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Oak Financial Partners / News Library
CLIENT UPDATE MARCH 2013
Happy Easter from everyone at Oak Financial Partners!
Move ahead with the right plan
Forward planning can help to maximise your savings before winding down from the work force.
When it comes to funding your lifestyle after you leave the world of full-time work, one key element can make all the difference: how effectively you plan today. If you’re still working, it’s not too late to take control of your plans for retirement; but it’s never too early either.
Australians need much more
With an average super balance of $79,002 at retirement,[i] many Australians between the ages of 60 and 64 are not ideally positioned to enjoy a comfortable retirement. According to the Association of Superannuation Funds of Australia (ASFA), a comfortable retirement – as opposed to a modest lifestyle which provides minimal options – enables an older, healthy retiree to:
- be involved in a broad range of leisure and recreational activities
- enjoy a good standard of living and be able to purchase:
- household goods
- private health insurance
- a reasonable car
- good clothes
- electronic equipment
- domestic holiday travel
- occasional international holiday travel.[ii]
How much will you need?
ASFA estimates that if you are a couple, you’ll need $56,236 annually to enjoy a comfortable lifestyle in retirement and if you are single, you’ll need $41,090 annually2.
If, on the other hand, what you need is to maintain your current lifestyle in retirement, you will need approximately 65% of your pre-retirement income. The table below provides an indication of the lump sum you may need to fund such an income.1
65% of pre-retirement
Lump sum required[iii] at retirement
Remember, it’s usually only while you’re still working that you have an opportunity to make a difference to your retirement lifestyle. It also pays to be aware that life expectancy has increased 5.1 years between 1989 and 2009, with life expectancy for males in Australia at around 80 years and 84 years for females[iv]. While this is great news, you need to make sure that your retirement savings can go the distance.
Make a difference for yourself today
Developing a plan for your retirement will not only help you make the most of your time in the workforce, you’ll gain a valuable understanding of:
- your goals
- your spending habits today and what they’re likely to be in retirement
- the type of lifestyle you’ll want
- how much money you’ll need
- what you can do now to ensure you have choices in retirement.
We can help you to take advantage of the many strategies which can help increase your retirement nest egg, while you’re working. We can discuss salary sacrificing, transition to retirement strategies, debt consolidation, super consolidation and whether you can re-visit your investments to ensure they maximise your savings.
Call us today to start a discussion about how you could enjoy an adequate income stream throughout your retirement.
Avoid paying 46.5% tax on your super
It is important that you provide your Tax File Number (TFN) to your super fund. Contributions made into your super account such as employer super contributions and any salary sacrifice contributions could be taxed at 46.5% instead of 15% if you haven’t provided your TFN. This could affect your personal tax contributions as your super fund will not process personal after tax contributions made by you or your spouse.
Have your provided your TFN to us? If you are unsure please confirm with us today please call 03 9859 7789.
The right cover – for a lifetime
Baby boomers may need to keep their insurance for longer in the new multi-generational Australian family of the 21st century.
The children are all grown up, the school fees are behind you and the mortgage is paid off. So there’s no more need for insurance, right? Not always.
Feeling the squeeze
Almost one in five Australians now lives in a household with two or more generations of related adults aged 18 years or older.[v] And the family nest is growing. The proportion of young adults aged 20–34 years living in the parental home grew from 13% in 1986 to 18% in 2006.1 The reasons are complex, but rising house prices and financial difficulties aren’t helping.
And many working Australians are also finding themselves caring for elderly parents. It’s wonderful that we’re enjoying longer lives – increasing life expectancy means Australian men can expect to live to age 79 and women to age 84.[vi] But as the population ages, more older Australians may be living with disability and illness, and may need support from their baby boomer children, who are now in their 50s and early 60s.
And reflecting their continuing role as providers, baby boomers are tending to stay in the workforce for longer. In 2011, 62% of Australian men aged 60-64 were still working, compared with 47% a decade earlier.[vii]
What if the worst happens?
It’s not something we like to think about. But every year illness, injury and even death strikes thousands of Australian families without warning. In 2008, there were 12,430 deaths of married men or women of working age (20 to 64 years). This means that every day, 34 Australian families are losing a family member and over half of these involve children losing a parent.[viii]
If something were to happen to you, it could put pressure on your loved ones. Your elderly parents may have to step in and support their grandchildren, putting them under strain at a time when they may be needing more help themselves. Or if you’re out of action through illness or injury, your grown-up children may have to pick up the pieces and look after you, clipping their wings and making it even harder for them to get ahead.
It could also put pressure on your finances. You may have to fall back on your retirement nest egg to pay the bills and support your family, potentially destroying your dreams of a comfortable retirement.
So even if you’re nearing retirement, you may still need to retain insurance to protect what you’ve built up.
Insurance is for life…
Most superannuation funds offer a basic level of insurance cover. But even taking into account insurance within super, most of us don’t have sufficient cover to protect ourselves and our loved ones, and maintain our lifestyles in the event of illness or injury. In fact, over 95% of Australian families don’t have enough insurance, meaning we are underinsured by a collective $1.37 trillion.4
Many people believe that insurance is something they only need when the children are at school and they are paying off the family home. But it’s important to continue protecting yourself and your family throughout your working life.
- When you’re starting off in the workforce – It’s all about being prepared for whatever life brings your way, and about being able to make the most of life knowing you have adequate cover. Also, waiting until later in life to get insurance could affect your insurability, ie you may not be eligible for insurance cover or cover may be subject to exclusions or premium loadings.
- When you’re building your wealth – Don’t just rely on cover in super. Check what insurance cover you have through your super fund and outside of super, and make sure it’s enough to maintain your lifestyle.
- When you’re nearing retirement – Don’t cancel your cover too early. If you have adult children and elderly parents potentially relying on your income, it may be worth keeping up some level of cover, even with a reduced premium, rather than cancelling your insurance altogether.
Financial protection isn’t just about insuring your life. You can also insure against trauma, total and permanent disability and, importantly, loss of income.
If you’d like to know how much cover you need to protect yourself and your financial dependants, call us today.
[i] Source: AMP. (2011). How much is enough?
[ii] Source: Association of Superannuation Funds of Australia. (November 2012). ASFA Retirement Standard.
[iii] Based on a June 2006 AMP annuity quote for a 65-year-old male; 20-year nil residual capital value (RCV); nil indexation.
[iv] Source: Australian Bureau of Statistics. (June 2012). 4102.0 – Australian Social Trends.
[v] Source: Australian Housing and Urban Research Institute. (2012). Multi-generational households in Australian cities.
[vi] Source: Australian Institute of Health and Welfare. (2012). Changes in Life Expectancy and Disability in Australia, 1998 to 2009.
[vii] Source: SMH. (9 February 2012). Working longer, retiring stronger by Tim Colebatch.
[viii] Source: Lifewise/NATSEM. (February 2010). The Lifewise/NATSEM underinsurance report: Understanding the social and economic cost of underinsurance.
What you need to know
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP Group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.