The Covid-19 pandemic has hit many Australians hard financially. Some have lost jobs and businesses, while others have seen the value of their investments tumble and the returns on their superannuation savings fall.
Everyone has been impacted by the pandemic but for those nearing retirement, the effects have been particularly unsettling.
Many are concerned as to how they will recover their finances sufficiently in time to have enough money in the bank to enable them to stop work.
As with any economic downturn or financial setback, now is a good time to go back to basics. Take stock of where you are, review your retirement plans and where possible, maximise your superannuation savings in the years ahead.
Start by taking a close look at your retirement savings. Make sure you only have one superannuation account. Millions of Australians still have multiple superannuation accounts which in turn are needlessly eroding their retirement savings by duplicating fees and other charges.
Then review how your money is being invested, if you are satisfied with the returns being generated and whether the fees you are paying are reasonable. If the answer is no to any of these questions, think about obtaining quality financial advice to sort out the situation.
Remember, while you can never start contributing to superannuation too early in life, it is never too late to make a difference to your retirement savings. Just 12 months of concerted savings can make a big difference.
If you are still working, consider making additional payments to your super. If you are earning less than $50,000, you should take advantage of the Federal Government’s co-contribution scheme.
Under this scheme, you can contribute up to $1,000 in after tax dollars and the Federal Government will match this by adding up to $500 to your super account. That’s a return of 50 per cent.
Importantly, you don’t need to apply for this. If you qualify for the scheme, the funds will be deposited automatically into your super account once you lodge your annual tax return and confirm your income for that financial year.
Also chat with your tax agent before the end of the financial year, to determine whether you can reduce your overall tax bill my making other additional contributions to superannuation, either for yourself or your partner.
There are a number of strategies you might take advantage of, from salary sacrificing to the spousal super contribution tax offset strategy. Remember, every tax dollar saved and contributed to super, is another dollar supporting you in retirement.
If you have fallen out of work, take another look as to whether you can make better use of your retirement savings.
Superannuation should be the cornerstone of your retirement plans. This is because once you do retire and start an account-based income stream, or your own private pension, everything within super becomes tax free, including any capital gains and any income.
This means you should be thinking now about putting any long-term savings you might have into superannuation. It might also mean that you start thinking about selling that second car or caravan you no longer use and contributing those funds to super.
You might also start thinking about selling your family home and moving to a smaller more manageable property.
Under the Federal Government’s downsizers’ scheme, you can now contribute up to $300,000 per person or $600,000 for a couple into super from the proceeds of selling your family home into superannuation.
This one step alone can completely change your financial position in retirement.
About the author: Patricia Howard, author of The No-Regrets Guide to Retirement: how to live well, invest wisely and make your money last (Wiley), is a licenced Australian financial adviser. She has a commerce degree from the University of Melbourne, holds her own Australian Financial Services Licence and recently passed the FASEA Financial Adviser exam. Find out more at patriciahoward.com.au.
- Note this is general advice only and you should seek advice specific to your circumstances.