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Category: Provision Newsletter Articles

How women can boost their super balances

Date: Nov 21st, 2018

Women face big challenges when it comes to saving for super. Often they earn less than men and take breaks from work to care for children and parents, all of which plays a role in reducing super contributions and investment earnings.

This can add up to a big difference at retirement. Women nearing retirement (age 55 to 59) have average super balances of $123,642, far short of the minimum $545,000 needed for an individual to retire comfortably1, compared to the average balance of $237,022 for men. And with women typically living longer than men they may need more in super to pay for an extended retirement.

The good news, no matter where you are in your retirement saving journey, is that you can take action now to build a bigger nest egg and close the yawning super gap between men and women.

Here are some strategies you might want to think about that can help increase your super balances. (As always, check eligibility rules and keep in mind tax and other implications as you consider them.)

  • Split contributions with your spouse. It can make sense to redirect some before-tax contributions from the higher-earning spouse to the account of the spouse who earns less. This way, both of you can grow your balances, and you don’t need to find extra money to do it. Your spouse may be eligible for a tax offset for this contribution. This strategy can also reduce taxes at retirement because an individual can have only $1.6 million transferred into a retirement account without paying taxes on earnings, but a couple can have $3.2 million.

  • Salary sacrifice. During your working career, you can ask your employer to direct some of your pre-tax pay as an additional concessional contribution to your super account. To tailor your contribution amounts to your personal situation, try this Super Contributions Optimiser.

  • Consider after-tax, or non-concessional, contributions. In addition to allowing you to save more, after-tax contributions can make you eligible for a government contribution to your super if you earn less than $52,697 per year before taxes.2

  • File your tax return. You need to do this for many reasons, but one is that if your taxable income is $37,000 or less, the government will refund the tax you paid on before-tax contributions, up to $500. This Low Income Superannuation Tax Offset, or LISTO, will happen automatically after you file your return.

  • Consolidate your super accounts. Combining multiple super accounts can simplify your financial life and save you money in fees. As you decide which accounts to close, look for reasonable fees, diversify according to your goals and make sure you maintain any insurance you need.

Even small changes can make a big impact. For example, a 20-year-old woman with median earnings of $55,000 could expect to accumulate $570,000 by retirement. If she takes a two-year break at age 30 to raise a child, she would end up with $30,000 less, according to research firm Rice Warner.  But if she contributes just $33 more per week in her twenties, the price of a few cups of Melbourne coffee, she could close that $30,000 gap and still take two years off of work.

Please contact us on |PHONE| if you seek further discussion .

1. According to a study by the Association of Superannuation Funds of Australia (ASFA)
2. Source: https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions

Source : Vanguard October 2018

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2018 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page

 

Ranking of the world’s best: Taking it personally

Date: Nov 21st, 2018

You may have read about the latest ranking of Australia as one of the best countries for retirees in terms of lifestyle and retirement-income systems. And you may have wondered what such rankings personally mean for you – apart from perhaps making you feel fortunate about where you live.

After all, you are unlikely to move to, say, the Netherlands because it’s retirement-income system ranks as the world’s best.

However, the rankings may prompt you to take measures to improve your chances of a successful retirement lifestyle.

Retirement incomes

First, let’s look at the Melbourne Mercer global pension index 2018, published by Mercer and the Australian Centre for Financial Services. This ranks Australia’s retirement-income system fourth out of the 34 countries assessed, based on adequacy, sustainability and integrity. Australia was given a B while the Netherlands and Denmark received A grades.

A B-rated retirement-income system is described as having a “sound structure with many good features” but, in the words of many school reports, says: There’s room for improvement.

Irrespective of each country’s social, political, historical and economic influences, this report stresses that many of their challenges in dealing with an ageing population are similar. These include encouraging people to work until older ages, setting the level of retirement funding and reducing the” leakage” of retirement savings before retirement.

Although the suggestions of the Global Pension Index are directed mainly at government and the pension/retirement sectors, individuals may pick up useful personal pointers from most of its suggestions. In short, consider taking a personal perspective on this global retirement-income challenge.

Personal pointers may include:

  • Think about whether to work until an older age than planned. A longer working life may provide a chance to save more for a shorter, and, therefore, less-costly retirement. And as the report says, working until an older age will limit the impact on retirement savings of increasing longevity. In reality, your ability to work past traditional retirement ages will much depend your personal circumstances including health and employment opportunities.

  • Save more in super within Australia’s annual contribution caps. This can include making higher salary-sacrificed contributions if employed. If self-employed, consider making voluntary super contributions, which are not compulsory for the self-employed.

  • Aim to repay your debts before retirement. Otherwise, you face repaying that debt with your retirement savings. One of the reasons why Australia has achieved a lower score this year (down from B-plus to B) for its retirement-income system is that the latest Global Pension Index includes pre-retirement household debt in its calculations for the first time.

  • Take your super as pension rather than a lump sum upon retirement. This will keep your savings in the concessionally-tax or tax-free super system for longer and, most importantly, make your retirement lifestyle as comfortable as possible for as long as possible. The Global Pension Index suggests that a way to improve Australia’s retirement-income system is to compel super members to take part of their super as a pension.  

As Dr David Knox, a senior partner of Mercer in Australia, comments in the report, retirement income systems around the world are under pressure from ageing populations; low growth and low interest from investments reducing long-term compounding interest; and lack of “easy access” to pension plans (superannuation in Australia) in the gig economy; high government debt in some countries; and high household debt.

In this environment, individuals have more of an incentive to take matters into their own hands to maximise their retirement savings.

Best countries for retirees

The 2018 Best Countries report once again ranks Australia as the world’s second-best country for a comfortable retirement – behind New Zealand and ahead of Switzerland, Spain and Portugal in the top five. This is an annual survey and analysis by US News & World Report, BAV Consulting and the Wharton School at the University of Pennsylvania.

Survey respondents aged over 45 ranked the best countries for retirement on seven attributes: affordability, favourable tax environment, friendliness, “a place I would live”, pleasant climate, respect of property rights and a well-developed public health system. (The survey did not seek views about the adequacy of a country’s retirement-income systems.)

For the main report, more than 21,000 survey participants from around the world were asked to grade 80 countries on a range of factors from quality of life to economic potential. It aims to gauge global perceptions of the countries.

Australia came seventh overall with Switzerland again taking first place. Specific areas where Australia ranks in the top five are: quality of life (Australia fifth), best countries to invest in (Australia sixth – up from 22nd last year) and best countries for a comfortable retirement (Australia second).

Now think about what these findings may mean for you personally. 

Source : Vanguard November 2018 

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2018 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

How to get a good credit score

Date: Nov 21st, 2018

Lenders look at your credit score or credit rating, which appears in your credit report, to work out if they should lend you money or give you credit. Here we explain how your credit score works and what you can do to improve it.

What is a credit score?

Your credit score is a number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your credit worthiness. It is used by credit providers, such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may sometimes influence what interest rate is offered to you.

Comprehensive credit reporting and how it’s changing your credit report

From September 2018, the major banks and various credit providers will be putting additional information about the credit products you hold on your credit report. This will give a more complete picture of your credit history.

The new information will include:

  • the type of credit products you have held in the last 2 years

  • your usual repayment amount

  • how often you make your repayments and if you make them by the due date.

You may find that your credit score has changed as a result. See how to get a good credit score for tips on improving your score. 

How is your credit score calculated?

Credit reporting agencies collect your financial and personal information and document it on your credit report. This information is then used to calculate your credit score, which includes:

  • Your personal details (such as age and where you live)

  • The type of credit providers you have used (e.g. bank or utility company)

  • The amount of credit you have borrowed

  • The number of credit applications and enquiries you have made

  • Any unpaid or overdue loans or credit

  • Any debt agreements or personal insolvency agreements relating to bankruptcy

What does my credit rating mean?

Depending on the credit reporting agency used to calculate your score, it will be a number between zero and 1,200 or zero and 1,000.

The number is rated on a five-point scale (excellent, very good, good, average and below average). The position of your credit score on this scale helps lenders work out how risky it is for them to lend to you: 

  • Excellent – you are highly unlikely to have any adverse events harming your credit score in the next 12 months

  • Very good – you are unlikely to have an adverse event in the next 12 months

  • Good – you are less likely to experience an adverse event on your credit report in the next year

  • Average – you are likely to experience an adverse event in the next year

  • Below average – you are more likely to have an adverse event being listed on your credit report in the next year

How to find out your credit score for free

You can get a free credit score from a number of online providers. The results may vary depending on which credit reporting agency is used. The following websites offer a free credit rating:

You may need to check with more than one credit score provider to get a consistent and reliable measure of your credit rating.

Your credit score is dynamic, meaning it may change from month to month as your financial circumstances change. 

Protecting your personal information

By obtaining your free credit score you may be agreeing to allow your personal information to be disclosed to third parties for marketing purposes. Ensure you read all terms and conditions and consider whether you want your personal information passed on for marketing purposes. You can opt out or unsubscribe where you do not want these details passed on.

 Checking your credit rating can protect you from fraud

You should check your credit rating and report to ensure your information is correct and that all the enquiries and listings on the report have been made by you. Criminals can steal your identity and take out credit in your name so checking the accuracy of your credit report is important. See credit reports for more information on how to check your credit history. 

Case study: Jessica gets her credit rating

Jessica wanted to be able to negotiate a better deal on her loans and credit card so she decided to find out her credit score. She found two providers offering a free credit rating online. She decided to compare the two and see how she rated with both.

The first website placed Jessica in the ‘very good’ category with a score of 726 out of 1000. The second website placed her in the ‘good’ category with a score of 699 out of 1200.

Jessica did some further research and found that each website used data from a different credit reporting agency to calculate her credit score. She requested a copy of her credit report from each of these agencies to see what the difference was.

It turned out not all her credit history was listed with the reporting agency the first website used so her score came out higher. The scoring system was also different across both sites.

Jessica decided to keep an eye on her credit rating in future to ensure it stayed high.

How to get a good credit score

Your credit score can increase or decrease over time depending on the information contained in your credit report. Your score can change even if your financial habits haven’t. This could be due to a number of factors including:

  • applying for a new loan or credit card

  • a listing on your credit report expiring

  • a change to your credit limit on an existing loan or credit account

  • new information from a creditor

  • closing a loan or credit card account

  • late repayments

Improving your credit rating starts with looking at your current financial situation and looking for ways to improve it. As your financial circumstances improve your credit rating will improve. Getting into a good credit position before you next apply for a loan can help increase the likelihood of you getting approved.

You can improve your credit score by:

  • lowering your credit card limits

  • consolidating multiple personal loans and/or credit cards

  • limiting your applications for credit 

  • making your repayments on time

  • paying your rent and bills on time

  • paying your mortgage and other loans on time

  • paying your credit card off in full each month

Credit scores help lenders decide if they should lend money to you. Knowing your credit score can help you to negotiate a better deal with your bank or find an alternative lender that will reward your good credit history.

Please contact us on |PHONE| if you seek  further discussion on this topic. 

Source : ASIC’s MoneySmart November 2018 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://www.moneysmart.gov.au/borrowing-and-credit/borrowing-basics/credit-scores

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Would you like to retire by 40?

Date: Nov 12th, 2018

Many younger Australians are joining the Financial Independence, Retire Early (FIRE) movement. Is it right for you?

When you’re starting out in the workforce and building your career, retirement can seem like a long way away.

And with the age at which you can access your super and age pension creeping up—not to mention the increasing cost of living—you might be steeling yourself for a longer working life.

The stats don’t lie—Australians are staying in the workforce for longer and any thoughts of retiring early are becoming a distant dream for many of us1.

But there’s a growing movement of younger Australians who believe that by following the right set of rules, it’s possible to achieve early retirement.

Popularised by US-based blogger Peter Adeney, better known as Mr Money Mustache2, the Financial Independence, Retire Early movement looks more closely at what makes us happy.

Changing your spending and saving habits

FIRE is all about following an extremely frugal lifestyle with the aim of retiring as early as your 40s…or even your 30s!

At the core of the FIRE philosophy is changing your attitude towards spending and saving.

But FIRE is more than just following a budget. It’s a whole-of-life movement that inspires fervent belief in its followers.

The FIRE movement encourages its followers to build up seven levels of financial safety by:

  • investing in property

  • investing in dividend-yielding assets

  • building tax-effective super

  • working part-time

  • taking full advantage of social security

  • looking for entrepreneurial work opportunities

  • adjusting their lifestyle to live a simpler life.

When it comes to saving, every little bit counts

Like any movement, FIRE inspires some committed followers and some of the lifestyle advice can seem a little extreme—churning credit cards to access freebies, living in a truck to avoid rent and even sifting through bins outside restaurants for free food.

Now, if the thought of going without your daily latte…not to mention movie outings, fine dining and regular holidays…sounds like a living nightmare, then perhaps FIRE isn’t for you.

But if this sounds too much like hard work, don’t worry. You don’t have to be quite so committed.

You could consider making some simple changes to your daily habits to reduce your spending and boost your savings.

  • Make a list of where you could cut back to reduce your waste.

  • Cycle all or part of the way to work and save on transport costs.

  • Shop around for the best deal on utilities like gas, electricity and water.

  • Entertain at home—a monthly Netflix subscription costs less than a single movie ticket.

How to light your FIRE and retire on your terms

Once you’ve ramped up your savings, you could think about being a little more savvy with your money.

  • Bring your super together into one account to avoid paying more than one set of fees.

  • Look at ways to save and invest your money to increase your potential returns.

  • Consider investing in property…but watch out for aggressive gearing, especially if interest rates change.

You may not retire quite as early as the more committed FIRE followers. But you may just put yourself in the box seat to retire on your own terms.

And along the way, you might find yourself reappraising your attitude towards money and happiness.

Please contact us on |PHONE| if we can be of assistance .

Australian Bureau of Statistics – Retirement and Retirement Intentions, Australia

https://www.mrmoneymustache.com/about/

Source : AMP November 2018 

Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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