We spend decades watching our super balances grow but for those thinking about retirement in the next few years, it can be confusing to work out how best to use your super.

Here are some of the considerations for the popular options.

Easing into retirement

You can keep working and receive regular payments from your super when you have reached your super preservation age (55 to 60, depending on your date of birth) and are under 65.

Using a transition-to-retirement income stream allows you to reduce your working hours while maintaining your income. To take advantage of this option you must use a minimum 4 per cent and a maximum 10 per cent of your super account balance each financial year.

A transition-to-retirement strategy is not for everyone, and the rules are complex. It is important to get independent financial advice to make sure it works for you.

Pros

• Allows you to ease into retirement by working less but receiving the same income, using the transition-to-retirement income stream to top up your salary.

• If there is spare cash each week or month, you can make extra contributions to boost your super, perhaps by salary sacrifice if it suits you.

• There are tax benefits. If you are above 60, the transition-to-retirement pension payments are tax-free (although the earnings in the fund will continue to be taxed).

Cons

• For people between 55 to 59, the taxable portion of the transition-to-retirement pension payments is taxed at your marginal tax rate, however you will receive a 15 per cent tax offset.

• Withdrawing money from super reduces the amount you have later for when you retire.

• It may affect Centrelink entitlements

Taking a retirement pension

This is the most common type of retirement income stream. It provides a regular income once you retire and you can take as much as you like as long as you don’t exceed the lifetime limit, known as the transfer balance cap.

Pros

• While there is a minimum amount you must withdraw each year, there is no maximum.

• There is flexibility – you can receive pension payments weekly, fortnightly, monthly or even annually.

• You can still choose to return to work and it won’t affect income stream you have already commenced.

Cons

• The account-based pension may affect your Centrelink entitlements

• There is a risk that the amount in your super to draw on might not last as long as you do

• The amount you can use for your pension is limited by the transfer balance cap.

Withdrawing a lump sum

You can choose to take your super as a lump sum or a combination of pension and lump sum payments, once you have met the working and age rules.

Pros

• Gives you a chance to pay off any debts to help relieve any financial pressures.

• Allows you to make an investment outside super in a property, for example.

• Pay little or no tax if you are 60 and older.

Cons

• If you are using the lump sum to invest, you may pay more tax

• Reducing your super balance now, means less for later

• Receiving a lot of money at once may encourage you to spend more than is wise

Access to SMSF funds

There are a number of additional issues to consider for those with self-managed super funds (SMSFs). For example, you will need to carefully check your Trust Deed for any rules or restrictions for accessing your super and consider how your fund can meet pension requirements if it holds large assets that are not cash, such as a property. It essential to consult a financial planner to understand your circumstances.

The process of choosing the best approach for your retirement income can be daunting so let us walk you through the options and advise on the most appropriate strategies.

Important: 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.

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.

Aging at home with government-subsidised funding is made possible through the Home Care Packages program.

However, a crackdown on what the funds can be used for and a shortage of support workers, can make it challenging to understand the funding available.

If you are approved for a Home Care Package you will be assessed at one of four levels. These levels acknowledge the different types of care needed.

Current annual funding for packages is $10,271.10 for level one (someone with basic care needs); $18,063.85 for level two (low care); $39,310.50 for level three (intermediate care); and $59,593.55 for level four (high care).ⁱ

It can take up to six months for a Home Care Package to be assigned following the initial assessment. Once assigned, a provider must be chosen to design a package of aged care services that is best and most appropriate for you – within the home care package guidelines.

Providers charge care and package management fees, which were recently capped at a combined 35 per cent of the package funds.

Income tests apply

The packages are income tested, with part pensioners paying no more than $6,543.66 a year and self-funded retirees paying no more than $13,087.39 a year in fees. Full pensioners do not pay an income tested fee.

Older Australians can apply for a package directly, or through their GP, via the government’s My Age Care aged care gateway.

Due to high demand for Home Care Packages, you may be offered a lower level package while you wait for the one you are approved for. You may also be given access to the entry level government support known as the Commonwealth Home Support Program – where individual referral codes are allocated to you to access interim support such as cleaning, transport or personal care at highly subsidised rates.

A revised manual released earlier this year by the Department of Health clarifying what a Home Care Package can be used for is presenting additional challenges for some package recipients looking to maximise what they can get.ⁱⁱ

Generally, a requested support or service must meet an individual’s “ageing related functional decline care needs”. The main categories of care and services you can get from a Home Care Package are services to keep you:

• well and independent (nursing, personal care, food),

• safe in your home (home maintenance, goods and equipment) and

• connected to your community (transport and social support).

Exclusions and inclusions

One area that is becoming more difficult for those with Home Care Packages is gardening – which is one of the most popular subsidised service requests.

Once a regular prune and possibly some new planting was an approved service, but now only minor or light gardening services can be provided and only where the person was previously able to carry out the activity themselves but can no longer do so safely. For example: maintaining paths through a property or lawn mowing.

Other exclusions causing angst amongst recipients are recliner chairs (unless they support a care recipient’s mobility, dexterity and functional care needs and goals); heating and cooling costs including installation and repairs; whitegoods and electrical appliances (except items designed specifically to assist with frailty, such as a tipping kettle).

With an aging population it is no secret that there is a shortage of support workers. While there are government programs to try and fix this, a back-up plan is needed for when support workers call in sick or are unavailable and no replacement can be found.

Most people’s preference is to remain living independently at home for as long as possible. If you would like to discuss your options to make this happen, give us a call.

i https://www.myagedcare.gov.au/help-at-home/home-care-packages
ii https://www.health.gov.au/sites/default/files/2023-04/home-care-packages-program-inclusions-and-exclusions-faqs-for-providers-version-1.pdf

Important: 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.

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.

Christmas is a time for giving and it’s so easy to get caught up in the joys of the festive season and lose track of how much you are spending. Fortunately, there are a few tried and true strategies to manage your money to see you through the silly season into the New Year and keep your savings goals in sight.

A budget helps you manage your day-to-day expenses and should also have some allowance for your festive spending, while making sure it’s not at the expense of your long-term financial goals.  

One of the best ways to strengthen your willpower is to have a strong sense of what you are saving for. Whether it is saving for a home deposit so you can move into your own home, getting the loan down for the reno you’ve been planning, stashing money away for a rainy day or planning that trip to Paris, it’s important to have a clear idea of not just what you are saving for but what your end goal represents to you. Keep your eye on the prize and your emotional attachment to that prize – so you can manage your festive spending.

Money in… money out

Ok, so now we have established why you are budgeting let’s look at the how.

One of the fundamentals of budgeting is looking at how much you have coming in, and how much you spend. The difference between these two figures will dictate whether you are heading into debt or socking it away.

Then once you have a sense of what you are working with, it’s time to decide which approach you want to take to budgeting and there are a few tried and true methods you might want to consider.

The envelope budget

This budget method involves putting specific amounts of your money into envelopes (physically with cash which is known on TikTok as “cash stuffing”, or electronically with an app or spreadsheet) for different budget categories. Once you have spent the funds in an envelope, you can no longer spend within that budget category until next month. If you have remaining funds at the end of the month you can roll over the funds into the next month’s envelopes or put the remaining funds into savings.

Whether you separate your money into physical envelopes or online in separate bank accounts, dividing up your cash into categories encourages you to be more mindful of where your money is going, giving you the confidence of knowing exactly where you stand any point in time. This method will help you allocate funds for all your necessary expenses as well as the amount you allocate for your festive spending, keeping them separate so you don’t overspend.

The 50/30/20 budget

In the 50/30/20 budget, 50% of your net income should go to your needs, 30% should go to wants and 20% should go to your savings. Your needs are the things you can’t do without, (like rent and your bills), your wants are the more discretionary things you want to do like going out to celebrate the festive season with friends and buying gifts. If you stick to this plan, the final 20% of your income is dedicated to savings.

This method ensures you don’t feel too deprived as you still have some cash to spend on enjoying yourself and the joys of the festive season, but it also helps to provide some discipline to save.

Pay yourself first

If you want to keep it really simple, try the “pay yourself first” method which involves transferring a pre-determined amount into savings at the beginning of the month. After you pay yourself, you should pay your bills, then use the rest however you please. This is a ‘no frills’ budget that’s easy to do and prioritises your savings ahead of any spending which is a good thing to do at a time of year when spending can get out of control.

Whatever method you choose it’s important to take your budgeting beyond Christmas. It takes time to develop habits around money so make sure to commit to whatever method works best for you and keep your end goal in sight. It will be worth it!

Important: 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.

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.

You can get your super when you retire and reach your ‘preservation age’. This is between 55 and 60, depending on when you were born. Or when you reach age 65, even if you are still working.

There are special circumstances where you can access your super early.

When you can get your super

You can get your super when you retire and reach your ‘preservation age’. Your preservation age depends on when you were born.

Or when you reach age 65, even if you are still working.

If you haven’t permanently retired

If you have reached your preservation age but haven’t permanently retired, you can still access part of your super via a transition to retirement pension.

If you’re in a defined benefit fund

You may be able to access a defined benefit pension from age 55, regardless of when you were born. Check with your fund. Eligibility requirements are different for each fund.

Getting your super early

You can only get your super before you reach your preservation age in very limited circumstances. For example:

• Incapacity — if you’re unable to work or need to work fewer hours because of a medical condition.

• Severe financial hardship — if you can’t meet your living expenses and have been receiving Commonwealth benefits for 26 weeks.

• Compassionate grounds — to pay for unpaid expenses. These could include medical treatment, modifying your home or vehicle because of a severe disability, funeral expenses, or a loan repayment to prevent you losing your home.

• Terminal medical condition — if you have a terminal illness or injury.

Advice about getting your super early

Getting your super early could reduce the amount of money you have when you retire. If you plan to access your super for any of the reasons above, talk to us first. You may have other options. 

Unlicensed advice and scams

Beware of unlicensed promoters who recommend you access your super to pay debts, for medical procedures, or to set up a self-managed super fund.

There are serious penalties for breaking the rules around accessing your super early.

Persuading you to access your super early is also a common tactic used by scammers. 

Using super to buy your first home

If you’re buying your first home, you may be able to access super contributions under the First Home Super Saver Scheme (FHSSS).

The scheme allows you to make voluntary super contributions to your super account to save for your first home. You can then apply to access those contributions and their earnings to buy your first home.

Eligibility criteria and savings limits apply.

Contact us for more details.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/getting-your-super

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.

Understanding cash flow

Understanding cash flow can be the difference between a solid long-term investment and a costly mistake, writes Michael Sloan. So do your research – and get good advice before you buy.

What is negative cash flow?

Oftentimes investment properties generate negative cash flow. That means, you must put money in each year to cover the difference between the total cost of the property (interest repayments, rates, insurance, maintenance, etc.) and the total income (rent and tax breaks). Investors are happy to do this because they expect a long-term profit. Over time the rental increases that go in hand with inflation should mean this ‘top-up’ is no longer needed.

Unfortunately, some investors don’t know what the cash flow of their property is before they buy. They don’t realise something’s wrong until their cash flow dries up and they get the bad news from their financial advisor. So seek advice from your accountant before you buy, not after. Always do the numbers first.

Miscalculating cash flow

It’s easy to miscalculate cash flow. Your estimated rental income might be over-optimistic, and you might also assume full occupancy (52 weeks a year). You might also underestimate maintenance costs or insurance.

Investors who get the cash flow of their property wrong can quickly run into problems. They either have to raise extra cash to prop up their property each month (potentially putting them under great financial stress), or sell. Selling property under pressure is never ideal and these investors can lose a lot. Sadly, this is a common mistake.

Work out your cash flow

To understand the cash flow on a potential investment property, get your accountant to do the numbers for you (if they can’t, get a new accountant). The number one rule is: ‘Don’t buy a property without knowing what the cash flow is’.

Make sure your accountant has all the costs of holding the property, including rates, body corporate fees, insurance and property management fees. They can work out the interest, estimate depreciation and give you an idea of the cash flow for the property. Have the property inspected and if possible see if you can check body corporate records, if needed. This could help you find out about any big maintenance or structural repairs planned.

If buying that property will put strain on your finances, then find a property with better cash flow. Also, when doing your figures, factor in possible interest rate rises and potential vacancies.

When the company selling you a property provides a cash flow report, don’t take it as gospel. The figures can always be manipulated, so get your accountant to work through them.

Your key to staying financially safe? Understand the cash flow before you buy.

A tip about tax

If you think you’ll have a net rental loss (i.e. your deductions, including interest, depreciation and capital allowances exceed your rental income), you can improve your cash flow by applying to the Australian Tax Office (ATO) for a PAYG withholding variation. If the variation is approved, you may be able to reduce the tax taken out from each wage packet, rather than waiting till the end of the year to get a tax refund. 

Speak to us for more information. 

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/invest-property/cash-flow

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

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.

Conditions of release of super

The conditions of release that must be satisfied for legal superannuation withdrawals.

You can withdraw your super when you:

• turn 65 (even if you haven’t retired)

• reach preservation age and

  • retire or

  • start a transition to retirement income stream while continuing to work

• satisfy an early access requirement.

Retirement means you have ceased gainful employment either:

• when you were 60 years old or over

• before you turned 60 years old and you have reached your preservation age – the fund trustee must be satisfied you have no intention of becoming employed again in the future.

Preservation age

Your preservation age is the age at which you can access your super if you’re retired (or start a transition to a retirement income stream).

(Your preservation age is not the same as your pension age. Check with Services Australia for the age pension eligibility requirements.)

Your preservation age depends on when you were born, as set out in this table.

Preservation age based on date of birth

Accessing your super early

In very limited circumstances, you can access your super early:

• on medical, compassionate, hardship and incapacity grounds

• under the First home super saver scheme – to withdraw voluntary contributions you’ve made to your super

• if you’re a temporary resident and are leaving Australia

• if your super account balance is less than $200 and your employment is terminated, or you have a ‘lost super’ account with a balance less than $200.

Super death benefits

When a person dies, in most cases their super fund pays their remaining super interest to their nominated beneficiary.

Super paid after a person’s death is called a super death benefit.

Illegal early access schemes

It is illegal to withdraw your super for any reason other than when it is allowed by the superannuation law – that is, when you satisfy a condition of release.

Beware of people promoting early-access schemes. Participating in illegal early-access schemes will cost you a lot more than the super you withdraw.

If you’d like to find out more about withdrawing super, call us. 

Source: ato.gov.au August 2023
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/super-withdrawal-options/.

Important:
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. 

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.

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.

Get help if you need it

Find out more about tax on super on the Australian Taxation Office (ATO) website.

Services Australia’s Financial Information Service offers free seminars on topics such as retirement income and pension options – or feel free to contact us for more help.

Source:
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.

Bucketing is a smart way to manage your money without complicated budgets or spreadsheets. The idea is to set up multiple bank accounts called ‘buckets’ and use each one for a specific purpose, like bills, savings or entertainment. Once your buckets are set up, it’s easier to see and control how you spend and save your money.

The benefits of bucketing

If you’re not good with money and struggle to save, then bucketing could work for you. Many use it to reduce debts, control spending and achieve bigger goals, like buying a home or saving for retirement. Bucketing can also help you save your money for larger but infrequent bills like car registration, school fees and energy bills.

Step 1. Work out where you spend your money

It’s important to work out exactly how you spend your money. Use a budget planner calculator to make it easier to see where your income goes. Once you’ve done this you’ll feel more in control of your money and have a clear view of areas you can save.

Step 2. Group your spending into categories

Group each category of your spending into a few themes such as regular and daily expenses, spending money and savings, then add up the total amounts in each theme. These themes will become your buckets or accounts. You can have as many buckets as you like but here’s an example of how to group them:

Bucket 1 – Regular and daily expenses

This is for regular bills, rent, mortgage, debts, groceries, transport, school fees, insurances and holidays. This account should be linked to a debit card. 

Bucket 2 – Spending money

Use this bucket for fun money to splurge on things like socialising or treating yourself and others. This account should be linked to a debit card. You can use an app to take control of your spending.

Bucket 3 – Emergencies and safety money

This one is for the big or unexpected expenses that can catch you off guard, like home or car repairs, dental work or paying off debts. This account should earn interest and have no debit card, so you’re not tempted to spend.

Bucket 4 – Savings

Use this to put aside money for things like travel, a new car or reducing debt. Ideally this should be an account that earns interest and has no debit card.

Step 3. Open your bucket bank accounts

You’ll need a basic transaction account to get started. 

Once you have opened a transaction account, you can easily open more accounts.

For more budgeting tips, give us a call.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/manage-money/budget-saving/money-bucket

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

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.

Catch up on your super

If you’ve had an irregular or interrupted income in the past, you might’ve missed out on opportunities to contribute to super. If you don’t fully utilise your concessional cap, and you’re eligible, you may be able to make ‘catch up’ on concessional contributions.

What is a ‘catch-up’ concessional contribution?

It used to be a case of ‘use it or lose it’. If you couldn’t contribute the maximum annual concessional (before-tax) contribution amount to your superannuation, the opportunity was lost.

This meant many people, women in particular, had a lower super balance for their retirement. This was typically a result of their working life being interrupted by things like studying, starting a family or taking care of parents. This could also be the outcome from working in casual or part-time jobs.

Can I make concessional contributions?

An annual cap of $27,500 applies to concessional contributions. This is the most you can contribute in one year.

Concessional contributions include:

• mandatory employer contributions (such as Super Guarantee)

• salary sacrifice contributions (paid from your salary before it’s taxed), and

• personal contributions that you claim a personal tax deduction for.

If your concessional contributions in a year are less than the annual cap, the ‘unused’ amount can be carried forward for the next five financial years. After five years, that unused amount will expire.

For example, if you only have total concessional contributions of $10,000 out of the available $27,500 in the 2022/23 financial year, the unused amount of $17,500 can be carried forward for the next five years. If you’re eligible, this could enable you to make a greater concessional contribution in a future year.

If you’re aged between 67 and 75 you’ll need to meet a work test to make concessional contributions – you need to have done at least 40 hours of paid work in any consecutive 30-day period that financial year. 

Can I make catch-up contributions?

So you have an unused amount that you have carried forward from an earlier year, and you want to make a ‘top-up’ carry-forward contribution. What now?

You will need to look at your ‘total super balance’ (TSB). Your TSB prior to 30 June must be less than $500,000 for you to be eligible to make the catch-up contribution using your carried forward amount.

Your total super balance at a particular time is broadly the total of the:

• accumulation phase value of your super interests

• value of your super pension accounts

• rollovers in transit between super funds.

You can find your balance by contacting your fund or funds, and you’ll also find the latest balances reported to the Australia Taxation Office through the MyGov online service.

How you can benefit

The rules were designed to give people with an irregular income or work pattern the same opportunities for a comfortable retirement as those with a regular income. But they could also help people who don’t contribute the maximum amount annually, and find themselves in a position to invest more in a later year.

When you get back to earning a regular income or have the capacity to invest more, you may be able to make additional top-up contributions to help you ‘catch up’. This could make a real difference when you’re able to access your super as a lump sum or retirement income stream.

What to do next

From the start of the 2023/24 financial year, you can start by keeping track of your contributions in any year, particularly if you don’t make use of the full concessional contribution limit.

You can also keep track of any ‘catch-up contributions’ you make in a given year. Having these records will make it easier to see how you can best catch up in the future.

Contact us today if you’d like to discuss how you can contribute more to your super.

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/boost-savings

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2023 National Australia Bank Limited (“NAB”). All rights reserved.

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.

Borrowing to invest, also known as gearing or leverage, is a risky business. While you get bigger returns when markets go up, it leads to larger losses when markets fall. You still have to repay the investment loan and interest, even if your investment falls in value.

Borrowing to invest is a high-risk strategy for experienced investors. If you’re not sure if it’s right for you, speak to us.

How borrowing to invest works

Borrowing to invest is a medium to long term strategy (at least five to ten years). It’s typically done through margin loans for shares or investment property loans. The investment is usually the security for the loan.

Margin loans

A margin loan lets you borrow money to invest in shares, exchange-traded-funds (ETFs) and managed funds.

Margin lenders require you to keep the loan to value ratio (LVR) below an agreed level, usually 70%.

The LVR goes up if your investments fall in value or if your loan gets bigger. If your LVR goes above the agreed level, you’ll get a margin call. You’ll generally have 24 hours to lower the LVR back to the agreed level.

To lower your LVR you can:

• Deposit money to reduce your margin loan balance.

• Add more shares or managed funds to increase your portfolio value.

• Sell part of your portfolio and pay off part of your loan balance.

If you can’t lower your LVR, your margin lender will sell some of your investments to lower your LVR.

Margin loans are a high risk investment. You can lose a lot more than you invest if things go sour. If you don’t fully understand how margin loans work and the risks involved, don’t take one out.

Investment property loans

Investment property loans can be used to invest in land, houses, apartments or commercial property. You earn income through rent, but you have to pay interest and the costs to own the property. These can include council rates, insurance and repairs.

Borrowing to invest is high risk

Borrowing to invest gives you access to more money to invest. This can help increase your returns or allow you to buy bigger investments, such as property. There may also be tax benefits if you’re on a high marginal tax rate, such as tax deductions on interest payments.

But, the more you borrow the more you can lose. The major risks of borrowing to invest are:

• Bigger losses — Borrowing to invest increases the amount you’ll lose if your investments falls in value. You need to repay the loan and interest regardless of how your investment goes.

• Capital risk — The value of your investment can go down. If you have to sell the investment quickly it may not cover the loan balance.

• Investment income risk — The income from an investment may be lower than expected. For example, a renter may move out or a company may not pay a dividend. Make sure you can cover living costs and loan repayments if you don’t get any investment income.

• Interest rate risk — If you have a variable rate loan, the interest rate and interest payments can increase. If interest rates went up by 2% or 4%, could you still afford the repayments?

Borrowing to invest only makes sense if the return (after tax) is greater than all the costs of the investment and the loan. If not, you’re taking on a lot of risk for a low or negative return.

Managing the risk of an investment loan

If you borrow to invest, follow our tips to get the right investment loan and protect yourself from large losses.

Shop around for the best investment loan

Don’t just look into the loan your lender or trading platform offers. By shopping around, you could save a lot in interest and fees or find a loan with better features.

Don’t get the maximum loan amount

Borrow less than the maximum amount the lender offers. The more you borrow, the bigger your interest repayments and potential losses.

Pay the interest

Making interest repayments will prevent your loan and interest payments getting bigger each month.

Have cash set aside

Have an emergency fund or cash you can quickly access. You don’t want to have to sell your investments if you need cash quickly.

Diversify your investments

Diversification will help to protect you if a single company or investment falls in value.

Gearing and tax

Borrowing to invest is also known as ‘gearing’. Before you borrow to invest, check:

• if you will be positively or negatively geared, and

• how this will impact your cash flow and tax

Case Study

Kyle gets a margin call.