Super and your retirement. Page 1

Transcription

1 Super and your retirement Page 1

2 When we think about our retirement, we naturally imagine quite an ideal scenario. Living an active life in comfort and style. However the truth is, unless we make decisions and take action today, that dream retirement might not happen. Did you know that Australia has a $1 trillion super gap? Don t worry, it s not too late. We are leading the cause to save retirement. By helping Australians plan for a better future, we re also working on making that dream a reality. Did Did you you know know that tha Australia Australia has a has $1 $1 trillion super super gap? gap Achieving that retirement lifestyle hinges on what we do and don t do today. By consolidating your super and reviewing your investments you will be one step closer to saving your retirement. Source: Longevity Savings Gap Research & Policy Options (September 2012) by Rice Warner for the Financial Services Council. Source: Longevity Savings Gap Research & Policy Options (September 2012) by Rice Warner for the Financial Services Council. Page 2

3 How long will you be retired? If you are 65, then you.. Could live for another 19.2 years on average Could live for another 22.1 years on average Most financial plans are based on spreading expenditure over the period of life expectancy BUT About 50% of those retirees will outlive their life expectancy! Source: Ricewarner Actuaries, Reforming the Age Pension Page 3

4 How much is enough? Retirement annual income Capital required at age 60 70,000 60,000 $70k p.a. $1,083,291 50,000 40,000 30,000 $30k p.a. $50k p.a. $773,885 $464,294 Source: Personal Super Calculator 22 May For assumptions refer to the Personal Super Calculator terms of use at mlc.com.au Page 4

5 How much is enough? How much money will you need to support your chosen lifestyle in retirement? The amount that you will need to save will depend on a number of factors: Do you want to live only on your investment earnings and leave your capital intact as an inheritance for your children; or Are you prepared to draw down on and consume your capital? How aggressively are your funds are invested? Your retirement age Your life expectancy (health), and Your tax payable in retirement. This above is a general indication of how much money needed for retirement in today s dollars to provide a range of after-tax incomes. Remember $30,000 is about 40% less than what would be required to achieve a comfortable retirement (for a couple), according to the AFSA. Page 5

6 Retirement spending trends Retirement spending trends 1 Highest Active phase (60 75 years old) Consumption decreases in Passive phase (65-85 years old) but many retirees run out of super and fall back on the age Pension 2 Costs rise in the Frail phase ( years old ) with healthcare issues, government subsidies may assist 3 By 75, whilst many retirees will reduce the amount of money they spend, they will also run out of money and need to fall back on the Age Pension. Phase Active Passive Frail Expenditure in retirement Source: Ricewarner Actuaries, Reforming the Age Pension Page 6

7 How does an accumulation benefit work? Contributions > > Tax Transfer and consolidations > > Fees Rollovers > Investment earnings > > Insurance premiums Lost Super > > Benefit payments Page 7

8 How does an accumulation benefit work? It s a bit like a bank account. There are amounts coming in and unfortunately, amounts coming out. Let s first take a look at the money coming in: You have the opportunity to make voluntary contributions. These can be post- tax or salary sacrifice contributions. If you have monies invested in other superannuation funds, you can roll these monies to your Plan account. If you retire or leave your employer you may be required to rollover your super. You can roll these monies across the Personal Plan or to another complying superannuation fund. Your benefit will grow over time assuming future employer contributions and are made by investment performance. Don t forget that investment performance can be positive or negative. Now let s look at the money going out: Tax on contributions and fund earnings tax are deducted from your account. Good news here is that tax in the superannuation environment is generally less than what you pay at your marginal rate. Investments fees relate to what you are charged for someone to manage your money on your behalf. Insurance premiums and Benefit payments Page 8

9 Why investment choice is important Page 9

10 Where to invest Asset Classes An asset class is simply an investment category. There are four basic asset classes: 1. Cash (savings in a bank), 2. Fixed Interest (corporate or government bonds), 3. Property (Direct and indirect -property trust) 4. Shares (part ownership in a company, such as Westpac, BHP) Each asset class differs in the level of risk and return that it can provide. When choosing how to invest your superannuation it is important to take into account the characteristics of each asset class. While there are four major asset classes, some of the asset classes also include sub-asset classes. Each asset class or investment carries an element of risk and this risk varies. The fundamental nature of risk is uncertainty; will your investment deliver the return you expect? Page 10

11 Risk versus return When investing, we want to select based on the type of return we are seeking and the level of risk we are prepared to take to achieve that return. Combining classes in such a way is known as diversifying, which can offer stability in a portfolio. Low Return High Cash Fixed Interest MySuper Property Shares All investors have differing attitudes towards risk. Consider thiese questions when investing: How much risk do I feel comfortable taking? What type of return am I seeking for my money? How long will I be investing for? Low Risk High Page 11

12 Protecting you and your family Page 12

13 95% of people with dependent children don t have adequate insurance cover* * Lifewise / NATSEM research March 2010 Page 13

14 Why is insurance important? The Lifewise/NATSEM underinsurance research suggests... 60% of families with dependants will run out of money within 12 months if the main 1 in 3 Australians could be disabled for more than 3 months before 65* turning income earner dies* *based on research undertaken by Lifewise / NATSEM research March Page 14

15 What are you worried about? 40% No one expects sudden death, accident or illness but insurance can help to minimise the financial impact of events beyond your control. 35% 30% 25% 20% 15% 10% 5% 0% Death Permanent Disablement Trauma Sick/Accident Made Redundant None All Source: Zurich Australia Research whitepaper February zurich.com.au/content/dam/australia/life_insurance/zurich-australia-whitepaper_australians-and-life-insurance_misinformed-misinsured.pdf Page 15

16 Insurance through super Your insurance options Death Total and permanent disability Income protection Upon joining you are provided with Death and TPD cover You may also have Income Protection cover Refer to your member statement for the cover you receive in your superannuation Page 16

17 Insurance through super Many super funds offer are provided with Death, Total and Permanent Disability (and Income Protection) insurance automatically when you join their plan. Death insurance is self explanatory, it pays out in the event of your death. Total and permanent disability is a lump sum which becomes payable if you re injured or ill, and as a result you wont ever be able to return to work. Income Protection insurance can be a flexible and tax-effective way to protect the asset that creates wealth for you and your family. If you suffer from an illness or injury and are unable to work, salary continuance insurance can pay a monthly benefit (usually up to 75% of your pre-tax income to replace your lost earnings). While the insurance premiums can be tax deductible, benefits paid are tax assessable as income. There will be a waiting period before the benefit commences, Benefit payment period is the length of time you receive payments It is also important to note that premiums are paid more tax effectively than if insurance is held outside of your super. Page 17

18 Insurance and your super The benefits It is usually more cost-effective than an insurance arrangement outside of super It is purchased at group or wholesale rates Can be paid for without using/reducing disposable income Automatic cover OR You can check your insurance online You can call us on Note: Death benefit payments as a result of insurance through super are not estate assets, and therefore will not automatically be paid out in accordance with your will. Page 18

19 Your Super Checklist Review your investment choice Maximise your super with extra contributions to your super Consolidate your super Review your insurance cover Nominate a beneficiary Complete the feedba form Page 19