It’s a challenging time for household finances right now. Interest rates are rising as the Reserve Bank of Australia increases the cash rate to put the brakes on inflation, and flat wage growth means household incomes have not been keeping pace with cost-of-living increases.

The best way to deal with uncertain times, is to be on the front foot with your finances and ensure your personal financial situation is as healthy as it can be.

If you are feeling the pinch of higher inflation you’re not alone. The prices of certain goods and services have risen well over and above the official inflation measure, most notably electricity – with the wholesale price surging more than 141% over 12 months, and petrol – increasing by over 32%. We are also feeling the pain at the shops with food prices also rising and experts suggesting increases could be as much as 10%.

So as the cost-of-living increases, how do you manage to boost your savings, save for a home deposit, or pay down the mortgage to get ahead?

Let’s look at some ways you can flex your money management muscles and strengthen your financial situation.

Get off the couch

The first step is to think about what motivates you to use as your focus, so have a think about your financial goals. Are you wanting to save for a particular purpose like for a home deposit? Or are you at a different stage of your financial life and keen on getting that mortgage down or looking at investing or renovating? Whatever the goal it’s important to identify how much you are wanting to save and your timeframe.

Don’t just think about your goal in cold, hard financial terms – being emotionally connected to your goal, i.e. why this particular goal is important to you, will provide the impetus to get started and to also keep you on track.

Track your expenses

To get off and running, add up your monthly expenses – the more information the better, so include quarterly or annual expenses as well as your discretionary spending which may be a little more difficult to track. As you go through the figures to come up with a total of your spending, see what you can learn from your spending patterns and where you might be able to cut back.

What’s your bottom line?

Analysing how your financial situation is faring is then a matter of taking your income over the course of a month and subtracting your total monthly expenses. Once you have a clear picture of your current financial position, it’s a matter of tweaking your spending and/or your income over a specific time frame to meet your financial goal.

Get a hand with the heavy lifting

Sounds easy but tracking expenses and sticking to an allocated budget can be tough, so why not let an app do some of the heaving lifting for you. There are many options including Beem It, Fudget, and Pocketbook. It’s also worth checking what budgeting features are offered by your bank or financial institution.

There are many and varied approaches to budgeting that you can select from, so find something that works for you. One popular method is to prioritise your savings and ‘pay yourself first’ putting a designated amount of money each month into a separate account. Or you could try the 50/30/20 method which involves splitting your monthly income into three main categories:

• 50% of your income for your needs – food, bills, insurance, transport, rent or mortgage repayments etc
• 30% of your income for your wants – distinguishing between needs and wants isn’t always easy but ‘wants’ are generally the extras that aren’t essential to living and working like travel, entertainment and dining out.
• 20% of your income for saving

Bulking up your savings

Discipline and developing good habits through repetition help you build your strength. Don’t panic if you have a blowout or an unforeseen event throws you off. Just get back to those good habits you are establishing. On that note it can be a good idea to have a contingency in your budget to reward yourself at a certain point or even to deal with a financial emergency.

There is nothing like the feeling of being in control of your finances and working towards a goal that you care about, so take first step to start flexing those financial muscles today.

Retirement means starting a new chapter of your life, one that gives you the freedom to create your own story, as you decide exactly how you want to spend your time. While retirement may not be part of your immediate plans, there are advantages to giving some thought as to what retirement looks like for you and how to best position yourself, well before you leave the workforce behind.

A time of profound change

Even setting aside the huge financial implications of leaving a regular salary behind, retiring from work represents one of the biggest life changes you can experience.

For most people, the freedom of being able to do whatever you want to do, whenever you want to do it, is pretty enticing. However, it is quite common to have mixed feelings about retiring, particularly as you get closer to retirement. What we do for a living often defines us to some extent and leaving your job can mean a struggle with how you perceive yourself as well as how others view you. Coupled with the desire for financial security in retirement and the need to make your retirement savings last the distance, you have a lot to be dealing with.

So, let’s look at the things you need to be thinking about sooner rather than later, from an emotional and practical perspective, to ensure your retirement is everything you want it to be.

Forge your own path

Don’t be tied to preconceptions of what retirement is all about. Retirement has evolved from making a grand departure from the workplace with the gift of a gold watch to a more flexible transition that may unfold over several years. Equally, if the idea of a clean break appeals to you then that’s okay too and you just need to plan accordingly.

The same applies for your timeframe for retirement. The idea that you ‘have’ to retire at a certain age is no longer relevant given advances in healthcare and longer lifespans. If work makes you happy and fulfilled, then it can make sense to delay your departure from the workforce.

Planning how to spend your time

It sounds obvious but you’ll have more time on your hands so it’s important to think about what you want to devote that time to. A study found that 97% of retirees with a strong sense of purpose were generally happy and satisfied in retirement, compared with 76%without that sense. Think about what gives your life meaning and purpose and weave those elements into your plans.

If you are part of a couple, it’s critical to ensure that you are both on the same page about what retirement means to you. This calls for open and honest communication about what you both want and may also involve some degree of compromise as you work together to come up with a plan that meets both of your needs.

Practical considerations

There’s a myriad of practical considerations once you have started to plan how you’ll spend your time.

Here are a few things you may wish to consider:

• Where do you want to live? Do you want to be close to a city or are you interested in living in a more coastal or rural area? Are you wanting to travel or live overseas for extended periods?
• What infrastructure and health services might you need as you age? Are these services adequate and accessible in the area you are thinking of living in?
• What hobbies and activities do you want to be involved in. Do you need to start developing networks for those activities in advance?
• Who do you want to spend time with? If you have children and grandchildren, think about what role you’d like to play in their lives upon retirement

The best laid plans…

Of course, with all this planning it’s also important to acknowledge that the best laid plans can go astray due to factors beyond your control. It’s important to keep an open mind and be adaptable. While redundancy or poor health can play havoc with retirement dreams, it’s still possible to make the best of what life throws at you.

And of course, we are here to help you with the financial side of things to ensure that retirement is not only something to look forward to, but a wonderful chapter of your life once you start to live out your retirement dreams.

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