment. Is it right for your age and risk appetite?

14 15


How does your super stack up compared to other Gen Xers’?Figures from ASFA’s October 2017 report Superannuation account balances by age and gender show that many Gen Xers don’t have enough super savings for an independent life once they stop working, and will need to rely on the government’s age pension.

The maximum fortnightly age pension payment for those eligible (including the maximum pension supplement and the energy supplement) is currently $916.30 for a single and $1381.40 for a couple.

Although Gen Xers may have been putting money into super for most or all of their working lives, the compulsory employer super payments only increased to 9.5 per cent in 2014, after a slow start in the 1990s. This means many Gen Xers are behind where they need to be if they want a comfortable retirement.

For example, a 45-year-old should have $211,123 to be on track and a 49-year-old should have $260,676. But the average balance for a 45–49-year-old is actually $114,616.

16 17


THIS IS THE AVERAGE

SUPERBALANCE FOR YOUR AGE

Now at your career peak, as a Gen Xer you need to plan your retirement carefully,

explains Josh Alston.October 2018

Generation X women are much further behind on their super Women are in a particularly bad position, with Gen X women typically having substantially lower super balances than Gen X men. For example, the average balance for men aged 50 to 54 is $172,126, while for women in the same age bracket it’s $99,520.

So why the disparity? The national gender pay gap in Australia, which currently sits at 14.6 per cent according to the Workplace Gender Equality Agency, is one of the main reasons: women have lower earnings, and therefore less goes into their super.

Women also tend to have more time out of the workforce caring for children and family than other household members, and are also more likely to be employed part time – all of which means they’re earning less super than their full-time working male peers.

Time taken out of the workforce can particularly affect savings: even five years for a person on an average salary during their early 30s will reduce their retirement account balance by more than $80,000 in today’s dollars, according to ASFA’s Ross Clare.

So how are your retirement savings tracking?According to ASFA’s Retirement Standard, the super balances required for a comfortable retirement are:

• comfortable lifestyle for a single: $545,000

• comfortable lifestyle for a couple: $640,000.

Importantly, these figures include outright home ownership and that you’re in relatively good health. It is also assumed you will draw down all your capital, and receive a part age pension.

ASFA defines a comfortable retirement as one in which you can take domestic holidays and occasional overseas holidays, go to restaurants and enjoy a good range and quality of food, take part in a range of regular leisure activities, have top-level health insurance, own a car and replace your kitchen and bathroom over 20 years.

HOW MUCH SUPER DO YOU HAVE COMPARED TO YOUR PEERS?

^ASFA report, Superannuation account balances by age and gender, October 2017 for the year 2015-2016. *Data supplied by ASFA, based on the recommended amount at each age to reach a comfortable retirement. Assumes an income of $59,000 a year with a nominal return of 5.73% after fees and taxes.

ALL $135,290

MALES $172,126

FEMALES $99,520

AVERAGE SUPER BALANCE^




HOW MUCH SUPER YOU SHOULD HAVE AT YOUR AGE TO BE ON TRACK*




35

40

45

50

$108,835

$156,436

$211,123

$273,949

36

41

46

51

$117,835

$166,775

$223,000

$287,594

37

42

47

52

$127,087

$177,405

$235,212

$301,624

38

43

48

53

$136,600

$188,334

$247,768

$316,048

39

44

49

54

$146,381

$199,570

$260,676

$330,878

35–39YEAR OLDS

40–44YEAR OLDS

45–49YEAR OLDS

50–54YEAR OLDS

ALL $56,715

MALES $64,590

FEMALES $48,874

ALL $80,899

MALES $99,959

FEMALES $61,922

ALL $114,616

MALES $145,076

FEMALES $87,543

18 19


How to get on top of your superThe good news is that as a Gen Xer, a concerted effort now – in what are likely the highest-paying years of your career – will help to boost your super balance at retirement. Even small changes over the next 15 to 30 years can make a big difference by the time you leave work.

Here are five ways you can catch up:

1. Work out how much super you’ll have at retirement There are several online calculators that can help you estimate your super balance on retirement, including MoneySmart’s retirement planner. Once you understand the gap between your projected balance and what you’ll need to retire comfortably, you can put a plan in place.

2. Make voluntary contributions Any amount you contribute above your employer’s mandatory 9.5 per cent each year will benefit you in the long run – and you’ll reap tax benefits (subject to contribution limits). Consider making a voluntary contribution each pay day, or salary-sacrificing part of your next pay rise or bonus.

3. Consolidate your super funds If you have more than one super account, consolidating them will help you save on fees, benefit from the investment earnings of a larger pool of money, and make it easier to keep track of your balance.

4. Review the level of risk of your investment choice Have you assessed the risk level of your super investments? Many people opt for safer approaches such as ‘balanced’ or ‘conservative’ investment options, but depending on your appetite for risk and general market conditions, you could consider switching your investment strategy from ‘balanced’ to ‘growth’. Speak to a financial adviser first to make sure you select the most appropriate investments for your circumstances.

5. Check your insurance levels Make sure you have the right amount of cover to look after you or your family if you become unable to work, or in the event of your death.

20 21


Supporting a family saw Ric Mills decide it was time to plan for the future. By Sylvia Pennington.Composer and musician Ric Mills (pictured) is focused on securing his financial future by making regular contributions to his superannuation fund, as he juggles the demands of a multifaceted creative career.

The 41-year old former Brit has called Australia home since 2005, after a holiday here segued into a series of musical and teaching gigs. Now a citizen, he and his wife Priscille, a project manager, live in south-western Sydney with their two young daughters.

Mills balances providing after-school tuition at Octave8, the music academy he founded three years ago, with completing assignments for advertising agencies and corporate clients and composing orchestral trailer scores for music corporations.

Like other self-employed Australians, he is not required by law to pay into super. However, he chooses to do so, through regular lump-sum contributions.

“A lot of musicians who are doing it for a living have a plethora of things going on, and that’s pretty much me,” Mills says.

“I started doing formal teaching after finishing my degree, and here in Australia I taught at TAFE for a few years. My super was looked after by my employer but, as the jobs were only casual, I didn’t get the same benefit as someone employed full time.

“With other freelance work – composing and gigging – obviously you have to look after your finances yourself.”

Planning can be a challenge when income is uncertain, and having a partner in stable employment helps keep the family finances on an even keel.

“I can never say to my accountant that there’ll be a certain amount coming in each year, because there never is,” Mills says. “It’s always changing – hopefully it’s mostly on the rise, but you do need to be prepared for troughs.”

Lean periods notwithstanding, Mills contributes to his super each quarter, despite not being particularly finance-oriented.

CASE STUDY

HOW THIS SELF-EMPLOYED MUSO GOT ON TOP OF HIS SUPER

“My wife is much better at that side of things than I am,” he admits. “I make sure I have the money, and she does something with it. We have a plan and she makes sure we stay on track.”

The super shortfall among the self-employedHistorically, self-employed Australians have lagged behind their counterparts on salaries when it comes to saving for retirement.

In the run-up to retirement, the self-employed have around half the superannuation of employees, according to ASFA.

The difference in super balances between self-employed and salaried workers runs to six figures by the close of their working lives. Salary-earning men aged 60 to 64 had an average balance of $282,643 in 2015–16, while self-employed men in the same bracket had an average of just $143,130, according to ASFA.

For women, the disparity is even starker. The average balance for self-employed women aged 60 to 64 is around $83,000, compared with around $175,000 for wage and salary earners.

Getting serious about the futureFamily responsibilities have made provisioning for the future an imperative as he and Priscille approach their middle years, Mills says.

“As a younger person, living in the UK, I wasn’t so great with money,” he recalls.

“I didn’t have a partner with business acumen, I was in debt, and I didn’t even think about things like saving for the future.

“A lot of musicians I knew were the same – all they cared about was going out to play their next gig.

“There’s nothing like being married, buying a house and having kids to change things. The kids are a constant reminder that you’ve got to make sure that tomorrow is a good day.”

He also finds comfort in knowing his affairs are in hand.

“For me, feeling secure and content is about achieving the balance between being fulfilled by my creative work and operating as a viable ‘business’ which remunerates me sufficiently and allows me to work towards securing our long-term financial future.”

Historically, self-employed Australians have lagged behind their counterparts on salaries, when it comes

to saving for retirement.

22 23


September 2017

The gender pay gap is alive and well – a situation which, unless addressed, will continue to negatively affect women’s superannuation balances.

Despite more women entering full-time work, the average weekly earnings of full-time employees between 2001 and 2016 increased 23 per cent for males but only 22 per cent for females.

These figures are from the 2018 HILDA survey, which also found that, since more women than men now hold university degrees, higher education doesn’t appear to be a driver in closing the gender pay

gap. In 2016, 35.7 per cent of women held degrees compared with 31.1 per cent of men.

Run by the Melbourne Institute, the HILDA survey collates data from the same 17,000 Australians each year. Its latest figures on the gender gap in full-time average earnings (taken from the 2017 report) found that in 2014–15, women’s weekly earnings rose 3.6 per cent from $1284 to $1330, while men’s fell by 1 per cent from $1691 to $1673.

24 25


WOMEN STILL HAVE A

CRUSHINGSUPER GAP

Women are still lagging behind men on super, and the gender pay gap isn’t

helping, writes Gayle Bryant.September 2018

Women still lagging on superA large divide persists between men and women at retirement, with men leaving the workforce with almost double the superannuation of women.

A 2017 report by ASFA, Superannuation account balances by age and gender found that in 2015–16 the average super balance for Australians aged 15 years and over was $111,853 for men but just $64,499 for women. The average super balance at time of retirement (assumed by ASFA to be age 60 to 64) was $270,710 for men and $157,050 for women.

HILDA report co-author Roger Wilkins says the disparity between super balances at retirement is largely due to many women leaving the workforce to have children just as their earnings are growing most strongly.

“Women are also more likely to return to work part time after having children,” he says. “Because they work fewer hours, this lowers their future earnings growth as they’re getting less work experience and fewer promotions. I don’t think that gap will ever close.”

ASFA found that in 2015–16, men held 61.2 per cent of total super account balances compared with around 38.7 per cent for women. This is unsurprising given men’s higher incidence of super and their higher average account balances.

While the disparity is substantial, women’s share of the super balance had increased by two percentage points compared to two years earlier, and there has been a strong improvement since 1994 when women’s share was around 23 per cent.

Women are retiring laterAustralians are also working longer and retiring later. Between 2012 and 2015, the average age of retirement for men rose by four years from a decade earlier to 66.1 years; for women, it was up to 63.8 years.

In 2001, 49 per cent of men and 68 per cent of women aged 60 to 64 were retired, while in 2015 only 28 per cent of men and 48 per cent of women in this age range were.

A large divide persists between men and women at retirement, with men leaving the workforce with almost double the

superannuation of women.

Among women aged 55 to 59, the proportion who were retired fell from 45 per cent in 2001 to 23 per cent in 2015. However, Wilkins says this trend to work longer appears to be driven by workers themselves.

“There has been a shift away from people reporting they retired due to poor health or job loss, or from an employer pressuring them to retire,” he says. “Those reasons have been declining, and more and more they are reporting retiring because they want to or are financially ready for retirement.”

Childcare costs still increasingMeanwhile, the HILDA survey also showed that childcare costs are continuing to take a bigger chunk out of people’s pay, rising in real terms by 74 per cent for couples and 104 per cent for single parents between 2002 and 2015.

In 2002, median weekly expenditure on childcare was $93 for couple families and $56 for single-parent families. By 2015 this had risen to $162 for couples and $114 for single parents, putting greater pressure on household finances.

Women clean up on domestic dutiesThe HILDA survey also showed that men are yet to pick up the slack when it comes to housework and childcare. Women carry out 13 hours more unpaid work each week than men, who have only increased their housework by one hour a week from 2002 levels. Women report that they feel overburdened by household chores.

“Despite much public discussion about improving the lot of women in Australia, on many measures there has been relatively little progress this century,” Wilkins says.

In 2002, the average woman spent more time each week on housework than on employment (22.8 hours versus 21.5 hours). This pattern was reversed in 2016, when working-aged women averaged 24.9 hours on employment and 20.4 hours on housework.

However, compared to men, women still spend more time on housework (20.4 hours compared with men’s 13.3 hours) and childcare (11.3 hours compared with men’s 5.4 hours).

Women carry out 13 hours more unpaid

work each week than men.

WOMEN

$157,050

$270,710MEN

The average super balance at time of retirement

26 27


Research which one is best for you and roll all your super into it.

This ASIC MoneySmart calculator can help you work out how much.

A good time to get your finances in order is before going on maternity leave, but you can do it anytime.

MULTIPLE SUPER ACCOUNTS?

PLANNING A BABY?

MAKE EXTRA CONTRIBUTIONS TO BOOST YOUR

SUPER.

SUPER GAPSTEPS TO HELP BRIDGE THE

28 29


Women represent just under 40 per cent of the world’s labour force but only control 30 per cent of the world’s wealth2

the number of women in senior roles has risen to 25 per cent, but that’s only a 1 per cent increase from 2016; since 2004, the increase has been just 6 per cent⁴

> 25%

Women earn 24 per cent less than men1

-24%

around 15 million girls between the ages of 6 and 10 will never attend school if current trends continue – compared to just 10 million boys in the same age group⁵

15 MILLION

women make up less than 23 per cent of all national parliamentarians and only 18 per cent of government ministers³

< 23%

GLOBALLY

WHY THE WORLD NEEDS

women do at least two-and-a-half times as much unpaid work as men.⁶

2 : 1

40% = 30%

-7% (-12%)women returning to work within 12 months of taking parental leave suffer an average wage penalty of almost 7 per cent during their first year back, increasing to 12 per cent the following year⁹

50%on average, women have just over half the superannuation savings of men at retirement age¹⁰

1/3one in three women retires with no super at all¹¹

the full-time gender pay gap is 22.4 per cent – men who work full time earn almost $26,527 total remuneration per year more than women who work full time⁸

-22.4%

IN AUSTRALIARESHAPING

1. UN Women, Progress of the World’s Women 2015-2016 2. International Labour Organization, Key Indicators of the Labour Market 2017; and Boston Consulting Group, Global Wealth 2016:

Navigating the New Client Landscape.3. UN Women, Leadership and Political Participation 2016; and Inter-Parliamentary Union and UN Women, Women in Politics 2017 Map.4. Grant Thornton International Business Report, Women in Business 2017.5. UNESCO, eAtlas of Gender Inequality in Education 2017.6. International Labour Organization, Women at Work, Trends 2016; UN Women, Women’s Economic Empowerment in the Changing

World of Work, Report of the Secretary-General, E/CN.6/2017/3, December 2016.7. Workplace Gender Equality Agency, Gender workplace statistics at a glance, 2016.8. Workplace Gender Equality Agency, Australia’s Gender Pay Gap Statistics 2018.9. Australian Institute of Family Studies (David Baker), “Maternity leave and reduced future earning capacity”, Family Matters 89, 2011: 82–89.10. Grattan Institute (Brendan Coates), What’s the best way to close the gender gap in retirement incomes? 2018.11. The Association of Superannuation Funds of Australia, 201812. Workplace Gender Equality Agency, Women’s economic security in retirement, 2017.

28.9 per cent of women aged over 65 are living in poverty.¹²

28.9%

15-18%the national gender pay gap has hovered at between 15 and 18 per cent for the past two decades⁷

30 31


In many aspects of their lives, girls start out ahead. So how, as women, do they fall so far behind?

As soon as they enter the workforce, women start to earn less money than men. Put simply, the system is not designed for

women to succeed. It’s time we created one that is.

Kirrily Welsh has a thorough plan to fulfil her dreams when she leaves her working life behind, writes Sylvia Pennington.Workplace learning officer Kirrily Welsh (pictured) is paying down her mortgage and making additional super contributions to give herself a good shot at the relaxed retirement she’s aiming for.

The 47-year-old single parent is a long-time resident of the NSW regional city of Wagga Wagga. She’s worked full time in a variety of administrative and project-based roles since leaving school in 1988, bar a short stretch in 2000 following the birth of her son Jack.

“Some people have an extended period of time off work with their children, but I just couldn’t afford to do that,” Welsh says.

“I was lucky my maternity leave fell at the same time as my long-service leave came due, so that gave me eight months off on full pay. Apart from that, I’ve never had a long break.”

Welsh purchased a home 12 years ago and recently increased her repayments to

$1000 a fortnight, to enable her to clear her $170,000 mortgage by the time she hits 60.

Aiming for above-average super contributionsHer employer pays superannuation at 14 per cent, well above the 9.5 per cent minimum.

Welsh salary-sacrifices a further 7 per cent of her pre-tax earnings. As a result of her doing that, her employer pays a bonus 3 per cent, taking her contribution to 24 per cent.

In addition to this arrangement, Welsh makes voluntary contributions of $110 a fortnight, taking her closer to the annual contribution cap of $25,000.

Australians aged 45 to 49 had an average super balance of $114,616 in 2015–16, according to ASFA. But men had a lot more than women, with an average $145,076 apiece for men against the average balance for women of just $87,543.

It’s a difference that Welsh has clocked in her own circle, “I have above-average super for my age,” she says, “but I’m the odd one out.

HOW THIS SINGLE MUM IS PLANNING FOR AN INDEPENDENT POST-WORK LIFE

CASE STUDY

“Not long ago, I was in a room with some girlfriends, and I was the only one with a six-figure super balance. Some of the group had married young and had a long time off with kids – one only had $20,000 in super.

“I guess when we were young, the idea that you grew up, got married and stayed home with children was still the norm. But in our generation there’ll be way more females who end up on their own. And even if you’re in a relationship”

– as Welsh herself now is – “I think it’s important that women look out for themselves financially.”

Making your tomorrow a priority todayRetirement planning is low on the agenda for many Gen Xers, as mortgages, childcare and other expenses of the middle years take precedence, according to financial planner Elliot Watson.

“It’s a lot of work to raise a family, pay off a house and give your super the attention it needs,” Watson acknowledges.

But those like Welsh who do take steps now should enjoy a significant payback in a decade or two.

Watson suggests that Gen Xers who want to maximise their retirement position

should first consolidate multiple super accounts to save on fees and charges.

However, he adds, check your insurance cover before cancelling old policies to ensure you’re adequately covered for adverse health events, as these can affect future life and total-and-permanent-disability insurance applications.

Ensuring that your investment risk profile is right for your age and stage of life can also make a significant difference to your final super balance. Gen Xers still have time on their side, and an investment profile skewed towards higher growth assets should increase the probability of achieving higher returns in the long term.

Making even modest voluntary contributions now can mean a much more comfortable retirement, Watson points out.

“If you have personal or credit card debts, I’d prioritise paying those off. Then you might look at contributing something like $100 a week extra to your super to start with. If that’s affordable, work your way towards the $25,000 cap.”

“Even if you’re in a relationship, I think it’s important that women look out for themselves financially.”

32 33


September 2017

Putting your financial future on the agendaWelsh admits that she only put planning for post-work life on her personal agenda around five years ago.

“There was a very long period when the super statements came and I didn’t even open the envelopes,” she says. “Life was busy. I was working full time and looking after a kid, and they were just telling me there was money I couldn’t touch.”

It was only when she changed jobs in 2014 that she really started to think about what her retirement might look like.

“I love what I do, but I hate having to get up every single morning,” she says. “I’d love to be able to do more volunteer work, to help out more at our gym, to travel with my partner …”

Welsh subsequently wrote a budget, reined in her discretionary spending, resolved to pay off her mortgage faster, and sought an opinion on her situation from close friend and financial educator Jenny Rolfe-Wallace.

“Sixty is the preservation age for my super,” Welsh explains, “but I didn’t know if there would be enough to cover me. Women on both sides of my family have lived

until 90, so I knew I needed to be able to fund my lifestyle for up to 30 years.”

Part of what Rolfe-Wallace provided was confirmation that Welsh was taking the right steps now to ensure a secure retirement.

“Before I started getting a handle on things and chatting with Jen, I thought I was probably in a bad spot,” Welsh says.

“But now I feel pretty comfortable about where I’m headed – I think I’m going to be alright.”

“Not long ago, I was in a room with some girlfriends, and I was the only one with a six-figure super balance.”

“Sixty is the preservation age for my super, but I didn’t

know if there would be enough to cover me. Women on both sides of my family have lived

until 90, so I knew I needed to be able to fund my lifestyle

for up to 30 years.”

34 35


Superannuation provides an environment for you to accumulate your retirement savings and from a tax perspective, it has few rivals.

It can help you tax-effectively save for your retirement in a number of ways, such as:

• the money you contribute before tax (employer payments and salary) is generally taxed at 15 per cent, which is lower than most people’s marginal tax rates

• investment earnings and capital gains inside super are also taxed at a maximum of 15 per cent.

The trade-off for these tax benefits is that your money is preserved until retirement, so you can’t generally access it until you have reached your preservation age (55 to 60, depending on your date of birth) and have retired or you reach the age 65.

How much tax can you save?Any tax benefits you can get from contributing extra to super for the 2018-19 financial year depends on the marginal tax rate that applies to your taxable income. The table below shows you just how much you can save from redirecting some of your income into super.

36 37

YOUR GUIDE TO LIFE AFTER WORK: GEN XWhat we’re doing for an equal future

SUPER IS STILL

SERIOUSLYTAX-FRIENDLY

Super remains one of the most tax-effective ways to save for your retirement. So, it’s important to understand how

you can best benefit from it, writes Gayle Bryant.December 2018

Tax strategies that make the most of your superHere are some tax-effective strategies that can give your super a boost.

Salary sacrifice or make personal tax-deductible contributionsMaking concessional contributions into super is one of the most tax-effective strategies around. If you ask your employer to put some of your salary into super before it goes into your pay packet, this amount is generally taxed at 15 per cent instead of your marginal tax rate.

Be aware you can only contribute $25,000 per year to your superannuation at this concessional rate, including the 9.5 per cent superannuation guarantee. (Refer to the need-to-know section below for details of the ‘carry-forward’ arrangement that began on July 1, 2018).

There are some exceptions to the amount of contributions tax you pay. For example, since July 1, 2017, if your income plus concessional contributions exceed $250,000, you pay an extra 15 per cent tax (total of 30 per cent) on concessional super contributions.

Move savings into super for a tax-effective earnings boostIf you have a large amount of cash or other investments outside super that you don’t need to access any time soon, you could consider moving them into super so that any interest or investment earnings (including capital gains) are taxed favourably. Just be aware of the capital gains tax implications if you’re selling any investments to do this and remember that there are limits on the amount you can contribute to super.

Tax advantages of having life insurance through super Life insurance that’s available through your super fund may be more affordable than if you pay for it outside of super, which means you can potentially save money on the premiums and/or pay for a higher level of life insurance cover.

This is because when you take out insurance within super, it may be paid from your pre-tax income, which leaves you with a lower gross income amount on which to pay tax. Your premium may also be lower because

Superannuation provides an environment for you to accumulate your retirement savings and from a tax perspective it has few rivals.

often employers can negotiate better terms for their insurance arrangements.

Make the most of the spouse contribution rules

You can receive a tax offset of $540 by making a contribution to your spouse’s super account. This works by paying at least $3000 into the super account of the lower-income earning spouse. Whereas previously the spouse had to earn below $10,800 to be able to qualify for the full tax offset, now the amount is $37,000.

Tax offset for low income earnersIf you earn $37,000 or less you may also qualify for the low-income superannuation tax offset. This amount, up to $500 each year, is 15 per cent of the concessional contributions you or your employer makes to your super throughout the financial year.

Need to knowBelow is a summary of some of the key legislated changes to super.

• You can only move up to $1.6 million (2018-19) of super savings into a pension account.

• Transition-to-retirement pensions are no longer considered a retirement-phase income stream and investment earnings are taxed at 15 per cent (pension payments from these super pensions continue to be tax-free if you are over the age of 60).

• Concessional contributions are capped at $25,000 a year.

• If you haven’t contributed up to the maximum concessional contribution cap in any one year, since July 1, 2018, you are able to ‘carry-forward’ the difference and contribute it in future years, on a rolling basis for five years, if your total super balance at June 30 of the previous financial year was less than $500,000.

• Personal (non-concessional) super contributions are limited to $100,000 from after-tax savings each year. However, the ‘bring-forward’ arrangement means people aged under 65 on July 1 of the financial year can bring forward up to the next two financial years’ non-concessional contributions cap. This effectively means you can contribute a total of $300,000 in one year but no further contributions can be made over the next two years. Your total super balance may restrict these limits.

• The downsizer contributions into superannuation measure allows people who are 65 years and over to make a contribution into their super of up to $300,000 using the sale proceeds of their home, without affecting their non-concessional cap.

A further change, which has not yet been legislated at the time of publication is that from July 1, 2019, those aged 65 to 74 with a total super balance below $300,000 will be exempt from the work test for voluntary contributions to superannuation. This exemption only applies to the first year a person does not meet the work test.

Marginal tax v Super tax

Income ($) Marginal tax rate (%)*

Super tax rate (%)

Tax rate difference** (%)

0-18,200 0 15 extra 15

18,201-37,000 19 15 save 4

37,001-90,000 32.5 15 save 17.5

90,001-180,000 37 15 save 22

180,001 and above 45 15*** save 30

* The above rates do not include the Medicare Levy of 2 per cent. ** This is for illustration purposes only and does not take into account any tax offsets or credits you may be entitled to. *** An additional 15 per cent tax applies if your income exceeds $250,000.

38 39


Why is there an insurance premium coming out of my super?It may be that rather than choosing your own super fund you have gone with your employer’s choice of fund. In most cases, employer super funds have insurance included in them, so if you haven’t specifically opted out, an insurance premium is being deducted from your super.

You can opt-out of this insurance cover by contacting your fund, but before you do that, look closely at any insurance you may hold outside of super and make sure you have the cover you need. The best course of action is to get financial advice.

What changed in the 2018 budget? Then budget proposed changes to insurance in super, however this hasn’t been passed through legislation yet.

If it gets through parliament, the following super fund members will have to choose to take out insurance (i.e. it won’t be automatically included) in super accounts that:

• are owned by those aged under 25

• have a balance less than $6000

• have been inactive for 13 months.

40 41


FAQS:

INSURANCEIN SUPER

ANZ answers the most frequently asked questions on insurance in super.

What type of insurance cover am I paying for?For most default funds, death cover and total-and-permanent-disability cover (TPD) are the standard insurance inclusions. Some employers may also have income protection as part of their default cover.

Even if your fund doesn’t have income protection as part of its default cover, it’s generally a simple process to apply for if you want it.

Are there benefits to having insurance through super?OnePath national super and insurance product manager Kerry Vogel says there can be.

“Certainly from a cash flow point of view it can be advantageous, because it’s coming out of your super balance and not out of your pocket.”

Your super contributions are taxed at 15 per cent (rather than your marginal rate), so paying for insurance through your fund can be tax effective.

Your premiums may also be cheaper because your employer has been able to negotiate them on a large scale for many members.

It’s important that you check the details of your policy carefully – don’t assume that your policy is the best for you without assessing all its features.

I’ve got my own insurance as well as insurance through my super, which should I keep?You need to understand the details of both policies – the terms and conditions, the definitions and the exclusions – before you can make that decision. Levels of cover can be very different between policies, even if the premiums are similar. Again, it’s worth getting financial advice about an important decision like this.

Your super fund can usually provide factual information and general advice, but for advice that’s specific to your unique circumstances, you’ll need to consult a financial adviser.

It’s important that you check the details of your policy carefully – don’t assume that your policy is the best for you

without assessing all its features.

If I’m no longer contributing to my super fund, am I still covered by the insurance?Until July 1, 2019, generally speaking, if your insurance premium is still being paid (out of your super) and you haven’t had anything happen that would cease your cover, then you’ll still be eligible for that cover.

If passed, the 2018 federal budget changes mean that, from July 1, 2019, 13 months after you stop contributing to your fund (and it is deemed inactive), insurance premiums will not continue to be paid out of your super and therefore your cover will cease.

This is unless you have notified your super fund in writing that you would like to maintain your insurance.

Your cover may also cease when something (specified in your policy) happens. For example, you move permanently overseas, an event that, according to your policy, ceases your cover. You haven’t advised your insurer (perhaps you’re not aware of this policy condition), and you have kept paying your premium. You then go to make a claim on the policy. Your insurer is likely to refund your premiums (from when your cover was terminated) but will not pay your claims.

However, there could also be an instance where the event that your claim relates to (say, an injury) occurred while you were still paying your premium and eligible for cover, even though you have made the claim after you have stopped paying and/or your cover has ceased. In that case, you might still be eligible for cover.

So it’s vital to:

• understand the terms of your policy

• advise your super fund if anything changes

• note the dates that any significant events occur.

Can I claim from more than one policy?For death cover and TPD, it is generally possible to make multiple claims. It’s not uncommon for people to have more than one policy.

For income protection, however, your total cover is limited to 75 per cent of your income. So if you have income protection through two super funds, and one is paying your cover of up to 75 per cent, the other will not be able to do the same.

How do I know how much cover I need? Vogel stresses the importance of talking to a financial adviser to make sure you get your level of cover just right: “It’s important to take into account your level of debt, your family circumstances, how many dependents you have and their ages, whether you have a spouse and what their earnings are – there are lots and lots of individual factors.”

Some super funds do provide online calculators that allow you to enter some basic information – it’s the simplest and least accurate way to estimate what cover you need, but it’s better than not doing it at all.

42 43


Breaking up is hard to do, and so too is deciding who gets what if you and your partner have decided to call time on your marriage or de facto relationship.

Superannuation is a major component of the shared property pool for many Australian couples. In fact, if one or both parties is a high-income earner or has spent a significant amount of time in the full-time workforce, its value may well exceed that of the marital home or other joint investments.

Let’s not stick togetherThere were 46,606 divorces granted in Australia in 2016, according to the ABS report on Marriage and Divorces. The median duration of those marriages was

12 years, with the median age at time of divorce being 45.5 years for men and 42.9 years for women.

By this stage of life, superannuation balances can be sizeable. The average Australian male aged 45 to 49 had $145,076 in super in 2015–16, according to ASFA, while women aged 40 to 44 had an average of $61,922.

Who gets what in the divorce?When it comes to determining how divorcing couples should divide their assets, the courts generally take what’s termed a ‘two-pool approach’, according to family law specialist and Linden Legal principal Margaret Linden.

44 45


HOW TO HANDLE

SUPERIN A DIVORCE

In the event of a divorce, how should your and your ex-partner’s super balances be

split so each get their fair share? By Sylvia Pennington.

September 2018

“One pool is the non-super assets, and the other is the super assets,” Linden explains,

“and they’ll generally be split in the same proportions – whether that’s 50/50 or 60/40, or whatever is agreed on.

“Money is then transferred from one party’s super fund to the other, to make up the balance.”

Some couples opt for a one-pool approach, whereby all assets, including super, are tallied and then divvied up in whatever proportions the parties agree on. This can result in a situation where one person receives most or all of the equity in the family home while the other party retains the bulk of their shared super.

In such scenarios, says Linden, it’s typically women who seek a larger share of the non-super assets, particularly if there are dependent children in the mix.

“Usually they’re the ones with the lesser income, so cash now is far more important to them than super in 20 years’ time,” Linden explains. “Their immediate consideration tends to be housing their kids and getting through the next five or 10 years, until they’re off their hands.”

Conversely, some high-income earners have the cash flow to rehouse themselves and are happy to receive a lump-sum injection to their super fund, in lieu of more liquid assets.

A one-pool split essentially equates each dollar of super with one dollar of cash – an equation worth considering carefully depending on your specific circumstances, Linden points out.

“Depending on your age, it can be a good approach,” she says. “If you’re over 50 and nearing retirement, that’s fine. But if both parties are in their forties or younger, a dollar of cash is going to be more valuable than a dollar of super, unless there’s really serious money in the equation.

“If that’s not the case, then it’s unlikely either person will agree to take a lot of super, because the wait to access the funds is too long.”

Super splitting lawsSuperannuation splitting laws introduced in 2001 made it possible for superannuation balances to be divided as part of family law property settlements.

If you don’t know how much your ex has amassed in super, you’re entitled to ask their fund’s trustee. You’ll be provided with their balance on an agreed date, and a valuation can be calculated based on this information.

You may then make a legal agreement, known as a superannuation agreement, about how any super either of you has will be divided between you. In order for this agreement to be binding, you need to provide evidence that you’ve both received independent legal advice prior to its signing.

Your super can be split by court order if you’re unable to come to agreement.

Sorting your super splitSo should you share the collective contents of your super accounts equally, hang onto your own contributions, or take a larger slice of the retirement pie and a lesser proportion of the family home and other assets?

There’s no one correct answer that suits everyone, according to RetireInvest planner John Walker. Respective ages, incomes and family situations all play a part in determining how couples should divvy up their retirement savings within a property settlement, so it’s a good idea to seek personalised advice.

“The idea is to take into account everyone’s circumstances from a practical point of view when you’re trying to determine an equitable split,” Walker says.

“Ideally, you’ll have a financial planner as well as a lawyer on your team. There can be real value in working with someone who’s competent and listens, but isn’t sucked into the emotionality of it all.”

“Their role is to be a sounding board and to help you get to grips with your new circumstances, and [to] work out a plan to move forward financially once you’ve settled your affairs.”

“Ideally, you’ll have a financial planner as well as a lawyer on your team. There can be real value in working with someone who’s

competent and listens, but isn’t sucked into the emotionality of it all.“

46 47


When he divorced for the third time, Mike’s priority was to ensure the relationship remained amicable, writes Sylvia Pennington.When their marriage ended in 2009, a conciliatory approach – combined with pragmatic planning before they’d joined forces – made dividing their super a straightforward matter for 56-year-old On Your Side Investments real estate strategist and author Mike Harvey and his former wife.

The Gold Coast couple met in 2004 through dating site RSVP, and became engaged following a whirlwind romance. Finances were blended when they tied the knot.

“We were a blended family,” Harvey says. “My two kids were with me four days a week, and she had a six-year-old daughter. We were fully committed, so we decided very early on to combine our finances as well.

“I had my own property I lived in, which they moved into, and she had her own property, which my wife sold. We went on to renovate another property, which

was to be our perfect home, and also bought an investment property in Hobart, where we were living at the time.”

Documenting their existing assetsThe pair documented their respective assets at the time of their marriage, following a frank conversation about the

‘what ifs’ of life and love.

“It wasn’t the first rodeo for either of us,” Harvey says. “We were desperately in love and we thought we’d be together for the rest of our lives, but we said, ‘Just in case something weird happens and we separate, let’s make up a spreadsheet with the assets we brought in’ – what our respective houses were worth and so on.

“What’s more, we wrote that we would make ‘giving’ the basis of any split, rather than – as we see in most cases – what we would ‘take’.”

Harvey had been married twice before, and his new partner had been married once and engaged on another occasion, so they’d both experienced similar issues in the breakdown of committed relationships.

“We’d genuinely been in love at the time, but we knew circumstances and life can

CASE STUDY

HOW MIKE HANDLED HIS SUPER IN A DIVORCE

change and we were practical about that,” Harvey says.

Where super fits in a divorceAt the time of their separation five years later, Harvey had around $80,000 in his superannuation account and his wife had around $60,000.

Superannuation splitting laws introduced in 2001 made it possible for superannuation interests to be divided, as part of family law property settlements.

Despite this, the pair chose to divide their marital home and two investment properties between them, and leave their retirement savings out of the equation.

“We both believed that by selling property, agents make money and you lose – especially if you’re trying to sell quickly

– so we didn’t want to put everything on the market,” Harvey says.

“My ex-wife was keen to keep the family home – she’d settled into the local community, and her daughter was in school – and we had enough equity in that to give her a level of comfort. I was happy to take over the highly leveraged investment properties and some shares.”

In the end it came pretty close to a 50–50 split of their assets, excluding their super.

“Neither of us had an awful lot of super, and factoring it into the split would have been too cumbersome and involved so, for simplicity’s sake, we decided to leave it as it was,” Harvey explains.

Discussions with their lawyers confirmed that this was a reasonable tack to take, under their circumstances.

“Something the courts look at is how much each of you added to your super in the time you were together,” Harvey says.

“Our super accounts grew at roughly the same pace. If anything, my former wife probably added more to hers, because she was working full-time and I was in business for myself for two of those years and not making regular contributions.

“If the difference between our balances had been significant – say, $400,000 versus $100,000 – then that may have been something to talk about, but for us it wasn’t big enough to be an issue.

“At the end of the day, we wanted to dissolve the marriage and maintain a good post-marriage relationship, and we didn’t want to get down to that nitty-gritty.”

Maintaining a good relationship after divorceThe pair’s amicable approach was consistent with another resolution they’d agreed on when creating their pre-marriage spreadsheet.

“We wrote down what the rules would be if we broke up,” Harvey recalls, “and we summed it up with the words ‘On your side’. We wrote a list of all assets, including furniture, cars, etc, and each decided what to give to the other, until there was not much left to really decide on.”

Their priority was – and still is – to remain positive and to speak well of one another.

“It’s something I’d recommend others do too,” Harvey says, “because in the end you both feel better about it, and the children see the example that even when there is hurt and sadness, kindness and care is more important.”

48 49


November 2018

Which is the better investment: super or property?A few years ago, when capital-city real estate prices were rising at dizzying speeds – especially in Sydney and Melbourne – property seemed like the obvious answer.

House prices nationwide are down 1 per cent in the past year, reflecting the first trip into negative territory since 2012, according to the ANZ report, Australian Housing Update: coming back to earth, released June 2018.

The report predicts housing prices will decline by 4 per cent in 2018 and a further 2 per cent in 2019. Sydney and Melbourne are expected to be the primary drivers of this fall, as their high prices and highly leveraged households will be sensitive to tighter credit conditions and rising interest rates.

We forecast both cities will see price falls of around 10 per cent peak-to-trough, with Sydney faring slightly worse than its southern peer,” the report states.

Bearing in mind these changes, it’s worth taking a closer look at both investment options, starting with super.

50 51


PROPERTY

VERSUSSUPER

When it comes to choosing where to put your savings it’s all about getting the right

mix, writes Tiffany Hutton.September 2018

What’s so good about super? Super funds aim to generate a steady return over a relatively long period of time, to provide income in retirement. Although super may lack the glamour of real estate, funds have generally performed strongly over the past decade, with yearly returns of 5.9 per cent for the median balanced fund. That’s well above the annual rate of inflation.

Putting extra cash into your super pays off in the long run, helping to ensure a comfortable retirement. And if you start boosting your super early in your career, you’ll be harnessing the power of compound interest, greatly increasing your savings.

Super also offers significant tax benefits, which the government implemented to encourage us all to invest in it. Although some of the initial tax advantages have since been dialled back, super is still a tax-effective way to save for your retirement.

Bear in mind that you can’t usually access your super until your reach your preservation age (55 to 60) – although from July 1, 2018 the first home super saver scheme will allow first home buyers to withdraw some of their voluntary super contributions to buy their first home.

Hot property?“We all need to build up pockets of money outside super,” says Rainmaker executive director of research Alex Dunnin. And one of the investments outside super with the most tax benefits is negatively geared property.

Negative gearing is when the costs of owning an investment property (including the interest paid on your investment loan plus some other costs) are greater than the property’s rental returns, and you can claim a tax deduction for that net loss. This can be particularly useful for high- income earners.

According to the 2017 Russell Investments/ASX Long Term Investing Report, in the 10 years to 2016 Australian residential property returned 5.8 per cent per year after tax for people on the highest marginal tax rate.

But what about the falling property prices?ANZ senior economist Daniel Gradwell says that despite the current weakness in the property market persisting longer than expected, the fundamentals of the Australian economy are still good, and property is still a sound long-term investment.

“Now is always a better time to buy than five or 10 years down the track,” he explains, “when you’re investing for the long term and you select your property carefully. I definitely wouldn’t be turning away from the property market just because we’re going through the softer part of the cycle.”

Different strategies work for different peopleThe truth is that super and property offer different advantages to different investors, even when they offer similar returns.

In the end, your best investment strategy depends on your circumstances – your age, your overall financial position and your financial goals.

If you’re in the early years of your career, putting more money into your super can help to ensure that your eventual retirement will be what you want it to be. At the same time, you don’t want all your money tied up in one place where you can’t access it until you reach your preservation age.

An investment property offers the potential advantages of negative gearing and long-term capital gains. And if you hold onto the property for long enough, it is likely to become positively geared, which means it is actually providing you with income.

Heads or tails?So, which will it be, super or property?

“The question isn’t whether you should invest in super or negatively geared housing, but what the mix should be,” Dunnin summarises.

“The question isn’t whether you should invest in super or negatively geared housing, but what the mix should be.”

52 53


Young business owner John Zanol is determined to retire well by paying attention to his super now, writes Sylvia Pennington.Paying himself an allowance and cordoning off the rest of his income for super and savings enables John Zanol, founder and owner of ebike retailer, Dolomiti Electric Bicycles to provide for the future while making the most of the present.

Turning 39 in February this year, Zanol is on the cusp of Generation X, the cohort aged between 39 and 54 in 2019. He spent much of his 20s based in Italy, travelling the globe on the professional golf circuit. After hanging up his clubs in 2008, he cast around for a business idea, and two years later opened an electric bike business in his home city of Melbourne which has grown to become one of the country’s leading electric bicycle businesses. In 2018, Dolomiti was selected as a finalist in the Telstra Business Awards.

Advice from his accountant, a long-time family friend, resulted in Zanol making regular super contributions during his

playing years, and he’s continued to do so ever since.

“You don’t think about these things when you’re young, but he was pretty good at making sure I saved for retirement, and I still do that now – I’ve never stopped,” Zanol says.

“Even now I have my own business, I pay my super as if I were any other staff member.”

While he’s not a weekly or monthly balance checker, Zanol catches up with his financial adviser twice a year to review his position.

“I know what’s in there, I know how it’s performed in the last year, and I’ve got a pretty good idea how my money is invested,” he says. “I have a fairly low-risk set-up so I don’t see major fluctuations. I may be a bit conservative but I’m happy to get a reasonable return without a huge amount of risk.

“I work seven days a week, which means I don’t have a lot of free time, so I don’t want to be worrying too much about following the market and tracking how my investments perform. I’m happy to know they’re there in the background, steadily building and compounding.”

HOW JOHN, 38, STARTED EARLY TO SECURE A COMFORTABLE POST-WORK LIFE

CASE STUDY Seeing the benefits of steady saving

The average superannuation balance of Australians aged 35 to 39 was $56,715 in 2015–16, according to ASFA.

While retirement can seem aeons away for those in this age bracket, being scrupulous about putting money aside for your future in your 20s and 30s will see you better placed to keep enjoying all life has to offer two or three decades hence, according to ANZ financial planning associate Daniel Thompson.

“Building good savings habits at a young age is so powerful,” Thompson says. “I’d encourage people to do that, with the goal of increasing their contributions over time as their income increases and they become more established.

“Small things, like putting aside an extra couple of per cent of your pre-tax salary, can do a lot. You don’t have to sacrifice every good thing in the moment to set yourself up for a more comfortable future.”

Pay now, play nowZanol says he was fortunate to have entered the property market in 2004, before a series of booms made buying a first home a much tougher proposition for 20- to 30-somethings. He and his partner moved into their current home in North Fitzroy in 2014.

“Melbourne is an expensive place to live,” he says. “It can be quite difficult to do all the things you want to do and think you deserve because you work hard – go out to dinner, socialise – and, at the same time, save.

“The way I do it is to have a fixed set of savings plans. I give myself an allowance to play with, and everything else is saved.

I pretend a whole lot of my income is not mine; it just goes straight into my super and other bank accounts.”

This means he can spend his allowance guilt-free on leisure activities and holidays.

“Because I work so much and my showroom is not in town, I don’t spend any money on lunches or coffees,” Zanol explains, “but I like to go out for dinner on the weekend, or to a show.

“My partner and I both know we have to put money aside and think about building assets for the future, but at the same time we’re reasonably young and we don’t have children. We like to take advantage of the fact we don’t have responsibilities, other than to ourselves, so when we’re not working we try to travel and do things we enjoy.”

Thinking aheadAlthough Zanol and his partner are still relatively young and carefree, there’s no holding back the years, he says.

“Time creeps up on you. Thirty-eight is young, but I remember when I was 21 and it feels like yesterday, so before I know it I’ll be 50.

“That’s just life, isn’t it? It goes by so quickly. So I’m starting to think about retirement

– probably more so because 40 is around the corner, but also because I work so much as well.

“I have to think about what I’m going to be doing down the track, because working seven days a week is probably something I can’t do forever. While my business is continuing to grow and expand, I need to ensure that I am set up for the future regardless of where it takes me.”

54 55


January 2019

Think you could manage on a little over $900 a fortnight? That’s what a single retiree who qualifies for the full government age pension receives – $916.30 a fortnight, or $23,824 a year.

For a couple it’s $1381.40 a fortnight, or $35,916 a year. And these figures include the maximum pension supplement and the energy supplement.

So it’s not surprising that Mima Rahaman, a senior financial adviser with Thinkwealth Management, describes life on the age pension as “tough”. Patrick Canion, chief of financial planning firm ipac Western Australia, is a little blunter: “It sucks.”

Rahaman is upfront with her clients about the need to take financial responsibility for their own retirement:

“I advise all [of them] to maximise the amount of money they save for retirement so they don’t need to rely on the age pension.”

Canion agrees that relying on the age pension alone is not advisable. “You can make do from week to week,” he says,

“but when big items come along you can really struggle. For example, if the fridge packs it in, or your shoes need repairing, often you’ve got nothing to fall back on.”

But if the age pension alone is inadequate to live on, how do we work out how much we might actually need in retirement?

How much retirement income is enough?ASFA creates estimates of the annual income required by both single people and couples to provide for either a ‘modest’ lifestyle or a ‘comfortable’ lifestyle in retirement.

Its latest estimates, for the September 2018 quarter, suggests that a single person of retirement age (around 65)

56 57


WHAT’S LIFE

REALLY LIKEON THE AGE PENSION?

Life on the age pension probably isn’t the life you have in mind when you dream of

retiring, writes Sally Patten.September 2018

needs an annual income of $27,595 to provide for a ‘modest’ lifestyle, while a couple needs $39,666. (For older retirees these amounts are slightly lower.)

You might be thinking that those figures aren’t much higher than the age pension, so perhaps the age pension is not so bad after all. But then, what exactly does a ‘modest’ lifestyle include?

Well, as it turns out, not a great deal.

A ‘modest’ vs a ‘comfortable’ retirementASFA’s budget for a modest retirement lifestyle for a retired couple aged 65-85 covers the following expenses a week:

• $50.34 on electricity and gas

• $165.15 on food

• $92.85 on health services

• $21.65 on home phone, broadband and mobile

• $46.66 on a domestic holidays.

So perhaps ‘modest’ might more accurately be described as ‘frugal’. There’s not exactly a lot of wriggle room there, either for luxuries or for unexpected expenses.

That’s a lot more than the maximum age pension. And even with this income, a ‘comfortable’ retirement lifestyle is not going to include long overseas holidays or extravagant entertaining.

Most of us probably imagine retirement as a time when we can relax, enjoy life at a slightly slower pace, and spend more time with family and friends. What we don’t want is to be worrying about our financial security.

Whether retirement is a long way into the future or getting close, it pays to look ahead and make the smartest financial decisions you can to boost your retirement savings. Talk to your financial adviser about the best way to do this, whether it’s through investing in your super or other assets.

What about a ‘comfortable’ lifestyle? ASFA estimates that for this, a single retiree needs $43,200 per year and a couple needs $60,843.

$60,843 $43,200

“You can make do from week to week, but when big items come along you can really struggle. For example, if the fridge

packs it in, or your shoes need repairing, often you’ve got nothing to fall back on.”

Budgets for households and living standards for retirees aged over 85(September quarter 2018, national)

Modest lifestyle Comfortable lifestyle

Single Couple Single Couple

Total per year $26,037 $37,154 $40,953 $56,735

The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. Source: ASFA

Budgets for households and living standards for retirees aged 65-85(September quarter 2018, national)

Modest lifestyle Comfortable lifestyle

Single Couple Single Couple

Total per year $27,595 $39,666 $43,200 $60,843

58 59


The money held by a super fund is invested in various ways to ensure that it grows over time.

Most funds allow their members to choose a basic investment strategy – cash, conservative, balanced or growth

– based on the degree of risk they’re comfortable with; they’ll also have a default option for members who don’t nominate a strategy.

The way super investment strategies typically work is that people opt for balanced or growth investment options when they have smaller balances and plenty of time to recover from market downturns, then shift into cash or conservative investments when they are nearing retirement and have a lot more at stake.

The risk with so-called growth strategies is that they’re more exposed to assets such as shares, which can more easily fall and rise in value, leading to investors suffering losses in a bad patch.

What kind of risk are we talking about? Over a period of 30 to 40 years, it’s likely that any growth strategy will lose money in at least four to six of those years, but over the long term there are likely to be more ups than downs.

The Australian Securities and Investments Commission (ASIC), on its MoneySmart website, says that historically over any 20-year period, a growth or balanced strategy has given better returns than more conservative investment options.

Given the magic of compounding interest, a 2 per cent difference in returns can make a significant difference to the size of your super balance over the medium to long term.

60 61


HAVE YOU GOT THE RIGHT

SUPERINVESTMENT STRATEGY?

Changing your investment option could help grow a low super balance,

writes Nigel Bowen.September 2018

CashAll your super money is put in a fixed-interest account at an Australian deposit-taking institution or in a capital guaranteed life-insurance policy.

2.9%RETURN

ConservativeAround one-third of your super money is invested in shares and property, and the rest is in cash or fixed-interest investments.

4.2%RETURN

BalancedAround 70 per cent of your super money is invested in shares or property, and the rest is in on-call or fixed-interest investments.

5.7%RETURN

GrowthAround 85 per cent of your money is invested in shares and property, with only a small fraction tucked away in on-call or fixed-interest investments. Impressive returns are likely over long time frames, but a downturn could reduce your balance significantly.

6.2%RETURN

“Just because you have less money than you’d like in super doesn’t mean there’s no point monitoring it.”

The hard lessons of the global financial crisisAlmost every Australian knows someone who woke up one day late last decade to find that between 20 and 50 per cent of their retirement nest egg had disappeared.

The difficult lesson to be learned from the shock of the global financial crisis (GFC) is that while super funds must invest responsibly, ultimately it’s up to the account owner to make sure their super money is placed in suitable investments for their circumstances.

While lifecycle funds, such as ANZ’s Smart Choice Super, automatically shifts their member’s super into more conservative options as they age, it’s important to keep an eye on your investment option so you can adjust it as needed.

Australians shouldn’t assume their super fund will automatically do this for them, warns Wollongong University’s School of Accounting, Economics and Finance lecturer Loretta Iskra.

That’s something many learned the hard way.

“Many Australians thought they had their super invested conservatively, only to discover post-GFC that 70 per cent of their retirement savings were in riskier growth assets,” explains Pitcher Partners Wealth Management director David Lane.

“When a number of property funds froze and equities declined quickly, their portfolios were severely impacted, and they didn’t have the margin of safety that they thought they had.”

Brammall Financial managing director Bruce Brammall, along with Iskra and Lane, implores Australians to stay informed about where their super is invested.

“Just because you have less money than you’d like in super doesn’t mean there’s no point monitoring it,” says Brammall. “If anything, the reverse applies.”

“It’s straightforward to visit your super fund’s website and check your balance,” adds Lane. “While you’re there, you can switch into a different investment strategy to match your own individual objectives and risk tolerance.”

The other painful lesson from the GFC is about the importance of timing.

Source for returns: ASIC’s MoneySmart

62 63


INVESTMENT OPTIONS

THE FOUR MOST COMMON PRE-MIXED

“The smart players realised in 2005–06 that the party couldn’t last,” Brammall says. “They pulled their super money out of shares and put it in term deposits, which were paying 8 per cent interest before the crisis.

“Those policyholders who held their nerve and remained in balanced or growth investments after the downturn made their losses back within around five years.

“The ones who’ve done worst are those who put their entire super in cash and conservative investments after the GFC, only to see interest rates flatline for a decade.”

Consider your circumstancesIf you’re facing the prospect of retirement with only a modest super balance, seek expert advice.

“If I had a friend in that situation,” Iskra says, “I’d be urging them to meet with a qualified financial adviser and have a plan tailored for them.”

“Unfortunately, there’s no one-size-fits-all solution,” Brammall agrees. “One person might be willing to put their super

money in riskier investments, then delay their retirement if the market turns against them. Lots of people did that after the GFC.

“Some individuals will have money in the bank or own an investment property generating rental income. That will mean they don’t have to draw down their super balance quickly.”

Others, Brammall adds, will want to withdraw most of their super at the earliest opportunity to pay off their mortgage – but they should check first that this strategy will leave them enough to live on. “Some will qualify for the full age pension, some a part pension and some no pension at all,” he says.

At the end of the day, your choice of investment option will come down to your personal circumstances.

As Lane concludes: “It’s all about being happy with the investment choices you’ve made and being able to sleep at night.”

“Unfortunately, there’s no one-size-fits-all solution.”

If you’re facing the prospect of retirement with only

a modest super balance, seek expert advice.

Important Information:

ANZ Smart Choice Super is a suite of products consisting of ANZ Smart Choice Super and Pension, ANZ Smart Choice Super for employers and their employees and ANZ Smart Choice Super for QBE Management Services Pty Ltd and their employees (together “ANZ Smart Choice Super”). ANZ Smart Choice Super and Pension is a retail product issued pursuant to the Product Disclosure Statement (PDS) available at anz.com > Personal > Investing & Super > Superannuation > Super > Downloads - important documents. ANZ Smart Choice Super for employers and their employees and ANZ Smart Choice Super for QBE Management Services Pty Ltd and their employees are both MySuper compliant employer products issued pursuant to separate PDSs available at anz.com > Personal > Investing & Super > Superannuation > Employer > Downloads - important documents.

ANZ Smart Choice Super was awarded the 5-star ‘Outstanding Value’ CANSTAR award in the Superannuation category in 2016. Visit the CANSTAR website to view full report. ANZ Smart Choice Super received a Gold rating in SuperRating’s 2017 product rating. SuperRatings does not issue, sell, guarantee or underwrite this product. Go to www.superratings.com.au for details of its ratings criteria. ANZ Smart Choice Super was awarded 5 Heron Quality Stars in their 2016/17 assessment. Visit heronpartners.com.au for more information.

OnePath Custodians Pty Limited (ABN 12 008 508 496, AFSL 238346, RSE L0000673) (“OnePath Custodians”) is the trustee of the Retirement Portfolio Service (Fund) (ABN 61 808 189 263, RSE R1000986, SFN 4571 159 75) and issuer of ANZ Smart Choice Super and this information. OnePath Custodians is distributed by Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. ANZ is an authorised deposit taking institution (Bank) under the Banking Act 1959 (Cth). OnePath Custodians is the issuer of ANZ Smart Choice Super but is not a Bank. Although this product is distributed by ANZ, this product is not a deposit or liability of ANZ or its related group companies and none of them stands behind or guarantees the issuer or the capital or performance of the product.

This information is of a general nature and has been prepared without taking account of your objectives, financial situation or needs. Before acting on this information you should consider whether the information is appropriate for you having regard to your objectives, financial circumstances or objectives. ANZ recommends that you read the ANZ Financial Services Guide, the relevant Product Disclosure Statement, product and other updates which are available by calling Customer Services on 13 12 87 or visiting anz.com > Personal > Investing & Super > Superannuation > Super > Downloads - important documents and consider whether the product is right for you before making a decision to acquire or to continue to hold the product.

Taxation law is complex and this information has been prepared as a guide only and does not represent taxation advice. Please see your tax adviser for independent taxation advice. The information on insurance cover is a summary only of the terms and conditions applying to the insurance cover. To the extent there is any inconsistency with the terms of the insurance cover provided by the insurer, the terms of the insurance policy will prevail.

Before re-directing your super or moving your money into ANZ Smart Choice Super, you will need to consider whether there are any adverse consequences for you, including exit fees, other loss of benefits (e.g. insurance cover), investment options and performance, functionality, increase in investment risks and where your future employer contributions will be paid.

ANZ does not represent or guarantee that access to ANZ Internet Banking or the ANZ App will be uninterrupted. Temporary service disruptions may occur. ANZ recommends that you read the ANZ App Terms and Conditions available at anz.com and consider if this service is appropriate to you prior to making a decision to acquire or use the ANZ App. The ANZ App is provided by Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. Super, Shares and Insurance (if available) are not provided by ANZ but entities which are not banks. ANZ does not guarantee them.

In addition to their salary, ANZ staff members may receive monetary or non-monetary benefits depending on the product they are selling or providing advice on. You may request further information from ANZ. Other key features including insurance, available investment options and performance, exit fees and functionality are relevant when choosing a super fund.

This information may be subject to change. Updated information will be available free of charge by calling Customer Services on 13 12 87.

64 65


http://anz.com

http://anz.com

http://www.superratings.com.au

http://heronpartners.com.au

http://anz.com

http://anz.com

Copyright © April 2019 ANZ. All rights reserved.

This publication was prepared by Australia and New Zealand Banking Group Limited (ANZ). It contains general information only, prepared without taking account of your objectives, financial situation or needs, therefore you should consider if it is appropriate to you. Articles quoting statistics have been updated to reflect current data, where available or relevant. In some instances older data has been used and assumed to remain current where more recent data has not been found. The opinions contained within this report are those of the author at the time of writing, and may not represent the opinions of ANZ, its directors or employees. No warranty is given to the accuracy of the information contained in this publication, or its suitability for use by you. To the fullest extent permitted by law, no liability is accepted by ANZ for any statement or opinion, or for any error or omission or for any loss whatsoever sustained by any person who relies on this publication. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. Consider any relevant product disclosure statements before making an investment decision. Australia and New Zealand Banking Group Limited (ANZ) 2015 ABN 11 005 357 522.

Australia and N

ew Zealand Banking G

roup Limited (A

NZ) A

BN 11 005 357 522. 04.2019 (AU

22706)

Documents

YOUR GUIDE TO LIFE AFTER WORK · at retirement. • For a comfortable retirement, a single person will require a super balance of $545,000 at retirement and a couple needs $640,000