What you don’t know …
… might be hurting your finances
We’re always seeking insights into ways to help our members maximise their retirement savings and income. But what you don’t know might be hurting your finances.
What often comes up in advice appointments is genuine gratitude for providing information that we had thought was more widely known.
This is often not the case. In fact, it’s a constant reminder of the complexity and downright density of our retirement income system. While Australia gets plaudits on the global stage for having a strong savings system in place, getting money out of an accumulation account and using it well when it’s time to draw down remains difficult. This is due to the complicated interaction between superannuation, the Age Pension, private savings, tax, and all the rules that connect all these different ‘moving parts’.
Sadly trying to navigate this retirement income ‘web’ often results in a sense of defeat or even denial. Understanding best next steps becomes overwhelming and it can feel all too hard to pull the pieces apart in order to make smart decisions.
Conversely, the right support to understand the component parts can often lead to an ‘ah ha’ moment – and the realisation that ‘if only’ you’d known that one thing a little earlier, then you might have benefitted financially much sooner.
This week we asked our advice team what they felt were the ‘what I didn’t know I didn’t knows’ when it comes to retirement income. Here’s the five most common things that Retirement Essentials members have shared about what they wish they had learned earlier:
Asking how much and how long?
Not knowing how to think about “how much I can spend in retirement” or “how long my money will last” means it is often put into the too-hard basket, delaying important decision-making.
Investing for the long haul
It’s only in recent years I have fully comprehended the value of investing for the long haul – both in terms of compounding but also ticking the ‘dividend reinvestment’ box so that I never see dividends – instead my retirement nest egg grows ever faster.
Not understanding the type of super that you do/don’t have. For instance, is it in accumulation or pension phase? Is it a defined benefit? Is it a Self-Managed Super Fund (SMSF)? There are so many terms thrown around and many retirees seem to only know one or two, which can vary from person to person. Definitions of super can confuse, but it’s critical all retirees understand their super and the phase it is in.
At last I can get my hands on it
The consequences of speedy lump sum withdrawals at Preservation Age is also a cause for regret for a few. This can involve moving significant sums from super to a bank account, intending to save it there in readiness for a large purchase i.e. a new car, renovation or holiday. These funds usually earn lower returns, which over the long term, can erode the original capital. The ‘unknown’ element here is that the retiree could have simply withdrawn these funds as and when they wanted to.
Centrelink (usually) needs to know
Meghan shared a note about gifting, which can be applied to many other aspects of Centrelink rules. Just because you are dealing within a threshold does not mean Centrelink doesn’t need to be informed. It does, on most matters to do with fluctuations in your income and assets. Meghan’s client had made multiple gifts to people but assumed that if they stayed under the threshold of $10,000 per annum, then they didn’t need to report them to Centrelink. However, they are obligated to inform Centrelink within 14 days. If these gifts are under the thresholds, there will be no impact on their entitlements, but they must share this detail.
The above ‘wish I’d knowns’ list is, of course, far from comprehensive, but it does highlight the need to try to gather as much information as possible and to seek help if you think there is something further to be added. Today we launch the April Retirement Pulse and urge you to take two or three minutes to respond. We are asking for your ‘unknown unknowns’ as well as whether you believe the family home should become part of the Assets Test for an Age Pension. This has long been a contentious issue (which is why it’s our main topic this week). With the value of homes rising so rapidly, we’ve reached a new stage when it’s entirely possible to own and live in a $5 million-plus residence and still receive an Age Pension. Is this fair? We’d love to hear your views in this month’s Retirement Pulse.