Employers are desperate for workers and cost of living pressures are making it tough to live on a pension. That’s a perfect mix of conditions to send some retirees back to work. But it’s smart to get good advice before you take the leap.

With unemployment rates at historic lows and employers facing a shortage of skilled workers, an increasing number of retirees are choosing to re-enter the workforce. According to recent data from the Australian Bureau of Statistics (ABS), approximately 45,000 more individuals aged over 65 are actively working compared with a year ago.

Some retirees may have been forced to return to work to financially support themselves. National Seniors research found 16% of age pensioners re-entered the workforce after initially retiring, while another 20% said they would consider returning to work.

Declining superannuation returns combined with rising inflation and cost of living pressures may be some of the reasons why retirees could soon be returning to work.

Things to consider

Returning to work after retirement raises several important financial and logistical considerations for retirees including the effect on the Aged Pension and superannuation.

If you receive an Aged Pension and are planning to return to work, you will need to let Centrelink know you are receiving additional income within 14 days. The extra income may mean that your pension is reduced if it exceeds Centrelink’s income threshold. It’s essential for retirees to be aware of these thresholds and how their earnings may affect their pension to plan their finances effectively.

Eligible age pensioners should also consider the Work Bonus incentive. This incentive encourages age pensioners to return to work with no or less impact on their age pension. Under the Work Bonus, the first $300 of fortnightly income from work is not assessed as income under the pension income test. Any unused amount of the Work Bonus will accumulate in a Work Bonus income bank, up to a maximum amount. The amount accumulated in the income bank can be used to offset future income from work that would otherwise be assessable under the pension income test.

Effect on superannuation

Returning to work after retirement can have implications for your superannuation, particularly if you’re receiving a pension from your super fund. You can continue taking your pension from super, but you will still have to meet the minimum pension requirements.

So, even though you may not need that pension income, you have to withdraw at least the minimum, which depends on your age and your super balance. This minimum pension rate is set by the government. Failing to meet these requirements can have tax implications and may affect your pension’s tax-free status.

You can convert your super pension phase back into the accumulation phase if you wish to stop taking the minimum pension. However, be aware of the tax differences. In the accumulation phase, any income and gains are taxed at 15 per cent whereas they are tax-free in the pension phase.

Don’t forget that if you retain your pension account, then you will have to open a new super accumulation account to receive employer contributions because you cannot make contributions into a super pension account.

Other investments

If you have personal investments outside super and have been receiving a pension, your lower income may mean that you are not paying tax on any gains from them. But extra income from a job may mean you move up a tax bracket and any investment income and capital gains will then be assessed at the higher rate.

Returning to work after retirement can have far-reaching implications on your finances, particularly with regard to your Aged Pension and superannuation. It’s vital to carefully seek appropriate advice to ensure a smooth transition back into the workforce, allowing you to make informed decisions that align with your financial goals and overall well-being.

If you would like to discuss your options, give us a call.

How much tax you pay on retirement income depends on your age and the type of income stream.

For most people, an income stream from superannuation will be tax-free from age 60.

How super income streams are taxed

Types of super income streams

Income from super can be an:

• account-based pension — a series of regular payments from your super money
• annuity — a fixed income for the rest of your life or a set period of time

What is taxable and what is tax-free

Part of your super money is taxable, made up of:

• employer contributions
• salary sacrificed contributions
• personal contributions claimed as tax deductions

Part is tax-free, made up of:

• after-tax contributions
• government co-contributions

If you’re age 60 or over

Your entire benefit from a taxed super fund (which most funds are) is tax-free.

If you’re age 55 to 59

Your income payment has two parts:

• taxable — taxed at your marginal tax rate less a 15% tax offset
• tax-free — you don’t pay anything more

If you’re age 55 or younger

You can usually only access your super if you experience permanent incapacity. If this happens, you’ll be taxed the same as people aged 55 to 59.

If accessing super for a different reason, such as severe financial hardship, your income payment has two parts:

• taxable — taxed at your marginal rate tax
• tax-free — you don’t pay anything more

Tax on other types of super funds

Defined benefit super fund

If you’re with a defined benefit super fund, you’ll get a statement from your fund before becoming eligible for your benefit (super money). This will tell you how much of your benefit is taxable and how much is tax-free.

Untaxed super fund

Some government super funds don’t pay regular tax on contributions. These are known as ‘untaxed funds’. If you’re a member of an untaxed fund, you pay tax when you access your money. Check with your fund to find out more.

Self-managed super fund (SMSF)

If you’re part of an SMSF, how you access your money depends on the ‘trust deed’ (rules).

Tax on transition to retirement income streams

With a transition to retirement (TTR) income stream, you can access your super while working. To get one of these pensions, you must have reached your preservation age (between 55 and 60).

You can take out up to 10% of the balance each financial year. You can’t withdraw it as a lump sum.

You pay the same amount of tax as on other super income streams, according to your age. Investment returns on TTR pensions are taxed at up to 15%, the same as a super accumulation fund.

Tax on non-super income streams

With an annuity bought with money from outside super, you get a fixed income for a set period of time. This pension income, less a deductible amount, is taxed at your marginal tax rate.

The deductible amount is the part of your original money (capital) coming back to you with each pension payment.

We are are to help if you need it.

Source :
The article was reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/retirement-income-and-tax
Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It’s easy to be inspired by the super-profitable renovations and dream rebuilds we see on TV.

In real life, the picture can be a little different. The key to achieving your particular dream home is to arm yourself with the comparative costs for both selling and buying, and renovating, with a clear understanding of what’s possible on the funds you can raise – and afford to pay off. So, let’s take a look at some things you need to consider.

Know your budget limits

Calculating how much you can afford to spend involves getting a current valuation of your property. Once you know your existing equity, you’ll have a clear picture of what you can afford to borrow and spend on a renovation or a new home. Both options often involve re-mortgaging, with the renovation needing an offset facility that allows you to draw on those funds.

When deciding on how much of your equity to use, you need to keep in mind the loan to value ratio (LVR) of your new loan amount. If your LVR is higher than 80% for your new loan, you may be required to pay lenders mortgage insurance on top of your already larger loan.

Comparing the costs of renovating and moving home

To get an accurate picture of whether renovating or moving would be the most economical solution for you, you will need to compare a few figures. These include the comparative costs of selling and buying something similar to your renovated property in your desired area.

Buying a new property means paying for conveyancing, stamp duty, marketing and agent and solicitor’s fees. While these costs haven’t risen a lot, the timeframe, costs of building materials and the labour needed for a renovation have. This makes it especially important to budget a renovation accurately, so you are able to compare these costs against buying a move in ready property, where everything has already been done.

The alternative scenarios you’ll need to consider include whether the home you want to create is realistically within your budget to buy or renovate, and if you could potentially end up overcapitalising.

Overcapitalisation is a consideration many would be renovators overlook but need to be aware of. This is when the cost of the renovation is more than the value added to the property. You may be happy with this if your aim is to create your forever home, but it may present financial challenges when the time comes to sell.

Again, research and accurate financial forecasts are important. You’ll need to consider the current value of your home, what it would potentially be worth when the renovation is complete and the price point of equivalent homes in your area.

Matching your renovation to your budget and timeframe

Homeowners choose the renovation route for lots of good reasons. Some may want to get a property ready to sell or to transform a loved but too small or dated home. While others may not be able to afford to buy another home that is suitable, or want to increase the rental value of an investment.

Whatever your reason for renovating, you need to remember that it probably won’t happen quickly or cheaply. This means proper planning and adding in some financial wiggle room, is vital for a realistic budget. This includes deciding on extras such as the quality of your fixtures, alternative accommodation, and employing a site manager or architect to organise trades, manage council approvals and manage the project budget.

There is a lot to weigh up before deciding between a renovation and property move. We’re happy to help you get the facts you need to make a fully informed decision and reduce any unexpected costs, so please get in touch to organise a chat.

Setting your renovation up for success

• Set a budget
• Consider what you can do yourself i.e., painting
• Understand the feasibility and costs of your ideas
• Employ trusted trades
• Start any council approvals or apply for permits early
• Speak to us about financing your renovation

Diversification is an investment strategy that lowers your portfolio’s risk and helps you get more stable returns.

You diversify by investing your money across different asset classes — such as shares, property, bonds and private equity. Then you diversify across the different options within each asset class. For example, if you buy shares, you buy across a range of different sectors such as financials, resources, healthcare and energy. You can also diversify by investing your money across different fund managers and product issuers.

Diversification lowers your portfolio’s risk because different asset classes do well at different times. If one business or sector fails or performs badly, you won’t lose all your money. Having a variety of investments with different risks will balance out the overall risk of a portfolio.

It’s worth taking the time to review your investments and look for opportunities to diversify.

How diversification benefits you

Diversification is your best defence against a single investment failing or one asset class performing poorly (for example, the share market falling or one fund manager failing).

If you diversify your investments, when some fall in value, others may rise and balance out the fall. Diversification lowers your portfolio risk because, no matter what the economy does, some investments are likely to benefit. For example, when interest rates fall, bond prices rise, while shares generally do poorly at this time.

How to diversify

To diversify well you need to invest across different asset classes and within different options in an asset class. You can also diversify by investing in different fund managers or product issuers.

Review your investments

List all of your investments and what they’re worth. This could include:

• cash in a savings account
• shares
• managed funds
• an investment property
• your home
• your super

This will show you which asset classes you’re investing in and where you could diversify.

Identify gaps and research other asset classes

If most of your money is in one or two asset classes, research other asset classes. For example, if you own a house, an investment property won’t help you diversify. If property prices fall, you won’t have any other investments to balance out the fall. To diversify, you could invest in different asset classes such as shares or bonds.

Then within each asset class, make sure your money is invested across the different options available. For example, if you’re mainly invested in one sector such as financials, you should research other sectors such as mining, materials, health care, capital goods and commercial and professional services.

The way your super fund invests is a good example of diversification. Check your fund’s website or annual statement to see how they invest.

Invest overseas

Australia has a small share of the world’s investment opportunities. Investing some of your money overseas will lower the risk of investing in a single market. For example, investments in Asian and European markets may perform well when the Australian markets falls.

If you invest overseas you’ll be exposed to exchange rate risk.

Invest through a managed fund, managed account, ETF or LIC

A simple way to diversify is to invest through a managed fund, managed account, exhcange-traded fund (ETF) or listed investment company (LIC).

Managed funds and managed accounts

Managed funds and managed accounts can help you invest across a range of asset classes. Some managed funds and managed accounts offer pre-made diversified portfolios. These usually have the labels of conservative, growth or high growth depending on their asset allocation.

ETFs and LICs

ETFs and LICs provide a low cost way to invest in an asset class or diversify within an asset class.

Most ETFs in Australia are passive funds. These track an asset price or market index, such as the ASX200 or S&P500.

Most LICs are actively managed funds and invest in one asset class, such as Australian shares or private equity.

Keep your investments diversified

Over time, some of your investments will rise in value and others will fall. This means you could have more money in one asset class than when you started investing. You could also be less diversified. For example, if your shares go up and your bonds fall in price, you’ll have a greater portion of money invested in shares. As shares are higher risk, your portfolio will also be higher risk. If you’re not comfortable with this risk, it’s time to re balance.

How to rebalance

You can rebalance your portfolio by:

• Investing some extra money, such as a tax refund, in an investment you want more exposure to.
• Selling some investments and putting your money in other types of investments.

Selling investments will lead to a capital gain or a capital loss.

Get help with diversification

Finding the right investments can be challenging. If you’d like some help to build a diversified portfolio, talk to us.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-to-invest/diversification
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.
Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Australia is a giving country, but we often give in kind rather than financially. If you are considering giving money there are several ways to do so.

Many ways to give

There are many ways of being philanthropic such as small one-off donations, regular small amounts to say, sponsor a child, donating to a crowd funding platform or joining a giving circle.

For those with much larger sums to distribute, a structured giving plan can be one approach.

Structured giving

You can choose a number of ways to establish a structured giving plan including through a public or private ancillary fund (PAF), a private testamentary charitable trust or giving circles.

Whichever way you choose, there are attractive tax incentives to encourage the practice.

The type of vehicle will depend on:

• the timeframe of your giving
• the level of engagement you want
• whether you want to raise donations from the public
• whether you want to give in your lifetime or as a bequest
• whether you want to involve your family to create a family legacy.

Private ancillary fund

A private ancillary fund is a standalone charitable trust for business, families and individuals. It requires a corporate trustee and a specific investment strategy. Once you have donated, contributions are irrevocable and cannot be returned. To be tax deductible, the cause you are supporting must be a body identified as a Deductible Gift Recipient by the Australian Tax Office.

The benefits of a PAF are that contributions are fully deductible, and the deductions can be spread over five years. The assets of the fund are exempt from income tax.

The minimum initial contribution to a PAF is at least $20,000. The costs of setting up a PAF are minimal and ongoing costs are usually about 1-2% of the value of the fund.

Each year you must distribute 5% of the net value of the fund to the designated charity.

Testamentary charitable trust

An alternative to a PAF is a testamentary charitable trust, which usually comes into being after the death of the founder. The governing document is either a trust deed or a Will.

With a testamentary charitable trust, trustees control all the governance, compliance, investment and giving strategies of the trust. The assets of the trust are income tax exempt. The minimum initial contribution for such a fund is usually $500,000 to $2 million.vi

Philanthropy through structured giving still has a long way to go in Australia. The latest figures for total giving in Australia is $13.1 billion, of which $2.4 billion is structured giving. Currently the number of structured giving entities stands at just over 5400.

As the baby boomers pass on their wealth to their families, there is a wide opening for some of this money to find their way into charities and causes through structured giving.

If you want to know more about structured giving and what is the right vehicle for you to help the Australian community at large, then give us a call to discuss.