- Good evening, everyone, and welcome to tonight's event. My name is Joshua van Gestel. I'm the Senior Manager of Education here at Australian Retirement Trust, and alongside me is my dear friend and my dear colleague Ruth Weaver, who many of you would remember, and I'll cross back to Ruth in a moment.
Before I do, though, we'd like to welcome you to this first Retirement Ready event of 2024. It's a series of events that, for those of you who've attended before, are designed to actually assist you in providing answers to the common questions that you have in relation to your super, your retirement, investment markets, the age pension and also strategies that you can use to set yourself up for your best possible retirement. Within these events over the coming weeks we'll also consider the state of the economy, some important product and legislative changes coming into effect from the 1st of July, as well as consider any hints that we think might be coming in the lead-up to the next Federal election in May.
In this session tonight, though, and in the weeks to come, Ruth and I will be taking the complication out of your superannuation, to really try and make your retirement planning and your plans for your future a lot easier for you to understand and therefore more personal great for you to actually enjoy. We want to take the worry out of retirement planning and actually let you focus on living your best retirement.
Ruth, how are you feeling about all of this? I must admit I've got the nerves going a little bit.
- Well, we have had record number of registrations come through. We know that about 7,000 of you have engaged in this program, so that might be why you're nervous.
- It could be. Could be.
- But no, we're very excited to bring this series to you again this year.
- And I think the thing that's amazing in thinking about those 7,000 people who have registered, it's also the number of questions that we've had come in.
- We have had almost three and a half thousand questions.
- Isn't that incredible?
- So we've had a busy week going through the questions, haven't we.
- It's been amazing. I'll actually read my favourite question, or maybe it was just a comment or maybe someone's wish, but they wrote, which I think was beautiful: "I have no idea what I need to do to plan for retirement. Please help and please keep it simple." That is exactly what Ruth and I are going to do both tonight, but over the coming weeks.
Before I do that, though, I'd like to first make three acknowledgements. The first is to each one of you to take the time, the interest to actually join this event. We know it's a commitment even though it's online, but it is a commitment from you and it really does show that you're trying to really get the most value out of your super and really set yourself up for that retirement success. So thank you for your time, thank you for coming along, and we're looking forward to taking you on that journey.
The second acknowledgement I'd like to make is to the First Nations people of the lands from which we are presenting tonight, this place now called Brisbane, and it's the lands of the traditional elders, the Yuggera and Turrbal people, but I'd also like to make acknowledgement to the Traditional Owners of the lands from which you come, their elders past, present and emerging, and also acknowledge any First Nations people with us tonight.
The third, and maybe the most important acknowledgement, though, I'll hand over to Ruth.
- So the third acknowledgement is to remind you all that despite the large amount of content Josh and I are going to share over the next three weeks with you, it is so important that you always remember we will be talking in general terms only. We don't know your personal or your financial situation, so please be mindful of that as we talk through the content. Now, if you need support to apply the information to yourself more personally, we have you covered there as well. You will see an opportunity to request a call back from one of our financial planners, and we would encourage you to take that opportunity if you are struggling to apply the information to yourself personally.
You've also been supplied with a workbook, and again that workbook is available under the screen. So if you need to minimise your screen you'll see it. That's going to give you an opportunity to maybe jot some questions down as we're covering certain content, just to remind yourself of the type of things that have popped up throughout the session that you might want to check with a financial planner. I would also encourage you to use that if you do have a conversation with a financial advisor afterwards. That particular workbook will be very useful for both you and the financial advisor when it comes to actually wanting to get advice about your retirement planning in general.
Lastly, as we've already said, we have had over three and a half thousand questions come through for this series. We have looked through every single one of them and we have built tonight's content on the back of those questions. So just be mindful that this is a threepart series. Not everything will be covered tonight, but we will remind you when we get to certain areas what we will be covering next week and the week after that as well. So not everything will be covered in tonight's session.
Josh, when we think about retirement, I always think about the fun things like the holidays, spending time with the family, hobbies, but that's not the only thing that Australians think about when the word "retirement" pops up.
- No, and I think even thinking about that question that I read out, I think when it comes to retirement a lot of people are actually quite fearful. The research that we conducted a couple of years ago now, but if anything we've actually seen this amplified with the cost of living crisis that we're in, is that although we'd hope for most people they're thinking about their retirement as being a time to relax and a time to really enjoy their family, their friends, and really just enjoy living those years, what we in fact see is that for a lot of people retirement does have this strong sense of fear, a very strong concern around the finances, that they won't have enough to get them through retirement in terms of their savings, but also concern around losing their physical health and also just having their money run out on them while they're still alive and really wanting to enjoy it.
I think the other thing that we often get asked, though, by people as a secondary of concern is, "Well, when do I have to retire?" It's a very common question, almost as if people feel there is this set age that you have to retire in Australia. Well, let me be blunt on that. The age at which you retire is actually your choice. There are ages where the government starts to pay benefits, there are ages where you start to get access to your super, which we'll cover off tonight, but ultimately when you retire is up to you. The research that we've seen through a number of government programs in recent years, or government reports in recent years, really shows that people who retire early usually are doing so not because they want to, but because the situation is being forced upon them. It is really in those later years that we're seeing people are retiring because they're ready to and because it's their choice.
So in Australia, unfortunately, we do see for many the choice to retire is largely due to their own health, the health of their partner, or a big change in their job circumstances. It's not necessarily because of your own planning.
When it comes then to how do we feel about our retirement income, we talked briefly a moment ago about how we feel generally about retirement, but when it comes to retirement income, again we see that people feel that they'll have enough for retirement, and it's a good proportion, almost half of people feel that. But if we actually look a bit deeper at the data what we also see is that for a lot of people there's a strong concern there that they will have to keep working in some capacity, that they just won't have enough in their savings, and that they're actually unsure what retirement will cost them.
Now, part of what we're wanting to do this evening in this first session is really help you to better understand what your retirement income needs are so that you can also be thinking about what age you might be looking at retiring yourself. Now, in the research we conducted we didn't just ask how people felt about retirement or felt about their income needs, we actually asked them how much income they felt they may need. On average we saw that they typically thought they might need somewhere around $53,000, and this is a number that we'll bounce around a bit with this evening.
The last thing that really is important in weighing all of this up and in what we'll be covering off tonight is to also realise, though, that in retirement your income needs will ebb and flow and change. It's not a static amount that you'll need year after year after year. If we again think about government reports and what they've produced, they actually show that although we see some income demands go down as we age, a lot of things around some of the entertainment costs and things, as we're just not fit and able to undertake those, we do see other costs really start to go up and some of them go up dramatically. That is mainly in regard to health.
So it's important that as we go through the retirement discussion tonight, as we talk about the needs and the income you want for retirement, you also think about the longevity of your retirement savings and what your incomes might need to be not just now, but actually as you go 10, 20 or even more years into your retirement journey.
- I think I've worked in superannuation for almost 20 years at this stage, which I even find hard to admit myself, and one of the most common emotions that I hear coming from people about superannuation is fear and anxiety.
- Yep.
- You've just touched on some of that already when it comes to retirement planning in general. A lot of it is borne from the fact that people don't always know the purpose of that superannuation or the role that super is actually going to play for them during retirement. So I just want to quickly give you a little bit of a visual so that you can understand what is the purpose of the role that your super is going to play, because it could be very different to your neighbour or your brother or your family member, any family member, for example.
First and foremost there is what we call the age pension, and that, as Josh already sort of mentioned, is the government support that will be available to all Australians who are currently close to retirement. The idea here is that that's your safety net. The age pension, I often say, will keep the lights on and put food in the belly for retirees who are entering retirement, and a way of looking at that is that's your worst case scenario. The problem, though, with relying too much on the age pension is that there's no flexibility on when you'll qualify for it. It is currently sitting at the age of 67 before you can think about accessing it. There's really no control from your end as to how frequently you get paid or how much you get paid because it is means tested, and we will cover that this evening. We'll get Josh to talk about that.
The idea here is being mindful that the age pension is your worst case scenario when it comes to funding your retirement. The reality is it might not be the only source of income that people have. You may also have income coming from other assets or employment, for example. So, for example, there's lots of people out there who may own an asset like an investment property or they might work a little bit here and there casually, for example, and the income that can come from that can sometimes be complementary or in addition to the age pension. The gap then is often funded by the superannuation, and having access to that superannuation mention that you'll be able to bridge the gap, hopefully, between what the age pension, or if you've got other sources of income, for example, can afford you, and that superannuation will help you to bridge the gap so that you are more in control over when you retire, how you retire and what that retirement will look like. Because the key thing to know about superannuation, and why it's fundamentally different to the age pension is that you can actually consider accessing it from the age of 60. Technically for somebody who does want to retire before age pension age, super is often the way that you can do that. - Really, super - I always think about the age pension, as you say, is almost like that worst case scenario.
- Yep.
- Super gives you choice and flexibility. That's what it affords you.
- Yep. Coming to this next point then, we'll just show this again in another way. One of the most frequent questions we get, and it's borne through lots of media outlets, social media, all the fear tactics around how much you need in retirement.
- I blame Koshie.
- You blame Koshie for it? But we do hear the rhetoric around needing a million dollars to retire, and it does put a lot of fear in people. The reality is there will be people listening here tonight who might need a million dollars to retire. Maybe they're going to have an incredible lifestyle during retirement. But that's not the majority. The actual facts are most of us won't need a million dollars to retire. In order to determine what you need to retire we have to think about how much income you're going to want to have during retirement, and that's going to be a different number for everybody listening tonight. What you need in retirement will be very different to what I think I might need in retirement.
So when you're thinking about what does the income derive down to, you've got to think about your situation first. So when we think about your situation we're talking about things like whether you're retiring as part of a couple, in which case you can combine assets are somebody else, but also split costs. Or are you retiring as a single person where you're not able to do that? It can be more challenging as a single person to plan for retirement and to fund retirement. You don't have the ability to combine assets and split costs. So that's a really important personal factor. But also things like what age are you planning to retire, what's your mental health like during retirement, things like whether you'll still have dependents. It is far more common these days for people to still be helping to financially support dependents as they enter into retirement, and the big ticket item, or the big red flag here for many people is whether or not you'll still be paying a mortgage during retirement and paying down debt. We were looking earlier on, you and I, around the statistics
- Before we went to air, yeah.
around the number of retirees who are currently entering retirement still paying a mortgage, and we were astounded that it has actually tripled in the last couple of years, that we are now entering retirement far more likely to still have debt, and also far more likely to be renting as opposed to owning our own home. So those things have to all be thought about when you're thinking about what income you want.
Then we move on to thinking about your needs. Now, this is almost, I say, going to be relatively similar for many of us. The needs are things like your food bill, your electricity costs, your rates, your fuel, those basic, everyday costs that a lot of us would pay. The variant between you and your neighbour when it comes to needs would be relatively small in a lot of cases. Most of us would have similar electricity bills, similar rates bills to our neighbours, for example, similar fuel costs if we're doing relatively similar things. So that's your needs. I often say the age pension will go a long way in funding those needs.
- Yep.
- But where we see the big variance in income needs is around the wants, and this is ultimately what your super will allow you to actual work with. So your wants are things like do you want to travel, do you want to eat out, do you want to be able to join the local golf club, for example. These are the things that you don't have to have and they can vary grossly between your friends or your colleagues or your neighbours. This is what the superannuation is going to allow you to work with. I think this is one of the important points about super, isn't it.
- Yep.
- That the wants bucket is allowed to be played with if you've got decent super.
- Can I just play a couple of points?
- Sure.
- Sorry if I'm going to steal your thunder on anything. I think also in there you've got to think about your needs, which you mentioned around your situation. What debt are you carrying, what health issues are you carrying that you need to be aware of, but the other thing around your situation is what we typically see in Australia is that women live longer, so they need already a higher amount of savings because of that.
- Yep.
- But on top of that we also see typically that women retire younger. The issue there that we've got, particularly for single women, is that they tend to have a lot less in retirement savings but their needs that Ruth has talked about are actually going to be for a much longer period.
- Yep.
- So again it comes to this point of recognising your needs, your situation, your wants are going to be very, very specific to you, and that's why we need to be careful that, as Ruth said, often in the media we're told to compare ourselves. That's okay for pointing you in the right direction, but it's not going to give you the answer that applies to you.
- It can also instill unnecessary fear if you're comparing yourself with someone whose situation is very different to your own. So it is important that you're always able to bring the information back to yourself.
- Yep.
- Now look, we're human. We like to have little cheat sheet ways of knowing, well, you know, if I think about all of this let's start to put some dollar figures around what the income is. A couple of quick ways to do it. The two-thirds rule is quite a common first step. It's basically looking at your current income and saying, well, what's two-thirds of that. That's a close indication of what you're currently spending, because the two-thirds comes from the net income, if you like, and the one-third that we're wishing away is basically the tax that you're probably paying now. So relatively close to giving you an insight as to what your current spending is is two-thirds of what you're earning at the moment.
But look, there's no easy way around saying this. You've got to prepare a budget. You've got to do some kind of a budget, and it is a bit of a dirty word because none of us love to do that. It's a very rare thing that people enjoy doing. I know it's something that I dread doing. But it is important that you actually take the time to stop and do it. What are those needs? What are the costs that really won't change? You should get a really good feel for what those costs will be and then you've got a good idea of what those wants can be and how luxurious you can go with the wants.
Use your current lifestyle as a basis. It's very unrealistic to think that someone who is currently earning 60,000 a year is going to have a retirement goal of 100,000 a year. We don't see that happen very often because deep down we know that the lifestyle is modelled around what we're currently earning anyway. So think about the kind of things that you're doing today. Nobody wants to have a drastic shift in their lifestyle, so that's going to give you a close indicator of where it is you're going to want to land.
Finally, use a forecaster. There are various tools, and Josh is going to talk about our own tool at Australian Retirement Trust in a moment, but there's lots of tools out there that allow you to put your personal information in, like your age and how much super you have, et cetera, and give you a little bit of a taste as to what you might likely be able to achieve. - Again, just that workbook
- Yes.
- that you mentioned early on. Some of these we actually provide further information on or the room for you to consider within your workbook. So whether it's now or later on after this, we really do encourage you to explore those further. As Ruth said, though, ultimately, whichever way you go, you are going to have to think about that budget.
- You are, yes. There's no way around it.
- No.
- As I said earlier on as well, we're all human and when we're human we do like to look at what other people do just for at least a benchmark, and we did say that benchmarking can be dangerous because it can instill fear, but it's also useful enough to get a bit of a sense as to
- Give some security.
- Give us some sort of a guideline. We at Australian Retirement Trust have looked - we're going to look at three different life styles that you might think about, and it's really modelled off some figures that are publicly available out there. So if we start with the age pension.
The age pension, as I said, is your worst case scenario in most cases, and this is giving you a little bit of a sense as to what you might be able to achieve or where your starting point is. If you're a couple in Australia at the moment and you're qualifying for the full age pension you're looking as a combined couple of about 43,700-odd dollars a year. That's your starting point. The super then is designed to give you in addition to that.
If you're a single person retiring you are currently expecting, on the full age pension rate, to be just over 29,000 a year. As we said, that's going to give you a very modest lifestyle. It's going to mean you're going to have to budget very carefully and that wants bucket will be very, very small. The ability to move around there will be very tight.
A modest retirement then, if we look at the ASFA retirement standards, and this is publicly available information. We hear it referred to many times. I saw it recently even referred to on Channel 9 News actually referred to this only about three or four weeks ago, those numbers that are coming through from ASFA. They're basically suggesting that even if you had $100,000 in superannuation you could lift yourself from that age pension worst case scenario up to what they class as a modest lifestyle. What it means is it's giving you the ability to maybe even have basic private health cover, which is difficult to afford if you're relying just on the age pension. It might mean you've got a couple of extra options, maybe the ability to eat out once or twice a month or a fortnight, whatever. So it gives you a little bit more breathing space.
To achieve a modest lifestyle they're basically saying just about 47,000 for a couple and 32 and a-half-odd thousand you see the exact figures there - for a single person. So what would you need to achieve that? Well, if you had $100,000 roughly in your superannuation, whether that's a couple combined or whether as a single person, that's enough to lift you from just the age pension to that modest lifestyle, enough to give you that extra little bit of breathing space. So we're not talking about massive superannuation balances here to just shift the dial a little bit. That extra income, it's three and ahalf thousand dollars a year, which is about $135 a fortnight, and if you're living on the age pension and someone offers you $135 a fortnight, that is going to allow you a lot of breathing space.
Where we see most Australians want to get to, though, is the comfortable retirement. This is fundamentally their way of saying, look, this is kind of a nice place to be sitting at. This allows us flexibility, we can run our aircon without stressing about it or run the heating in winter without stressing. If the washing machine breaks down we have the ability to replace it, we're not having to save up for weeks and put money aside. So it's giving you a little bit of flexibility, the ability to maybe have a holiday once a year, do a little bit of travel, eat out, et cetera.
- Can I just - if our family at the moment
- Yeah.
- - you know my mum and dad are going through a lot, it's even in thinking about things like private health insurance that if you're just on the age pension you won't have. As you get older, things like that really are going to become quite crucial and important. Sorry.
- No, that's good. As a couple, to be able to achieve what the average person says is a comfortable retirement, which yours might be different, it's about 72,000 for a couple a year is what Australians are saying is rather comfortable during retirement, and as a single person that's about 51-odd thousand dollars. So the question there is, well, what do you need to fund that? If you're a couple and you're liking the look of that 72-odd thousand a year, you're probably - assuming no other assets and assuming you own your own home, you're probably going to need about 690,000 in super between you both to be able to achieve that. But if you're a single person and you're looking at that number, the 51-odd grand and you think I'd like that, you're actually going to need close to 600 to be able to achieve that. Again, not being able to split assets can be a bit tougher for a single person entering.
My final point on this is please do not be disheartened by those numbers. That 72,000 for a couple, what you need to fund that, the 700-odd thousand, will be significantly reduced if you're able to dial that income back a little bit. So thinking about, well, do I really need 72? What would it look like if I only needed 65 or 66, for example, and I'm telling you the balance you need for that would significantly start to reduce. So don't get too hung up on the 72. You might be on either side of that. Maybe you need five or 10 grand less a year, maybe you need a little bit more, but it's just giving you a bit of a ballpark to work off.
- And we'll come back to actually discussing how you might want to think about moving that.
- We definitely will. So before I hand back to Josh, I just wanted to remind everyone in here the purpose of super is to supplement what you might be able to qualify for through the age pension. So we looked at the age pension rates, again they're up there on the screen for you to see, but age pension doesn't just automatically come. Age pension has to be something that you qualify for and the very first qualification step is actually getting to age.
- So before we bring the age up I just want to remind you of something that we talked about earlier. A lot of people see the age pension age as the point at which they can retire. It's not. The age pension age is the age at which you can start to receive the government benefit, or the government entitlement, where you're eligible for it. As Ruth said, the first thing in that eligibility is to turn the right age. We've seen the age pension age, which was 60 for women, has then moved to age 65, and it was 65 for men, and both of those ages have now progressively moved from 65 to 67, and that is where it's legislated currently. There's no legislation in place for that to change further.
A common question we get asked, though, is why have we actually seen the age pension age increase or move, and if I give this reflection that 110 years ago when the age pension was introduced, the age pension age back then was 65. The life expectancy for men was actually less than 60, so there were very few people who would actually receive it, and the life expectancy for women, they would actually receive the age pension back then at the age of 60, their life expectancy was 61. So they wouldn't actually get a long period of dependency upon it.
What we've seen over the last 110 years, though, is that age pension age has barely shifted until very recently, but we've seen life expectancy go up considerably. For women life expectancy has gone from 61 to actually closer to 85, and for men we've seen that life expectancy go from 59 to being also in the low 80s. So it is appropriate, when you think the government is now paying far, far more people an age pension for much, much longer, and that isn't what it was originally designed to do. So as part of trying to get around that, that's where the government some years ago now actually started that progressive increasing in the age pension age. Unlike France, we don't go out and burn everything down when the government makes announcements like that. Hopefully.
The second thing that you have to do, though, to qualify is not only do you turn the age, you then have to pass two tests, and these are referred to as the means test. You have to firstly go through an income test where the government will actually add up all the income that you are deemed to earn and determine where that fits on how much income they should give you through the age pension. I'll go through that in one moment.
If you pass the income test they will then do a second test which is to look at your assets and again determine whether you own too much or not in them issuing you an age pension.
Now, the thing to be aware of here is that of all the people who reach age pension age, about 70% will pass both these tests. So about 70% of us over age pension age will receive some age pension support. About 60% of those, though, will receive a part pension. So about 70% of people will receive an age pension. About 60% of those may only receive a part pension. But a bit like we talked about earlier, that your pension will that the amount of income, rather, that you need into retirement may ebb and flow, you'll see the same with the age pension. Again it's not static. The government doesn't do this test once and then leave you. They reassess this constantly, or you can have them reassess it. So if you see a change in your circumstances you may not receive the age pension today, but you very well could next month, or you may fully qualify for the age pension now, but circumstances may change and you see that reduced next month. So just be aware, again, that the age pension is designed to fluctuate as your own needs under these tests change as well.
So in terms of doing those assessments the government will basically look at everything, largely with the exception of two things. The government will exclude your principal residence. They don't care whether you own a home that is worth half a million or 10 million. They will exclude your principal residence. If you own other property that will be assessed. Okay? But your principal residence will not.
The second thing, and the government has been more generous with this over recent years as they've been trying to build workforce participation by older workers, is the government now will actually exclude or ignore more employment income. This has actually increased in recent times. That means that there are people who are able to receive the age pension, potentially also be accessing their super and at the same time also be earning employment income. So their retirement income is actually made up of those sources that Ruth talked about earlier, of all of those things.
Now, how the government assesses you or how the test works is really quite simple. The numbers are difficult to get your head across, but in terms of the calculation itself it is as cut and dry as this. Work out if you're single or part of a couple, and then if your income, which I've put here both as a fortnightly basis, which is how the government calculates it, but I've also annualised that to try and illustrate it better for you, if your income is under that threshold you will receive the full age pension under this test. If it's over the cut-off you will receive no age pension whatsoever, and if it's in between the two you will receive a part pension. So under the threshold full age pension, over the cut-off nil age pension, in between the two part age pension. If you are under the threshold or, rather, under the cut-off, the government will then have you do the second test, which is the assets test. The assets test is actually a lot more generous. Fewer people fail this or have a reduction because of this. Same theory. Work out if you're single or part of a couple, but also work out whether you are a home owner, including people on a mortgage, or a renter. Again, with those situations if you've got assets, all of your assets added together, if they are less than the threshold you will receive the full age pension under this test. Over the cut-off you'll receive zero. In between the two you'll receive a part pension. The government will take the result from the income test, the result from the assets test, and whichever gives the lowest pension amount, that is what you take home.
So again it's important that, as I said, your circumstances may change. Over time you may draw down on assets and so therefore you might be able to receive more age pension. You might see your income reduce, so therefore you're able to receive more age pension. Don't take this as a set and forget. It's something that you should think about reassessing. Ruth?
- Thank you. I just want to remind the audience as well that I am watching the live Q&A and I can see there's plenty of questions coming through, so we'd encourage you to -
- Here I thought you were watching YouTube. - I'm the one multi-tasking tonight. What Josh has just talked about is the age pension is your worst case scenario in many cases, but it is very rigid, and we're here to also highlight to you that the superannuation allows you the flexibility. So we're going to talk now a little bit about accessing super, when you can access super so that you can start to visualise what that could look like for you. The very first thing to think about, and it's something everybody should know, it's a term we use in superannuation, it's probably an awful term, really, but it's called your preservation age and it's a really important age.
- Sounds like something you're doing with gherkins or something. I don't know.
- It does. I don't know.
- Preserving it.
- Preserving it, yeah. It's not a lovely terminology, but it is what it is, and we call it - its technical term is your preservation age. In theory, that's the age at which you can start to think about accessing superannuation if you want to, and we'll talk about what that might look like in a minute. But Josh mentioned how the age pension age has been increasing slightly over the last few years. Well, so has the preservation age. Your rest operation age for anyone born after the 1st of July 1964, is actually age 60. Before that it may have been a little bit earlier. Now, 60 is a beautiful age in superannuation for many reasons. The biggest and most important reason that 60 is a nice age is because it is when most of us are going to be able to think about accessing superannuation in one form or another. Now, we have had lots of questions, particularly around this area. I would say there was probably a couple of hundred questions on when can I access, will I pay tax.
In a nutshell, if you're 60 now you have some way of considering accessing some at least of your superannuation. We'll talk about different ways later on. But there is the ability to think about at least some form of access. Where you draw super down, or access superannuation after the age of 60 it will be paid out to you tax free. So that's putting to bed a lot of the questions around the cost of accessing, implications of accessing. After the age of 60 there are no tax implications for you to access the super. Let's go through these ages. Again I refer you back to the workbook. Pop your notes in because these are important ages to be mindful of.
Preservation age you can start to access your super, maybe as an income stream, maybe as a regular income that you want paid to your bank account if you've retired, but if you're still working you can also consider accessing some of your super under the transition to retirement product. We had hundreds of questions on that as well, and if you are interested in it please dial into our third show - is it a show? Is that what we're doing? A show?
- Why not.
- Yeah, we'll call it a show. Our third event, which is two weeks from tonight we will be talking in a lot more detail on the transition to retirement product. But ultimately preservation age allows you to think about transition to retirement product as well, which allows you to access up to 10% of your super.
Another quirk, and it's also a question that I loved and it came in from Claire, and Claire actually asked a question, she's a sole trader, she's a psychologist, she was told by our financial planner that she can access her super at the age of 60 if she stops practising, and there is no restrictions or penalties applied if she then decided to go back to work. We could all be Claire in this scenario. We could have any profession. Effectively what Claire is saying there, and the answer to her question is if you terminate an employment arrangement or you deem yourself as retired, effectively, you have access to that superannuation you've built up to that point. You might go and work again and that's perfectly fine, and that's what Claire was referring to. If she decided to go back and practise or work again or go and work for somebody else then that's perfectly fine. If you've deemed yourself at that time as retired you've got access to your superannuation, and if you terminate an employment arrangement from the age of 60 you can access what you've got in there up until that point. That's something not a lot of people are aware of.
- Just with that termination of employment, it's actually not that you're just changing roles or changing jobs with the company, it's where you are actually leaving -
- One company and
-one company to go to another.
- Yep. There's no time requirement. You might leave on a Friday and start another job on a Monday, that's fine. You have unlocked your superannuation by terminating the employment. You might also regard yourself as permanently retired for a month and then get fed up of your spouse at home and decide that you want to go back to work and that's quite common too, believe it or not. So whatever the case might be, a change in employment can often, after the age of 60, trigger access to superannuation.
- If I see you working in your 70s
- You'll know why. Just to remind everybody that any money coming out of the system into your bank account after the age of 60, regardless of how or why you're getting it, would be tax free, and that's something that came through a lot of the questions. Sixty-five is a very interesting age. A couple of questions on this as well. Sixty-five is a lovely age because it doesn't matter whether you're working full-time or part-time or changed employer or been with the same employer for 40 years, you have full access to your superannuation if you want to and you can access it in a way at a time that suits you. Yes, it will also be tax free, even if you're still working. So 65 is an age that you should really be starting to think about what you want to do with this asset now. Sixty-seven then, as Josh said, is the age pension age, and you might do lots of things with your superannuation before you get to age pension age at the age of 67.
So you need to look at all of those ages and think, well, at what point or what is it I'm trying to do here? There's one age that isn't on the screen and it's the most important one. That, of course, is your retirement age. So you get to determine - Josh already said you decide your retirement age, and you will probably make that decision based on what you see there, based on knowing that there's a possibility at the age of 60, based on knowing you're likelihood to pick up age pension at 67, and based on knowing that the drawdown would be tax free. So it's all very relevant and it would all be important if you're having a conversation with a financial planner.
When it comes to getting the money out of the system, I did talk there's going to be lots of different channels available, and we will focus a lot in episode 3 on structuring the super during retirement, but just to very quickly summarise before I come back to Josh, I just want to remind you all that when you do retire, or when you stop working you do not have to take your superannuation. It is quite common, particularly if you're part of a couple, for one to retire and maybe the other doesn't and there's still an income coming so you don't need to access is. Maybe you're a single person and you've actually got some savings that you want to fund the first couple of years of retirement. Whatever the case may be, you do not need to access it at retirement. You don't need to disclose the fact that you're retired even. So it can just stay there and accumulate returns as you wish until you're ready.
When you are ready then there's a couple of ways you can access. So you might decide that you want to withdraw a significant lump sum for a period of time, you can access the whole lot of your superannuation in one hit, not common, but you could technically access it as a full withdrawal if you wanted to, or as a couple of multiple withdrawals. That lump sum concept, and Josh will go through a bit more detail on that in a moment, is one option available to you.
Another option is through an income stream. This is probably the more common option that we see people using, which is where you're moving your superannuation balance into a product that looks and feels very like super except now you're having a payment paid to you on a regular basis, which could be fortnightly or monthly, for example. Now, if you've got a product, a defined benefit account or an account that's one of those older type superannuation accounts you might have bespoke arrangements attached to that for arranging income to be paid from that particular source. So there can be variants to that, but for the large part most of us would be looking at a product like an income stream product which gives you great flexibility. Or, do you know what? You might do a combination of all of that. You don't have to have one or the other, and none of these options are permanent. So you can change your mind and that is the beauty of superannuation. Just thinking about what would work for you. Maybe you don't need to access anything for the first couple of years, maybe then you want to take a little bit out before you think about having a regular flow of income. That's the beauty, that you can actually structure it in a way that suits you, your household, your needs and the lifestyle you're about to lead. - I had the realisation today - as you know, because I remind you at every opportunity - I turn 50 in two weeks. Did I tell you that?
- I know. I know. You're fishing for a present, I know. - Yep. But I had the realisation this morning that I'm actually - you mentioned earlier you've been working in super for 20 years. I've been working in super for 30. I have my 30th anniversary in a month and a bit. So I'm actually now quite seriously at that point where I'm starting to go, okay, I don't yet know when I'm going to retire, but I am thinking around some of those opportunities.
- Yep.
- I even reflect on one of our wonderful colleagues, Rob, who had his 60th birthday. Hi, Rob. I know that you're watching, or you better be. But we actually said to Rob for his birthday, "Happy birthday. You're now getting your super tax free."
- Yeah.
- So think around the opportunities that you have, but as Ruth said, really there's two things to think about with your super ultimately. You choose the age at which you want to retire and access it within those rules, but to this slide that we're showing here, you also get to choose the way in which you use it. Don't think, again, around - although we can all compare, don't be driven so much by that. Be driven by what you yourself want and need, and that's really what we're going to unpack over the coming weeks. But if we just think about those options that Ruth ran through, and we will talk about this a lot in the coming weeks, there are pros and cons with each of them.
When it comes to a retirement income stream the beauty of this product is you are basically flicking a switch. Instead of having your super having money come in, you're pretty much saying that you now want that money to go out. You can invest it the same way, the fees tend to be the same, there's a lot of similarity, you're just reversing what it's actually doing. The beauty of it is that it is now effectively what I call your retirement wage. Instead of you earning a wage through employment, you're earning your wage through your super, and the amount that you save and what we've talked about really determines how much that's going to be.
The rules around it, though, are that, as Ruth said, it's going to be tax-free over the age of 60, anything that it pays out to you, and also the investment earnings will be tax free, but that's actually regardless of your age. So you're now in, with one of these products, the most concessionally taxed investment vehicle in the country. Tax-free earnings, tax-free payments. The catch is you must take a minimum withdrawal amount each year. The government isn't going to allow you to just have your money parked here and reap the benefits of that zero tax rate. They're actually going to have you require to take out some form of income, and there's a minimum, and we'll come back to that in a later session.
In thinking about leaving it in super, again there's pros and cons. The real con here, if I can put it to you, is that rather than having it pay you a regular income, you are just determining taking that out at an as-needs basis. In some ways it doesn't have the frequency there, it doesn't have the control there that a retirement income stream provides, but it does give you a lot of flexibility. With that flexibility, though, means that you don't get that investment tax-free ability on top of it. Okay? That's the trade-off. You can just keep it in super, you don't have to withdraw it, but you don't get that tax benefit.
The last that Ruth mentioned was that you choose to withdraw all your money from super. The risk with this - and we do see some people do it, particularly where they have smaller super balances. The risk with this, really, is two-fold. Firstly, once you take your super out it can be really difficult to put back in. Okay? There's a lot of rules, there's a lot of conditions. So once you've made that decision it is incredibly hard to reverse without consequence.
The other thing, though, is that when you take your money out of super you are closing off that tax-free investment opportunity, or a lower tax investment opportunity, but you are also moving it out of the super environment which may be tax-free into a taxed income environment. So that's the biggest issue you have with that. Not only are you closing off that opportunity, but you're also changing the tax treatment.
Now, there is a lot that Ruth and I have covered off so far in our show. I like calling it a show. There's so much that we've covered off in the show so far, so let's actually just try and consolidate that and give you a tool that Ruth referred to earlier to help you bring a lot of this to life.
At Australian Retirement Trust, and you'll see this through government websites and other superannuation funds' websites, Money Smart and other places, there are these calculators, retirement forecasters that you can use. They're a great way to put in some minimal information and then it will actually let you know how your retirement could potentially look. This is something I've done a number of times actually to see how my super is tracking and it's helped me make decisions around do I invest more aggressively, do I put more super in. It's a great way to nudge us. If you go on to our website and use the retirement forecaster and put in some of the basic information that it asks for, it will then give you a diagram, and the more sunny that diagram or picture looks the more it's saying your retirement forecast is going to be a happy and positive one. You'll be more comfortable in terms of those income levels that Ruth was talking about earlier.
But let's actually use a case study here. We've got a couple, and let's assume that you're the age of 60 and your partner's 58. Between the two of you you're earning $120,000 a year and you have total super savings between you of $100,000, and you are aspiring for that comfortable lifestyle that Ruth referred to earlier, so about $72,000 a year from the age of 67 we're saying in this case. If we plug that all into the calculator, what the calculator's actually showing is that the super is going to run out very, very quickly, and the super is actually showing in those lighter blue shades. You can see that that super runs out really in their early 70s, and from that point they are completely dependent upon the age pension.
So what we want to do over the course of the rest of tonight, and the next two weeks, is talk about how you could think about improving this situation, but Ruth, there are a couple of levers for us to think about. I might get you to just talk about the first few.
- The first few levers you have to work with are your own personal ones and that is your income needs, so remember back to the couple that might want 72,000, and I said if you dropped that a little bit it would significantly change how much superannuation you need. Are you able to negotiate, for the want of a better word, what that income need is and what your retirement might look like. The other one is to assess your retirement age. If you are falling short see what an extra year of work would do to that particular model. Neither of these are ideal. Most of us in our heads have already landed on the income we think we want, the lifestyle we think we want, and the age that we think we want. But they are your first two levers. If you're not willing to negotiate or wanting to negotiate on those two levers that's where your superannuation comes in. And when it comes to seeing then what can the super do to help me achieve those goals, I don't want to negotiate the age I retire or the income, so I need super to do a bit more. What can I do with super? There are two big strategies or levers, if you like, that you can use with your superannuation. One is around getting more money into the system in the most effective way you can, and the other is considering how it's invested. Both of these two topics are what we are going to delve into in great detail next week. Tonight we'll give you the high level, or the teaser, if you like, but it is important that if you are in that sort of stage where you've acknowledged, you know what, I'm a bit behind, these are the two working levers your superannuation can do.
First and foremost if we think about getting money into the system. We know that if you're currently under the PAYG system and you're earning an income, well then you are receiving what we call an employer contribution or an SG, another terminology we use, superannuation guarantee. Right now that's sitting at 11% on top of your income and that's due to increase gradually up to 12%, and this is what most of our superannuation is receiving and is building up on is that employer contribution. But it isn't the only way money can get into the system.
That employer contribution is what we call a concessional contribution, and if you've ever looked at your transaction history or your statement at the end of the year, for example, you'll know that the employer contributions are taxed at 15%. People often say, "What's that tax number I see?" That's the 15% that gets applied to the contribution your employer puts through. So if your employer is paying $1,000 a month it will be 850 that gets invested for you. That 15% tax bracket is generally a lot more friendly than the tax bracket most of us pay to get money to our bank accounts, for example. There's also the ability for you to take advantage of that 15% tax bracket, and there's a couple of ways you could do that.
One is the very commonly heard of strategy of salary sacrifice. Salary sacrifice is often something you will arrange with your payroll department to tack on to that employer contribution and say, "I'd like to take advantage of the 15%" and maybe redirect some of your pre-tax income into your super. A very simple example, if you had $100 a week to work with and you said I want to salary sacrifice 100 a week, that would be 85 then, because we take the 15% off going into super, versus in your bank account generally something between 60 or $70. So that's what salary sacrifice is, and there was a question from Philip I spotted earlier on, "If I salary sacrifice can I take that back out?" No, not necessarily before you could take any other type of money out of super. So it doesn't sit in a especially access bracket. It is part of your overall superannuation and you'd still have to qualify to get that type of contribution out, just like you would with any of the other money.
Now, if you don't have a payroll or maybe you've missed the opportunity to engage with payroll, you can also put money from your bank account into super and then claim it as a tax deduction. Very common for self-employed people, maybe somebody like Claire earlier on, the psychologist who was talking about it. Claire might actually put a contribution from her bank account into super, claim it as a tax deduction because she's probably her own payroll person and having to arrange that herself, like my own husband as self-employed, for example, would do it that way.
- But his payroll person is you.
- I'm the payroll person. Yes, I'm the administrator, I'm the payroll person, I'm everything. Now, this is a wonderful opportunity to get money into superannuation and also get a tax benefit from it. But whenever we're on to a good thing there's usually a limit and this is no different. The current limit for all of these contributions combined, and what I'm talking about here is the money the employer is putting in, the 11%, whatever you've arranged with payroll to contribute through salary sacrifice, whatever you're putting in from your bank account and then deciding to claim as a tax deduction, DIY salary sacrifice I call, that all has to sit within the limit of 27 and a-half thousand. There are some caveats to that that are carry forward. We're going to cover all of that next week so keep tuned if that's something that you're interested in.
- If I can just flag, we don't have it on the screen here, but from 1 July this year that 27 and a-half thousand dollars, we're fully expecting that that's going to increase to 30,000. So it will be indexed on the 1st of July.
- Sure will, so that's another opportunity available. So that's one method to get money in and we're going to go into so much more detail on that next week. If that is of interest, join us next week.
The other way to get money in, and it's probably a very common way for people who are close to retirement, is to feed money through the non-concessional method, or after tax, if you like. This is money already sitting in the bank account. You may have already paid tax on it, and in most cases you would have paid tax on it. This money goes into superannuation tax-free and it always comes out of super tax-free. It has already been taxed. Now, there's a couple of methods or reasons you might contribute in here. Lower income earners often contribute money in this way because there are some government incentives, the co-contribution, for example, a spouse tax offset if there's a lower income earner in the household would feed money in this way, because low income earners don't get much benefit from 15% tax. Again, covering all of this next week. This is the high level vision of it so far.
This is the after tax contribution. You don't claim tax deductions on this method, and the amount that you can contribute under this method is far more generous because the government have already received tax for that money that's in your bank account. This is 110,000 per person per annum, and as Josh mentioned, this will also increase. We're expecting this to increase on 1 July to 120,000.
Now, there is also a caveat to this particular limit whereby you can actually bring forward or use the next two years in advance, and Josh we had a question from Bradley, actually. I popped this down on my notes because I liked this question, and it's quite common for people in their 60s. They are of the - I won't say vintage - of the age where we start to see inheritances in particular become something that people are wanting to invest. Superannuation is an attractive place for people to want to invest that money, and these limits are something that people need to be mindful of.
- Yeah, and I think two things that I'd say in regard to these limits. The first, some people look at them and go, "I'll never have that much money." Well, you might get an inheritance. You might sell down your family home in some way. There might be assets that you sell down that you're wanting to move into super, okay? This number could still be achievable.
The other thing I'd say, though, is that this three year carry forward, this much bigger amount, which is currently $330,000 a year but will increase to 360,000, that number used to really cut off once you received age 65. It is now an amount that you can continue to make well into your 70s. So there's contribution opportunities that exist now for you that a couple of years ago, two years ago, didn't actually exist. Okay? - One such opportunity is actually not age-based as such, but it is the downsizer contribution, and again we will refer to this next week in more detail, but this is probably the concept you might have heard where outside of that limit of 110 or the 330 over three years there's an extra ability to get an additional 300,000 into your super in the event that you've sold your principal place of residence with the concept of downsizing. We'll go into more detail on that next week, but if you are in that category where you are thinking about selling your home and downsizing, you may have an extra ability, and if you have a spouse you can both hop on to the bandwagon there.
So there's lots of ways you can get money into super. You do need to be mindful of the rules and the limits. They do change a lot. One area that we do see a lot of changes in, as Josh already alluded to, is actually the age at which you can think about it. Now, that downsizer, the ability to get an extra 300 independent of the limit into super, it used be to 65 I think it started -
- Sixty.
- and then it reduced to 60 and now it's at 55. So that's something that you can think about to think about from the age of 55. Sixty-seven is the age where we - if we are looking to make tax deductions on contributions we're putting through we do need to be able to produce a work test to show that we are actually actively at work. This is for the tax effective or the concessional bubble, if you like, that if you're putting money into super and then you're going to claim a tax deduction you do need to be able to disclose that you are at work. There's a work test that you need to meet, basically, to avail of that. Seventy-five is really the age at which we are almost tapped out of making our own contributions into super, but as Josh mentioned as little as five years ago that was 65, then it moved to 67 and now it has moved to 75 in recognition of the fact that there were many retirees out there with money sitting in bank accounts that they could really do very little with and they wanted to get it into superannuation. So if you are somebody that's maybe in your late 60s and there was a window closed three or four years ago, that window might have opened again to get money into the system. So 75 is an important age if you do have a lump sum of money that you want to get into the system. Of course you can receive your employer contributions forever and a day as long as you're working, doesn't matter what age you are, you are entitled to employer contributions.
Now, we're going into so much more detail on all of that. That was a Speedy Gonzalez version of contributions and we're about to give you a Speedy Gonzalez version of investing, but it is to give you a teaser as to what we're going to cover next week.
- Two things. Do you know - useful fact for you on our show - is that over the last 15 years we've seen nearly 20 contributions changes, which is why I think -
- We're so stressed when we have to come and do these. We're afraid we'll say something. Last year's numbers.
- It's just incredible.
- Yeah, it changes a lot.
- The other thing Ruth was saying, we're now going to talk about investments, but if I can give a very, very big plug for next week. Some of you would have joined us in the past and would know that in our second session we usually have Brian Parker, our Chief Economist, join us. Brian is actually going to be away during next week's broadcast, but that affords us the ability to be joined by Andrew Fisher who is actually the head of our Investment Strategy. Don't tell Brian, but I actually think he's more insightful and entertaining. But next week you will have one of our most senior investment leaders in the business actually presenting in more detail on some of what I'm going to cover quickly now.
When it comes to investing your super, and remember Ruth said that this is another lever that you have at your disposal, that the more aggressive you are with your investments the more growth opportunity that affords. There are three things, though, to consider in that regard. The first is, as I've just insinuated, that how you invest your super means that it is market exposed. This comes with risk. It does come with volatility. But it also comes with opportunity, and we've seen incredible growth in share markets, even if you think although in spite of ups and downs, over the last 12 months. So really do think around the fact that your investments in super are exposed. I am amazed how many people are surprised when they see their super balance go down because of investment performance. It's just because of how your super is invested. I'll come back to that in one second.
The second thing to be aware of, though, is remember too that even when you enter into retirement your super is a long-term investment. Most of us will have it throughout a working life that might go for upwards of 40 or 50 years that it's invested and working for us. Then when we go into retirement it could be something that we have for another 20 or 30 years continuing to work for us. We see at retirement that a lot of people don't just change their behaviour when it comes to their super, they change their behaviour in the way it's invested. They become almost instantly conservative overnight. The issue with that is it actually prevents opportunity for further growth notwithstanding the exposure risk that comes with that. We'll come back to that next week.
The third, and I think the most important thing, though, to note is when it comes to your super and investments you have choice. Every superannuation fund has an investment menu and those investment menus give you the opportunity to actually increase or decrease your risk exposure and to make sure that you yourself are comfortable. We'll talk again about that next week, but also be aware that there are tools in your workbook that you might like to look ahead on and actually think about before we get to that next week.
At a really high level very quickly, when it comes to your super with Australian Retirement Trust, or any other superannuation fund, you will largely be invested in a range of different underlying assets, including growth assets, things like international shares and domestic shares, and if you do not make an investment choice this will be about half of your account balance. But we know that shares come with volatility, and so historically superannuation funds have balanced that volatility out by also investing you in traditional cash assets, things like cash and fixed interest bonds, for example. But as super has grown so dramatically in Australia to now be worth over three trillion dollars and one of the largest pension pools in the world, it means that super funds have had to extend what they're investing your money in. That, again, brings you opportunity. Super funds, like Australian Retirement Trust, who have enormous scale and size behind us, invest your money in infrastructure. Road, rail, airports, but also new and emerging technologies, renewal energy, data warehousing, for example. We also invest your money in properties hearing in Australia and globally, Australians of properties in residential, commercial and industrial scales. And we also invest in private equity. These are large, profitable, major companies around the globe that are not listed on the stock market, which that's where two-thirds of major companies are, not listed on the stock market. Incredible opportunity for us. Andrew, when he joins us next week, will talk a lot more about some of those incredible assets that we're actually investing in.
How this then relates to you is if you are currently under the age of 55 and make no investment choice you'll be in our balanced default option, or part of our lifecycle strategy I'll come to in a moment. Over the age of 65 if you make no investment choice you will be largely invested in our retirement option. Now, you can see that the two of them have very similar underlying assets, but differences in weightings. The balanced option has about 70% exposure to growth assets, so has greater exposure to volatility, than the retirement option which has about half of its exposure in growth assets. We do, though, offer 17 other investment options, including our growth option which has a higher exposure to growth assets, and our conservative option with a lower exposure to those same assets. But you, again, have choice. There are 19 investments that you can choose from with us and we really encourage you to understand your investment comfort and what of those investments may be appropriate for you.
For those of you who have never made an investment choice, that's fine. You're actually where about 90% of our members are, in our default lifecycle investment, and as I mentioned, up until the age of 55 you are largely invested in our balanced option with that 70% growth exposure, and as you then go from age 55 towards 65 we gradually derisk you, moving you to our retirement and cash options, so that by the time you're 65 you've got much less exposure to those higher growth assets but you still have your foot in the door to take advantage of any opportunities that they present.
Now, I've mentioned this a number of times, and sorry to do it again, we will unpack that more next week, but the other thing we also wanted to make you aware of, and you should have already received information from us, is that from the 1st of July there will be some really exciting opportunities and changes to our investment menu. This change that comes in on the 1st of July actually started when we merged SunSuper and QSuper a few years ago. We became one of the largest superannuation funds in the country with a very large team of investment expertise, and that size, that scale, that expertise has allowed us to, over that period, really look at the investment menu we want to give to all of our 2.3 million members.
So we're very pleased and excited to announce that with that change in investment menu, from the 1st of July there'll be some really great improvements, firstly to our lifecycle investment strategy. The ages at which you will have those changes occur will actually broaden and there'll also be changes to some of the exposures that you have to make sure that your investments are performing as strongly as possible for you leading into retirement, as you're transitioning to retirement, and once you're entering retirement. So, please, if you haven't read the information we've given you please do that.
Secondly, though, you're going to see that our broader pool of investment options that you can choose from is also going to change. You'll see a number of new options come on, you'll see some of our options' names change to make them more simple and easy to understand, and to actually align them to others in the market, and you'll also see some options that we have that really aren't overly utilised or for other reasons we are actually closing down.
Information has been provided to you on this and there will be significantly more information provided to you in the coming weeks. I think the next mail-out that you should expect should arrive some time around the 1st of May, which is actually someone's birthday.
- I wonder who. I wonder who.
- In the meantime, before next week, if you do want more information on the investment changes and what's actually occurring, we encourage you to jump on to our website shown here through the QR code which will provide you with more information, as well as a video with both Ruth and I that will go into a lot more detail about the changes and the opportunities, as well as give some insight into why this is occurring. Ruth?
- I'm keen to get to Q&A so we are close to the end, just to bring all of that together into a revised scenario, if you like. So remember our couple from earlier on where they were falling very short of being able to achieve the 72,000 a year, they implemented some strategies and what they implemented was both contributing $10,000 a year to their super, because they recognised they had a bit of work to do, and they also realigned their investment options, and again we'll go into more detail on those next week. But the implications or the impact that that has had is extraordinary on what they've been able to achieve now through the revised scenario.
- It's amazing, isn't it.
- Isn't it. It's just lovely to see that they are actually able to achieve that retirement goal of 72-odd thousand a year, and you can see that they're well and truly into the 90s, knocking on their 100th birthday before that superannuation actually runs out.
- And I'm not kidding, this is the first time I've seen this illustration, actually. I knew we were presenting it, but it's the first time I've seen this number. It's actually quite incredible.
- I think what's really important for people to see here is the age pension is still doing a lot of the heavy lifting here. That navy bar and that greenish colour - I don't know what the right colour
- Teal?
- Teal? Maybe. Yeah, that's probably the right colour. That is still the age pension. So this has given you a visual of the beautiful relationship that can exist between age pension and superannuation, and you can achieve far more than you think if you don't just look at one or the other. So the amount of age pension you can see that they're getting is changing as they're depleting their superannuation and the weighting of one over the other is shifting. So it just shows you the impact, or the ability to be able to make significant changes. There was a question from somebody earlier on saying, "I'm 56, I have done nothing with my super so far." This lady was 58 and the gentlemen was 60 and they were able to make a significant difference over those last few years.
- I'm conscious of time and getting to Q&A, but you talk about those levers of making additional contributions, of making investment change. My view is that we all can have those levers throughout our entire lives.
- Yep.
- But as we get closer to retirement we have to push or pull on them much harder. So the contributions we make have to probably be more thought out and larger and the investment choices we make perhaps need to -.
- Braver. We need to be braver.
- That's right.
- Lastly, before we go to Q&A, make sure you're connected with your account. We want to make sure you're looking at your super regularly. When you're logging in we're making sure that you're seeing relevant information based on your age, based on your stage of your superannuation journey. So make sure you do connect with us digitally through your online account or through the mobile app, my preferred way. And while you're on the mobile app, make sure you're taking advantage of our member rewards program. This is going to give you discounts on various retailers around the country, on products, on services, on holidays, on experiences, on all sorts of things, and it's a lovely way for you to be able to pick up an everyday advantage, if you like, of being a member. You often say that we should be putting our savings into superannuation. I myself might -
- I don't. I just say that.
- You say that, but do you do that when you take advantage of the rewards program?
- No, I just buy more Lego.
- You just buy more Lego. I just buy more things from Good Guys. But there are some brilliant savings in there, so please do take advantage of it as a member. Josh, bring us home and I've got lots of questions I want to get to.
- Okay. What comes next. Well, as Ruth said, please download the app if you haven't already. It's a really tangible way to get started and to understand where your super's at. And be a bit brave. It might be numbers that scare you, but it is a start, okay? It's like that first time you go to the gym. It sucks and it's hard and you hate it, but that's the hardest step that you've taken. Okay?
If you do have other super elsewhere think about tracking that down. You can do that through the app and consider bringing that together in one place so you can start really managing the process.
Do, though, think about what we've talked about tonight. In considering your needs for income in retirement use the forecaster, but also reflect on your own age, your own eligibility when it comes to the age pension. Okay? A lot of those numbers I encourage you to go on to our website, we've got great information there regarding the age pension and retirement more broadly.
Also, though, we encourage you to register for our next event and next week, as I actually said before, we'll be talking in a lot more detail about what we've covered off tonight. We'll also be joined by Andrew Fisher who is our head of strategy when it comes to investments, and really Andrew has an incredible way of talking about what we do and actually making it relatable. So I encourage you to come along and hear from him.
In the meantime though, you've got the workbooks, you've got the tools that we outlined tonight and within that workbook. We encourage you to go through that self-exploration exercise. Think about your budget, think about your needs, think about your wants. Really take stock of where you are and also know, though, that we do have people at Australian Retirement Trust to assist you, but really I'd say your opportunity here is about doing that self-assessment and self-reflection and really setting yourself up for the journey that we'll go on over the coming weeks.
You will all receive some feedback, or a feedback request from us, so we encourage you to jump in and complete that. That will be really great in giving us insights for next week, so please do do that. But before we wrap up, Ruth? Q&A.
- Yes, we've had a very busy live Q&A, and as we said we had three and a half thousand pre-submitted questions and we did, honestly, read every single question that came through. It's what we formed the content on tonight. But an area that we didn't talk about, but we had about - I think we had about 20-odd questions on it so we'll cover it, was for people entering retirement who are still holding a mortgage there was a specific question around somebody who had been told that they would have a better chance of qualifying for age pension if they used their superannuation to pay off their mortgage. Again it's coming back to the Centrelink issue of principal place of residence, assessing - just comment on that quickly if you could.
- It actually isn't how much your mortgage is. It's actually the value of the property. I think it's more thinking about being prepared to carry debt into retirement. Now, we were talking about a lot more people carrying mortgage debt into retirement.
- Yep.
- Some of that is actually attributed to - at the moment we're seeing a lot more parents in retirement actually trying to help out their kids, for example. So this isn't just their own debt. In a lot of cases it is, but it's also them making an investment decision to take on debt. That's why it's important to understand the age pension doesn't look at debt. The age pension's actually looking at value. Okay?
- Yeah, and I guess it's more around the fact that if all of your wealth is sitting in the principal place of residence and not in your superannuation, when Centrelink go to assess your assets because the wealth is in your principal place of residence they're not -
- It's ignored.
- Yeah.
- Yes.
- I see where that's going.
- Sorry, I was misunderstanding the question.
- In the same breath, though, you've got to be mindful of the fact that you can't eat the walls in your house if something goes wrong.
- Yep.
- So if all of your money is just in your principal place of residence, what happens if you need access to cash for anything else.
- That's a really important observation. If it's sitting in your super, yes, it's assessed, but it's also earning significant compound interest as well.
- More questions around access. So this was really lots of questions. There was one around, you know, is there restrictions on what you can do with the money once you access? So could you use it for medical treatment, could you use it for home renovations? What's the rules around when you get the money?
- There aren't any.
- Bingo. I actually think it was interesting because there were about four or five questions and a couple live tonight around, you know, what are the -
- Once you've got the money-
- Do what you like with it.
- Go sick.
- Yeah. Yeah.
- I think it more just thinking about the age pension. It is important to think about where you use that money, and if you're taking it out of your super, for example, and buying an investment you're shifting it from one investment to another. So for age pension it will still be considered. If you're taking it out of super to upgrade your kitchen then you're actually taking an assessable asset and moving it into a non-assessable asset. Not that I give my neighbours financial advice, but one of my neighbours actually did come into a very big Centrelink issue and I said to her that - she'd spent some years thinking about upgrading her kitchen and never did, and I actually said to her, "Mona" - she's Mediterranean, wonderful cook, and I said to her, "Mona, now is actually the time you think seriously about is it time to do your kitchen upgrade." She moved an assessable asset into a kitchen, problem solved.
- And she had a nice kitchen to do all that cooking for you in.
- Absolutely. That wasn't advice. That wasn't advice.
- The trigger for one of those questions was somebody who was asking about accessing superannuation to use for medical treatment. Now, you've got to be careful here because accessing super after the age of 60 where you qualify, that's the point. Nobody is tracking what you're doing with that, so if you are using it for medical treatment well then that's your decision. No-one is asking to show where the money is going. But if you're wanting to get it before age of 60 -
- They will absolutely want proof.
- there is a lot more hurdles for you. You are going to have to draw down under some sort of financial hardship or compassionate grounds. A very different way of accessing super. I don't know if that individual is over or under 60, but that is relevant.
- You know yourself, I actually accessed my super last year to get a hearing aid. I'd claim that I'd just be deaf times when you'd talk to me, but yeah, I had to meet very strict criteria. When I received that money I had to report to the ATO and provide invoices to the ATO for the medical expense. So, yeah, be very careful if you do withdraw that under the age of 60 in particular.
- Another live question that came through tonight - who was this one from. Brian. Brian was asking - he's 62 and he'd like to know how easy is it to switch a percentage of your super into more growth assets and less cash. We didn't talk about the actual switching process.
- Brian, we'll talk more about this next week, but if you download the app, for example, the switching process will take you 30 seconds, and the beauty of doing it through the app, for example, it will actually show you the assets that you're currently invested in, so those mixes of property or shares, for example, and then it will also give you an illustration of what it will look like after you make that change. So it's a really good way of visualising those exposures.
The other way you can do it, though, is you can just give us a call and you can actually have a chat about it, have a chat about the investment change that you want to make and the team can assist you with that. It is, though, incredibly simple. There is no cost associated with it, and you can make as many choices as you'd like. Not that we necessarily encourage that, but again, your super is your money and you do have that investment capability or that investment choice capability.
- Now there's a big question here from Narelle and the first thing I would say to Narelle is the next two sessions will be useful to put more context on the answer, but her question is around the earnings that you can generate on your superannuation. You would have mentioned in the income stream phase earnings are tax free, and Narelle is saying, "If earnings are tax free is that amount then assessed for pension purposes when it comes to Centrelink?" I don't know where the connection will come, but I can see almost -
- No. So, yeah, Centrelink won't make any discrimination. They're just looking at the entire amount that you have in super. For Centrelink -
- They don't care about the tax element.
- tax is not even a consideration, yep.
- But I do see where Narelle's going. Is it income - so remember, Narelle, you know, you don't have to draw the money out, or you might not be drawing out as much as you're actually earning, in which case Centrelink are looking at the total balance, not necessarily where it was tax-free or taxable.
- Absolutely. - Another question about - Brian - no, it was Philip, actually, who asked, "If I leave an employer" - I like this one - "If I leave an employer at the age of 60" and retire for a short period of time, and then, like I said, maybe regret retiring, "can I go back and work at the same employer even if I've accessed superannuation?" Does that still qualify?
- It's interesting. It's a comment I often make, you'll never have A Current Affair chasing you down the street. Basically at the point you make a decision to retire and withdraw money from your super, or change employer and withdraw money from your super, you're signing a declaration that's stating at that point, to the best of your knowledge and the best of your understanding of your situation you are choosing to retire, you are choosing to change employment. If at a later date you decide that you want to go back to work, you want to go back to that employer, then that's okay. You don't have to give the money back. It might be an opportunity for you to think about re-investing some of it, maybe, but you don't have to give that money back. The ATO's not going to check on you. Centrelink will just want to see where money is moving or think about employment income, things like that, but no, you don't have to worry about am I breaking the law by choosing to go back to work. No, you're not.
- Once you've hit 60, you've - Accessed it.
- accessed it, you're fine. You're fine. A couple of questions around are we recording? Yes. Yes, I should have said that at the very beginning. All of these three sessions are recorded and all three will be made available to you. So if you need to go back and check anything you absolutely can. - Yep. - Another question, Josh - I've lost my trail of thought here, now where was. It was around the actual process of accessing superannuation. So asking questions on how long, how much notice do I need to give the super fund if I want to do a lump sum withdrawal. The answer to that is not a whole lot, to be honest. It's quite simple, actually.
- Yeah. It actually is a quick process, but there's some expectations we should really set here. It's not like your bank.
- Yep.
- You can't just walk in and get the money out across the teller. The reason for that is superannuation funds have some very strict rules that we have to meet in confirming your identity, and also you think about how we've seen superannuation abused and people accessing it illegally and things like that.
- Yep.
- So we really want to make sure that you are who you say you are and that your bank accounts are legitimate before we move that money across. So there is an initial hurdle there, particularly the first time you make a withdrawal or an income payment, but as Ruth said, once that occurs it actually becomes a very straightforward process. Just don't expect, as I said, that you can walk in and get it out across the counter. It will at minimum take a couple of days for that to occur.
- On that, to wrap up, there was a great question from Mark about when I do get the payment from the super fund does it have to go to a special bank account? No, it can just go to the bank account that you're using at the moment. So whatever your current bank account is, that's actually where the money gets paid into.
One last question. Again it's around the access. This is where a lot of the questions came from. I love this one: "Is there a limit on how much I can take out of my super in any given year?".
- No.
- Easy one to end with wasn't it.
- Yep.
- Expand on it a little bit for the audience, because it almost seems too good to be true when we say you are never limited on how much you can access out of the superannuation.
- Yep.
- You can take 2%, 10%, 20%, 100%.
- I would again say, though, it depends on the way you take it.
- Yep.
- Okay? So if you're choosing to use a transition to retirement income, which we'll talk about in session 3, there is a limit to how much you can withdraw.
- And that's because you're still working. You're only doing transition -
- That's right.
- to requirement because you're still working.
- But if you've started a full retirement income or you've ceased working, you're retired, there is no limit.
So I think that probably sets us up for the next couple of weeks. So remember next week's session we are going to focus on investments and really give you a deep understanding of what the economy has been doing, how we've been investing your money, as well as look forward at some of the changes that we're introducing from 1 July. Again, I really want to promote that we have Andrew Fisher joining us and that is a really wonderful guest on our show.
- On our show.
- Next week we'll look at investments, but we're also going to really look in detail at what Ruth talked about with all those contribution opportunities. Both contributions that you're putting in pre-tax, but also contributions you're putting in post tax and where there's opportunities for benefits from the government as well. Lastly - so if you haven't registered to that event, please do, and lastly, remember in week 3 we'll then be talking about, well now you've assessed your income, now you're contributing, now you're investing, how can you start to think about bringing that money out.
In the meantime, though, we wish you well. We hope that you have a wonderful rest of the week. We look forward to seeing you on our show next week, and Ruth, I'll give you the last word.
- Look, my last word would be if tonight was overwhelming, you are not alone. I'm sure 90% of the people who dialled in tonight are exhausted after that. This is everyday language for us. We work in superannuation, we've got 50 years between the two of us, which is incredible. So this is everyday language for us. It is not everyday language for 99.9% of the population, we know that. We will be patient with you when we talk to you. We understand every question that you have in your head has been asked for thousands of people before you and will be asked by thousands of people after you. Please never feel that you're not worthy to pick up the phone and have a conversation with a financial advisor, regardless of your age, regardless of your financial situation, regardless of your superannuation balance. Every single member of Australian Retirement Trust is worthy of that support and that guidance, including you. So on that, we'll see you next week.
- See you.