SUPERANNUATION – we automatically think of superannuation when it comes to discussing retirement. And rightly so as it is the preferred method of government strategy to address incomes in retirement other than the Centrelink – Age Pension system. Besides all that superannuation is very tax effective.

Of course our retirement assets (for living expense drawdowns) can come from a range of asset sources not just superannuation holdings but investment property, shares, managed investments, term deposits/sale of business/home downsizing etc.

However, for a lot of employed Australians their superannuation will be the majority of their retirement monies.

Questions such as:

How long will my superannuation and everything else I have as investment assets that I can draw on last me in my retirement?

• What does my planned retirement look like in so many years’ time?

• How much should I put into superannuation above what is government mandated or legislated? 

• How often and how do I receive an income in retirement for my daily/weekly/yearly living expense needs and those special one off expenditure needs?

• What will I get from the government’s Age Pension system?

are generally the most frequent questions around any discussion on saving for retirement.

 Firstly, for all employees it is very important to be aware (and engage in it) that your compulsory employer contributions actually are and what is planned for down the road.

All employers are required to contribute 10.50% of salary /wages of their employees to the superannuation system. This percentage is planned to increase to 12% over the next few years.

 How Much is Enough at Retirement

 For the purposes of illustration only, if a person’s circumstances were as follows: 

• Salary was say $80,000 per annum
• The future compulsory employer contributions of 12% was paid into superannuation for 40 years from say age 25 to age 65
• CPI Inflation averaged 3% per annum (salary increases)
• Investment Return say a net 6.00% per annum

then their projected superannuation at the end of 40 years would be estimated to be approximately $1.9 million through the marvellous workings of regular contributions and compound interest. Bringing this back to present day value (excluding inflation) then the figure is approximately just over $600,000.

Assuming a couple for some partial Age Pension entitlement purposes from age 67 then this amount of investment capital, with initial living expenses of $65,000 pa (in today’s dollars) – indexed to inflation of 3% pa, could be expected to last to a couples late mid-eighties.

Obviously we are living longer and working on longevity to say age 92 the  amount of superannuation investment capital needed would be approximately $2.9 million (in future dollars but 40 years away) and $900,000 (in today’s dollars).

As a rough guide if individuals topped up their superannuation by just 3% of salary over the whole 40 years used in this example then through the power of compounding and hopefully regular CPI salary increases at least then these sort of goals can be achieved. 

It is fairly universally accepted that 14% – 15% of salary or other going into superannuation over a full working life will be sufficient to provide a lifestyle of approximately 65% – 70% of your last salary earnings as living expenses in retirement. For those of us with less than a 40 year period remaining then you need to run some numbers depending on existing holdings and time frame remaining before you expect to stop working.

At Plus1 we are available at any time to discuss issues of this nature with due regard to your investments or financial planning generally.

A common assumption is that you need to be super wealthy to need or use a financial adviser. This could not be further from the truth. This is similar to saying that you need to be fit to have a personal trainer or healthy and well to see a doctor.

Financial Advisers can help people from all walks of life. A good Financial Adviser will work with you to help you achieve your goals, and this does not always mean making the most money.

Money is simply the tool we use to achieve our goals, and a good Financial Adviser will help you identify what is important to you and outline a path to help you get there. 

Some reasons to see a Financial Adviser include:

• Reducing your debt and home mortgage as quickly and effectively as possible
• Optimising your cash flow to build up your savings
• Ensuring a comfortable retirement
• Helping you achieve a better work-life balance
• Protecting you and your family if something were to go wrong unexpectedly
• Helping you to invest your money in a way that is right for you
• Outlining a path to buying an investment property or your first home
• And many more

Another common assumption is that it will cost too much to work with a Financial Adviser.

While, like any great service, Financial Advisers do charge based on their time and complexity of your situation. However, it is also quite likely that a good Financial Adviser will save you more money than it costs.

Good financial advice can also provide you with returns which you cannot put a price on, such as more time with loved ones, less financial stress and greater work-life balance to name a few.

Financial advice should be viewed as a long-term investment in your financial wellbeing.

If you have thought about getting Financial Advice in the past but are a little unsure if it’s suitable for you, we at Plus 1 Group offer a no obligation first meeting that comes at our cost. In this meeting, we will get to know you and what’s really important to you.  

Book in a time to chat and see if having an adviser is the right step for you.

There has been a fair bit of talk recently in the media about inflation, particularly rising inflation.

Firstly, when we talk about inflation, we are generally talking about the rise in the price of goods and services in any given economy. This is typically measured by the consumer price index (CPI) which measures the price of a basket of goods and services which are typically purchases by households. CPI thereby best reflects the price pressures placed on consumers.

So, if a basket of goods and services increases by 3% over a one-year period, we can say that consumer inflation is also 3% for that period.

The Reserve Bank of Australia targets an inflation rate of between 2-3% per annum and this is typically seen as being healthy in an economy as it shows the economy is growing at a sustainable rate.

So why do investors care about inflation?

Well, firstly, inflation can place an upward pressure on interest rates. Lenders seek higher compensation to lend their money, given it can now buy fewer goods and services when it is paid back in the future. Higher interest rates as a consequence can place downward pressure on the values of growth investments such as property and shares.

Returns on investments should be thought of in ‘real’ terms. The real rate of return is the nominal return less the rate of inflation.

As an example, if you invest into shares and earn 10% p.a. and inflation is 3% p.a., your real return is 7% p.a.

As this example shows, the higher the inflation rate, the higher the rate of return you need on investments to just break even.

As a result, higher inflation is generally seen as a negative for these types of investments as it results in higher borrowing costs, higher costs of labour and materials and reduced expectations on growth.

However, it is important to note that inflation doesn’t impact all investments the same. For instance, even during times of high inflation, we still need to eat. So, companies dealing in food are less impacted. The same holds true for healthcare, as we can still fall ill during these times.

Higher rates of inflation can present many challenges to investors, yet there are always winners and losers in any type of economic environment. As such, it remains crucial that your portfolio is well diversified and provides some exposure to investments which thrive during times of higher inflation.

If the current inflationary commentary has you worried about your investments, the Plus 1 Financial Planning team are here to help. Don’t hesitate to book a time with one of our Financial Advisers, Emma or Mason, which can be done via the links or by contacting the office via phone or email.

Are you trying to take control of your finances? Here are five things you can do to master your money in 2022.

1. Know your ins and outs

Money comes in, payments go out. Some weeks you might be able to save, other weeks you may not. Too often, there is no structure and no knowledge as to where our money is going. All we know is we get paid a certain amount each week or fortnight and spend that money accordingly without a long term plan in mind.

To truly master your money, you need to know all of your outgoings and create a structure to support both your current lifestyle and what you desire to have in the future.

A good place to start is to outline all of your regular expenses over the course of a year, arrive at an annual figure and divide that amount by the frequency of how often you get paid. This will give you an amount that you need to put aside each time you get paid and will give you confidence in knowing you have your usual expenses paid for in advance.

2. Pay yourself first

We all have the best of intentions to save, but after all of the expenses, there often is not anything left to save. This is why if you want to master your money, you need to pay yourself first. Pay yourself a set amount each pay period which goes into a separate account. A good goal to have is to pay yourself 10% of your salary. If this seems like too much, perhaps start with 5% and build up from there. By paying yourself first, you won’t be left wondering where your money all went.

3. Set your foundations

Mastering your cash flow by paying yourself first and budgeting is a great pillar for your financial foundations. However, to master your money this year, it is important that you look to your other pillars as well – your debt, your insurances and your superannuation.

Ensuring all of your foundations are strong is crucial to long term financial success. You wouldn’t expect a great home to be built on poor foundations. Similarly, a great financial future cannot be built on poor financial foundations. Not rushing ahead to the next step in fear you may miss out is key to ensuring a strong financial future.

4. Invest

By knowing all of your outgoings, paying yourself first and ensuring your foundations are set, you will now have some money to invest.

It can be hard however to know where to invest. With so many different options it can be quite overwhelming.

To know where to invest, it is important to do your own research before you part with your hard earned savings. Try not to be persuaded by the promise of great returns on social media and ensure you know exactly where your money is going.

If you don’t like doing your own research, consider talking with a Financial Planner who can discuss the many options with you and help you arrive at the right investment

Book a time to chat here. 

5. Have a goal in mind

Investing your money is a great thing to do, but knowing why you are investing is very important. Without a clear intention for your investing, you can lose motivation and may stop altogether. Investing just to invest doesn’t really make sense. Sure having more money is great, but having more money is never the goal. Money is just a tool we use to achieve our goals. Some good goals you may consider are creating a holiday fund, future home renovations or a home upgrade, early retirement and private school fees to name a few.

If you are looking to master your money in 2022 but are not quite sure where to start, the Plus 1 Financial Planning team are here to help. Don’t hesitate to book a time with one of our Financial Advisers Emma or Mason which can be done via the links or by contacting the office via phone or email.