25 - August

Pre-Retirees Beware!

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Are you planning to retire in just a few years? Have you worked your fingers to the bone to help you get the retirement dream that you deserve? Now’s the time to check that you don’t fall at the final hurdle. After all, this is what you’ve been working towards! Let’s take a look at some super traps that need to be avoided if you want to benefit most from your superannuation and investments.

1. Out-dated Investment Plans

Throughout your working life it’s important to revisit your investment strategies on a regular basis. This is even more important in those last few years before you retire. Before you even begin to look at your bank account, ask yourself this – what do you want from your retirement? This will help you to budget as well as allowing you the scope to decide how much effort needs to go into your investment plans. You don’t necessarily have to invest all of your earnings into defensive assets such as cash. In the economic work it’s important to diversify to allow you still be comfortable when the economy, different sectors and assets in the market go up and down. A good investment portfolio will include a range of asset classes, including cash, real estate and shares. Your super fund will be invested into a range of options, depending on the amount of risk you’re happy to take and the amount of return you’re expecting. Make sure you’re aware of the exact state of your investments and speak to a professional or to friends and relatives to find the best ways of maximizing your assets. Your super fund’s website or helpline should be able to give you more specific details about that investment options are open to you.

2. Overestimating Your Insurance Needs

Insurance needs will alter just as frequently as your investments do. For example, if you’ve worked hard to reduce your debts or eliminate them completely then you may not need as high a level of life insurance or income cover as you needed in the past. Look at your individual circumstances and how they’ve changed over the years. At one time you may have been the sole breadwinner, supporting a partner and children, whereas now your children may have flown the nest to support themselves, leaving you with less responsibilities when it comes to insurance.

Gather all your policies together and eliminate any crossovers or extraneous cover. For example, at one time you may have needed a higher level of cover because your work was considered ‘high-risk’. Is this still the case?

Speaking to an independent financial advisor can help you to see exactly what level of cover is needed. Ensure that they are fully-independent, though, as some will be biased if they work for commission from insurance companies.

3. Not Keeping An Eye On Fees

Apart from insurance, which may be a default part of your super fund, it is important to look at any other fees that you’re being charged. Although they may not differ greatly from fund to fund, remember that these funds run for decades, so even $1 a month will add up to a hefty total at the end of the super’s life. Most super funds include fees such as:

  • Member fees – covering the cost of keeping your super account
  • Contribution fees – covering the cost of receiving and investing your contributions
  • Management or investment management fees (MER) – fees for managing your investment, which can differ depending on your investment options
  • Advisor service fees – for if you seek advice about your super and other investments. These advisors may receive commission for certain investments that you make

Other, less common fees include those for withdrawal or termination, establishment, performance and split fees (for example, following a family separation).

Independent superannuation calculators are available online which will help you see which is the best super fund for you, depending on your individual circumstances.

4. Overlooking Different Tax Benefits

Have you ever heard of a TTR strategy or Transition to Retirement strategy? Also known as a TTR, this allows you to draw a pension from your savings when you are still in employment. You can easily start doing this once you hit the ‘preservation age’. (This presently stands at 55, but may go up soon). This pension income will more than likely be taxed at a lower rate or even be tax-free. You can also increase your super contributions at the same time through the salary-sacrificing scheme, in which any contributions up to $35,000 are taxed at 15%. By taking advantage of the TTR strategy, you may choose to reduce the amount of work you do in your last few years in employment without suffering from a significant drop in income.

The TTR strategy is a great way to make you feel more comfortable about your finances during those last few years before you retire. It is best to consult a tax expert or financial advisor to know which TTR strategies are available to you, and which ones suit your circumstances the best.

5. Missing Out On Ways To Boost Your Super

The superannuation is a simple plan in theory, but many people don’t realise that there are ways to boost their super. It makes sense to add your own contributions, as this will add to your super fund as well as reducing the tax paid on your savings elsewhere. You may also be eligible for a co-contribution from the government if you’re on a low or medium level of income. It’s possible that the government will contribute $0.50 for every $1.00 that you add to your super (up to $500) so it’s worth looking into. To get this co-contribution, just lodge a tax return for the year. If you’re eligible the government will pay directly into your fund.

As you near retirement age you may also put additional funds into your super. Normally, you can only contribute up to $30,000, including your employer’s contribution. However, this rises to $35,000 if you’re 50 or over.

6. Inadequate Estate Planning

Nobody likes to dwell on what will happen after they’ve passed away, but it’s an important factor to consider when you’re looking towards your retirement years. With regards to super annuity and insurance, you need to nominate who you prefer to get both your super savings and payable insurance reimbursements. The level of tax for these beneficiaries can differ depending on how old they are, what their relationship is to you and if the payments are categorized as a lump sum or as regular payments. There is plenty of advice available for when you’re ready to make your will, from private trustees and solicitors. (Some public trustees will prepare or update your will for free, but only if you’re over a certain age or if you agree to them being an executor of the will.) It is worth bearing in mind that if you have made a binding nomination as part of your super or insurance policies, this will overrule anything that is stated in a will. The same applies to any trust funds that you have in place, so make sure that all of your policies are up-to-date and that you’re aware of any beneficiaries or any changes that you want to make.

7. Succumbing To Scams

Throughout our lives we are constantly vigilant when it comes to protecting our hard-earned money. Unfortunately there are always people willing to try and break down that vigilance and scam others into giving away their money. As superannuation funds often contain large amounts of money, it’s no surprise that scammers have tried to con innocent people into giving it up. Scammers will set up illegal schemes enticing people to give up the control of their super with the promise that you’ll have early access to your money. They will then either take an unnecessarily large commission or, worse still, take the whole lot.

These scammers target vulnerable people such as those who are unemployed or those who are struggling with debt. Keep an eye out for any scheme that offers to ‘take control’ of your super or that promises early access or a ‘quick and easy’ way to ‘unlock’ your super. If in doubt, look at ASIC Connect’s Professional Registrars list or APRA’s Registrable Superannuation Entity Disqualification register, or contact the police.

8. Going It Alone

Everyone’s circumstances are different, so it is logical that super strategies should be too. The first step towards getting the most out of your super is to talk to an independent financial adviser. Ask as many questions as you can and speak to others who are in the same situation as you are to see if you can learn any good tips to boost your assets and make your retirement as comfortable and worry-free as possible.

For financial advice tailored towards your personal situation, please call TGFS Financial Planning today on 1300 755 521 or email trent@tgfsfinancialplanning.com.au

TGFS Financial Planning is an Authorised Representative of Consultum Financial Advisers Pty Ltd. ABN 65 006 373 995 AFSL No 230323 (Consultum).

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.

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