Australia’s superannuation system is based on individual accounts, with men and women treated equally. But that’s where equality ends. It’s a simple fact that women generally retire with much less super than men.

The latest figures show women aged 60-64 have an average super balance of $289,179, almost 25% less than men of the same age (average balance $359,870).

The reasons for this are well-known. Women earn less than men on average and are more likely to take time out of the workforce to raise children or care for sick or elderly family members. When they return to the workforce, it’s often part-time at least until the children are older.

So, it makes sense for couples to join forces to bridge the super gap as they build their retirement savings. Fortunately, Australia’s super system provides incentives to do just that, including tax and estate planning benefits.

Restoring the balance

There are several ways you can top up your partner’s super account to build a bigger retirement nest egg you can share and enjoy together. Where superannuation law is concerned, partner or spouse includes de facto and same sex couples.

One of the simplest ways to spread the super love is to make a non-concessional (after tax) contribution into your partner’s super account. Other strategies include contribution splitting and a recontribution strategy.

Spouse contribution

If your partner earns less than $40,000 you may be able contribute up to $3,000 directly into their super each year and potentially receive a tax offset of up to $540.

The receiving partner must be under age 75, have a total super balance of less than $1.7 million on June 30 in the year before the contribution was made, and not have exceeded their annual non-concessional contributions cap of $110,000.

Also, be aware that you can’t receive a tax offset for super contributions you make into your own super account and then split with your spouse.

Contributions splitting

This allows one member of a couple to transfer up to 85% of their concessional (before tax) super contributions into their partner’s account.

Any contributions you split with your partner will still count towards your annual concessional contributions cap of $27,500. However, in some years you may be able to contribute more if your super balance is less than $500,000 and you have unused contributions caps from previous years under the ‘carry-forward’ rule.

If your partner is younger than you, splitting your contributions with them may help you qualify for a higher Age Pension. This is because their super won’t be assessed for social security purposes if they haven’t reached Age Pension age, currently 66 and six months.

Recontribution strategy

Another handy way to equalise super for older couples is for the partner with the higher balance to withdraw funds from their super and re-contribute it to their partner’s super account.

This strategy is generally used for couples who are both over age 60. That’s because you can only withdraw super once you reach your preservation age (currently age 57) or meet another condition of release such as turning 60 and retiring.

Any super transferred this way will count towards the receiving partner’s annual non-concessional contributions cap of $110,000. If they are under 67, they may be able to receive up to $330,000 using the ‘bring-forward’ rule.

As well as boosting your partner’s super, a re-contribution strategy can potentially reduce the tax on death benefits paid to non-dependents when they die. And if they are younger than you, it may also help you qualify for a higher Age Pension. These are complex arrangements so please get in touch before you act.

A joint effort

Sharing super can also help wealthier couples increase the amount they have in the tax-free retirement phase of super.

That’s because there’s a $1.7 million cap on how much an individual can transfer from the accumulation phase into a tax-free super pension account. Any excess must be left in an accumulation account or removed from super, where it will be taxed. But here’s the good news – couples can potentially transfer up to $3.4 million into the retirement phase, or $1.7 million each.

By working as a team and closing the super gap, couples can potentially enjoy a better standard of living in retirement. If you would like to check your eligibility or find out which strategies may suit your personal circumstance, get in touch.

Trying to time investment markets is difficult if not impossible at the best of times, let alone now. The war in Ukraine, rising inflation and interest rates and an upcoming federal election have all added to market uncertainty and volatility.

At times like these investors may be tempted to retreat to the ‘’safety” of cash, but that can be costly. Not only is it difficult to time your exit, but you are also likely to miss out on any upswing that follows a dip.

Take Australian shares. Despite COVID and the recent wall of worries on global markets, Aussie shares soared 64% in the two years from the pandemic low in March 2020 to the end of March 2022 (source Commsec). Who would have thought?

So what lies ahead for shares? The recent Federal Budget contained some clues.

The economic outlook

The Budget doesn’t only outline the government’s spending priorities, it provides a snapshot of where Treasury thinks the Australian economy is headed. While forecasts can be wide of the mark, they do influence market behaviour.

Australia’s economic growth is expected to peak at 4.25% this financial year, underpinned by strong company profits, employment growth and surging commodity prices. Our economy is growing at a faster rate than the global average of 3.75%, and ahead of the US and Europe, which helps explain why Australian shares had performed so strongly.

However, growth is expected to taper off to 2.5% by 2023-24, as key commodity prices fall from their current giddy heights by the end of September this year.

Commodity prices have jumped on the back of supply chain disruptions during the pandemic and the war in Ukraine. While much depends on the situation in Ukraine, Treasury estimates that prices for iron ore, oil and coal will all drop sharply later this year.

Share market winners and losers

Rising commodity prices have been a boon for Australia’s resources sector and demand should continue while interest rates remain low and global economies recover from their pandemic lows.

Government spending commitments in the Budget will also put extra cash in the pockets of households and the market sectors that depend on them. This is good news for companies in the retail sector, from supermarkets to specialty stores selling discretionary items.

Elsewhere, building supplies, construction and property development companies should benefit from the pipeline of big infrastructure projects combined with support for first home buyers and a strong property market.

Increased Budget spending on defence, and a major investment to improve regional telecommunications, should also flow through to listed companies that supply those sectors as well as the big telcos and internet providers. But there are other influences on the horizon for investors to be aware of.

Rising inflation and interest rates

With inflation on the rise in Australia and the rest of the world, central banks are beginning to lift interest rates from their historic lows. Australia’s Reserve Bank has raised the official cash rate after 11 1/2 years of no increases.

Global bond markets are already anticipating higher rates, with yields on Australian and US 10-year government bonds jumping to 2.98% and 2.67% respectively.

Rising inflation and interest rates can slow economic growth and put a dampener on shares. At the same time, higher interest rates are a cause for celebration for retirees and anyone who depends on income from fixed interest securities and bank deposits. But it’s not that black and white.

While rising interest rates and volatile markets generally constrain returns from shares, some sectors still tend to outperform the market. This includes the banks, because they can charge borrowers more, suppliers and retailers of staples such as food and drink, and healthcare among others.

Putting it all together

In uncertain times when markets are volatile, it’s natural for investors to be a little nervous. But history shows there are investment winners and losers at every point in the economic cycle. At times like these, the best strategy is to have a well-diversified portfolio with a focus on quality.

For share investors, this means quality businesses with stable demand for their goods or services and those able to pass on increased costs to customers.

If you would like to discuss your overall investment strategy don’t hesitate to get in touch.

It is important to understand where this income will come from, how long it will last, and whether your retirement investments are on track, or whether some adjustments need to be made to get you there.

Work out how long your super or account-based pension will last

There are many variables that come into play when calculating how long your super or account-based pension will last in retirement, and it can be challenging to figure it out alone.

If you’ve transferred your super to a pension account already, then you can use the MoneySmart calculator to help estimate how long your pension will last. And if you haven’t, we recommend you speak to an adviser who can discuss with you different considerations that will impact how long your account-based pension will last.

Here are some of the fundamental things you need to know about a couple of other retirement income options.

Account based pensions

Account-based pensions are a popular retirement income product. They fluctuate in value and are linked to the market so your investment, and therefore your long-term income, isn’t guaranteed.

How long an account-based pension lasts will depend on:

• the amount of initial capital invested
• the return from the underlying investments
• the amount of fees charged
• how much you withdraw as income each year.

The tax benefits of account-based pension are:

• you don’t pay tax on pension payments from age 60
• if you’re aged between preservation age and 59, the taxable portion of your pension payments will be taxed at your marginal tax rate less a 15% offset
• you don’t pay tax on investment earnings.

In some cases, the underlying investments for most pension accounts are chosen to minimise fluctuations but still provide a bit of growth.

Defensive assets

These include cash and fixed income. In general, they’re lower risk and provide lower returns over the long term.

Growth assets

These include equities and property. They’re usually open to market fluctuation but tend to provide higher returns over the long term.

Generally, defensive assets provide you with a relatively steady return and, therefore, income. However, some growth assets are usually needed to keep your funds growing during your retirement, so they last longer. With an account-based pension, you can mix defensive and growth assets to a ratio that you’re comfortable with.

Annuities

Some annuities could provide you with regular and guaranteed income for either a fixed period or for life. They are more secure than account-based pensions as your income is guaranteed regardless of what the share market and interest rates do.

The downside is that you’re locked in to the agreed income for the whole term or the rest of your life. If your circumstances change, you generally can’t withdraw a lump sum. A lifetime annuity also has no residual capital value, which means you can’t leave it to someone in your will.

The best of both systems

Continuing to build your investments, including your super funds, is still crucial in retirement. They need to keep growing to ensure your retirement income lasts as long as possible.

This means it becomes increasingly important to protect your super growth funds from market falls while still allowing them to grow if the market goes up.

Other things to consider

Age pension eligibility

When it comes to the Age Pension, there are several rules to determine your eligibility. You can learn more by visiting Services Australia but some of the basic rules are:

• You must have reached your Age Pension age, which is currently 66 (after 1 July 2019, age pension age will go up 6 months every 2 years until 1 July 2023).
• You must be a resident of Australia.
• You must pass income and asset tests.

If you don’t meet the income and assets tests to be eligible for the Age Pension, you may be able to access the Commonwealth Seniors Health Card (if you pass an income test). This card provides affordable medicine, bulk billed doctor visits and depending on what state you live in, there may be some other concessions that you’re entitled to. You can find out more from Services Australia.

Speaking to a financial planner

With so many options, it’s a good idea to seek help to ensure you’re investing in a way that suits you. Particularly as there are some more complex considerations, such as tax implications.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/work/plan-retirement/income

Is the constant property market coverage making you feel anxious about your plans? It’s little surprise with headlines such as ‘New study finds housing affordability in Sydney, Melbourne, Brisbane & Adelaide now worse than New York’. But this doesn’t have to signal the end of your property dreams.

Whether you’re looking to buy, upgrade, invest or simply to restructure your loan, you probably have more options than the 24-hour news cycle leads you to believe. Now is a good time to re-examine your property goals and how you’re going to achieve them – even in these volatile times.

First home buyers – time to broaden your horizons?

First of all, stay up to date on all the government schemes, both current and upcoming, that you’re eligible for.

Next, if you’ve been looking at areas you can’t afford, now’s the time to realistically consider what you can and can’t accept. Broaden your options by considering other locations, looking at apartments instead of houses or buying off plan. These are all ways to uncover more affordable options. If you can work from home or in a regional area, it might be worthwhile investigating a move to the outer suburbs or a regional centre.

Changing what you consider ‘must-haves’ may also need a rethink. Would you accept an older renovation or smaller outdoor area? Can you live with street parking? Could the kids share a bedroom? These changes can reduce costs significantly.

Don’t go it alone

If you have family members who can act as a guarantor or contribute to the deposit, then seriously consider it. This can allow you to enter the market sooner rather than later and avoid expensive Lenders Mortgage Insurance.

Buying with others is another option. If you’ve house shared together, it’s going to be easier to ensure your needs and mid-term plans are compatible. Seriously consider drawing up a legal agreement that spells out what happens if one of you wants to sell, rent, renovate or defaults on their payments. It can save relationships and headaches later on and the process will ensure you are both on the same page before heading into the investment.

Rentvesting: the best of two worlds

If you’re committed to living in an area you can’t afford to buy in, reinvesting is a popular option. This is when you buy an investment property in a cheaper area and continue renting where you prefer to live. Regional areas are booming, so if you do your homework, this may be a profitable option. It’s also a good way to buy into a market at a lower price if you’re thinking of moving there in the future.

Restructuring to fuel an investment

Restructuring your mortgage is useful if you want to release equity to renovate, buy an investment property or support a child’s first purchase. It could also lock in a lower interest rate for a set period of time.

Get your calculations right

With all the talk of mortgage rate rises and volatile property prices, both investors and owner-occupiers will need to crunch their numbers very carefully.

It’s especially important for investors to calculate their yield and expenditure ratios. You’ll need to be able to cover any regular or extraordinary shortfalls.

Investors also need to be clear if they are buying for a regular income, mid- or long-term value increase or for another purpose like providing accommodation for their children or parents.

Get your spending patterns under control

Whatever your goal, getting your mortgage approved often involves banks assessing your financial responsibility by running a fine-tooth comb over your spending. They check that you can afford repayments, usually with up to 5% interest. This can mean cutting back on unnecessary expenditure and reducing debts.

Whether you’re looking to buy, upgrade or simply restructure your loan for the times ahead, you don’t have to give up on your property goals. Please get in touch and we can discuss your options to make your property dreams a reality. You probably have more options than the 24-hour news cycle leads you to believe.

There’s good news for first home buyers. The First Home Super Saver (FHSS) scheme which allows you to save for your deposit in your super account, is increasing its maximum release to $50,000.

How it works is a little complicated, but we’re here to guide you through the steps. Here’s what you need to know.

The FHSS scheme helps first-home buyers save for a deposit through their super. It allows you to reduce your taxable income as you save money for your future home. From 1 July 2022, the maximum amount you can access will increase from $30,000 to $50,000.

How does FHSS work?

Under the FHSS scheme, first-home buyers can use voluntary super contributions of up to $15,000 each financial year to help them save for their first home. You make voluntary super contributions from your salary or savings. The benefit is that the money you save in your super is taxed at a lower rate – only 15%. This means you pay less tax on the money you put towards your deposit, and it may earn more than if it was in an ordinary bank account.

On top of your contributions, a percentage of the earnings your contributions make is included when calculating how much you can withdraw through the FHSS. This figure is calculated by the Australian Taxation Office (ATO) not your super fund. We can give you an idea of the current earning percentage being used. Here are some examples of how the scheme works.

• You have salary sacrificed $15,000 every year for three years ($45,000) and the ATO calculates you earned $5,000 from that investment. You can then apply to release the full $50,000 amount.
• A couple who have saved in their individual super accounts would have a combined FHSS release of $100,000.
• If you salary sacrifice $10,000 a year, you may need to wait four or five years to reach $50,000 or access a lower amount sooner.

Are you eligible for the FHSS scheme?

You must be 18 or older to register for and release money under the FHSS scheme. You must also never have owned any type of property in Australia.

Eligibility is assessed on an individual basis. This means that individuals can access their own FHSS contributions to put towards the same property. It also means that if another person who already owns a property is buying with you, you can still apply for your FHSS release.

Getting your funds in time for settlement

It’s important you understand the process for having your funds released in time for settlement. The ATO can take some time, so it’s a good idea to start the FHSS process when you first apply for pre-approval on a home loan. You’ll need a minimum of six weeks for each step.

The first step is to apply for a FHSS ‘determination’ from the ATO – not your super fund. You can do this using your MyGov account. The ATO will calculate how much you can release and give you their ‘determination’. It’s very important that you receive your determination before signing a contract for a property.

Once you get the determination, you can request the funds be released. Again, do this through your MyGov account and as soon as possible. The ATO website has a summary of all the conditions for releasing money under FHSS.

Remember that you can only use the FHSS scheme once. However, you have up to 12 months to sign a property contract from the date you make a valid release request to notify the ATO.

The First Home Super Saving scheme may help you save for your first home deposit faster than a regular bank account – and help you pay a little less tax too.

We can help you manage the timelines and rules involved so your funds are released in time for your settlement. Simply give us a call to find out how the FHSS scheme could help you own your first home sooner.

Rising costs of living, increasing interest rates and high prices have all combined to create the imperfect storm for struggling first-home buyers. However, if every cloud has a silver lining then the ray of light this new financial year is the boosted array of government assistance schemes.

The First Home Owner Grant was introduced back in 2000 and has gone through many versions since, with supplementary add ons. As the buyer bonuses change almost annually, it can be difficult to keep up because the helping hand your friend, neighbour or cousin got when entering the market, isn’t necessarily what you’ll be eligible for just months down the track.

Unsurprisingly, first-home buyer affordability was on the table at the recent Federal election and now with a change of government there will likely be more amendments. To get your head around what is on offer from July 1, 2022 here is an updated overview of schemes.

First Home Owner Grant (FHOG)

Although the FHOG is a national scheme, it’s funded by the states and territories and is therefore administered under their own legislation with independent eligibility requirements. While some still offer a one-off payment for the purchase of newly built homes or vacant land, others now only have stamp duty (also known as transfer duty) concessions available. To find out what is available in the state or territory you are buying in, visit firsthome.gov.au.

First Home Guarantee (FHG)

Formerly known as the First Home Loan Deposit Scheme, the FHG is a low-deposit loan initiative allowing first timers to buy a home with a 5% deposit, with the Federal Government guaranteeing the remaining 15 per cent. Without the scheme, banks expect first-home buyers to provide a 20% deposit or pay pricey lenders mortgage insurance (LMI).

Originally providing for just 10,000 places per financial year, from July 1, 2022 until June 30, 2025 there will be 50,000 spots annually including 35,000 allocated for the FHG and 15,000 set aside for the Family Home Guarantee and the Regional Home Guarantee (see below).

There are eligibility requirements for the FHG starting with the buyers’ income. Singles can earn up to $125,000, or $200,000 for couples combined. Property price limits also apply with purchase thresholds differing depending on location. To find out local thresholds visit the National Housing Finance and Investment Corporation.

Property price caps

Region Price cap from 1 July 2022

New South Wales—capital city and regional centre $900,000 – other $750,000
Victoria—capital city and regional centre $800,000 – other $650,000
Queensland—capital city and regional centre $700,000 – other $550,000
Western Australia—capital city $600,000 – other $450,000
South Australia—capital city $600,000 – other $450,000
Tasmania—capital city $600,000 – other $450,000
Australian Capital Territory $750,000
Northern Territory $600,000

Help to buy scheme

New Prime Minister Anthony Albanese has promised to assist struggling buyers (and not just first-timers) with a shared equity scheme. The initiative means the Government will effectively co-purchase a property with a homebuyer, however first-time investors are not eligible.

Buyers who meet requirements could put down a deposit of as little as 2% and access a government contribution of up to 40% towards the purchase of a home. Just like the FHG, the Help to Buy scheme means buyers can avoid paying LMI. Homeowners can then either buy the additional portion of the home (which was co-purchased by the Government) during the loan period or sell the property and give back the portion of equity and a share of any capital gain.

Individuals with a taxable income of up to $90,000, or couples earning up to $120,000, can apply for 10,000 spots each year, but be sure to check the purchase price thresholds in your area.

Regional First Home Buyer Support Scheme

The new Government is also introducing an initiative tailored to buyers in the regions. This initiative is the first of its kind solely devoted to the regions where dwelling prices have skyrocketed since the pandemic and outpaced capital city growth. Under the offer, the Government will pledge up to 15% of the home’s value so local first-home buyers (who have already lived in the area for at least 12 months) can buy with a 5% deposit and avoid paying LMI. Income thresholds are the same as the FHB and again be sure to check purchase price caps in your area.

Family Home Guarantee

Single parents with at least one dependent child, who meet the eligibility requirements, can access the Family Home Guarantee regardless of whether they are a first home buyer or not.

Under this Scheme, which works much like the FHG, buyers will only need a 2% deposit because the Government will guarantee up to 18% of the property’s value. Purchase price and income thresholds apply.

First Home Super Saver Scheme

Given that the deposit can be the biggest barrier to getting onto the property ladder, there’s a way first-home buyers can beef up savings by tapping into their superannuation. In the right circumstances, the First Home Super Saver Scheme can help first timers save for a home faster, but they will essentially be dipping into their retirement to get there.

It should also be noted that only the voluntary contributions made to the super fund can be withdrawn, not the mandatory contributions made by an employer. First-home buyers can release up to $15,000 each financial year and from 1 July 2022, the maximum accessible amount will jump from $30,000 to $50,000. Further details of the scheme can be found on the ATO website.

With so many schemes on offer across the country with varying caveats regarding purchase prices, taxable income and eligibility requirements, the first-home buyer landscape can be a little overwhelming. To find out which initiatives you can claim, give us a call.