From 1 July 2017, superannuation fund members are subject to a $1.6 million transfer balance cap (TBC) which limits the tax exemption for assets funding superannuation pensions.

The TBC encompasses a significant amount of monitoring for an individual. This monitoring is to be facilitated by the Australian Taxation Office’s (ATO) event-based reporting framework.

Event-based reporting is a significant shift in SMSF administration processes. Therefore, it is essential SMSF trustees understand the event-based reporting framework and get it right.

Why events-based reporting?

Event-based reporting is required for the ATO to track an individual’s transfer balance account across all their funds including public offer and defined benefit funds and administer the appropriate consequences if an individual exceeds their cap

An SMSF is only required to report if one of its members has an event that impacts their transfer balance account, such as the ones listed below.

From 1 July 2018, time frames for reporting are determined by the total superannuation balances of the SMSF’s members:

– where all members of the SMSF have a total superannuation balance of less than $1 million, the SMSF can report this information at the same time as when its annual return is due.

– SMSFs that have any members with a total superannuation balance of $1 million or more must report events affecting members’ transfer balances within 28 days after the end of the quarter in which the event occurs.

What needs to be reported?

An SMSF must report events that affect a member’s transfer balance account, including:

– Income streams a member was receiving on 30 June 2017 that continued to be paid to them on or after 1 July 2017 and are in retirement phase.

– New retirement phase income streams.

– Some limited recourse borrowing arrangement payments.

– Compliance with a commutation authority issued by the Commissioner.

– Commutations of retirement phase income streams.

All SMSFs that were paying a retirement phase income stream at 30 June 2017 needed to complete and lodge a TBAR on or before 1 July 2018 to report the balance of each pension individually, for each member as at 30 June 2017.

An SMSF is required to report earlier if a member has exceeded their transfer balance cap, regardless if it usually reports annually.

Closing an SMSF and Roll-over to an APRA fund

If you are going to roll over a super benefit into an APRA-regulated fund and start an income stream you are encouraged to report the communication as soon as it occurs.

As APRA-regulated funds have a monthly reporting regime, waiting to report the roll-over can result in a double-counting of the member’s income streams.

How JBS can help?

For ongoing Full Service clients of JBS we remove this administration burden for you and work with our accountants to ensure that the TBAR reporting is met. For those who use an external accountant or an annual lodgement service it is critical to ensure that you understand your reporting requirements.

As always JBS are here to help so if you have any queries, please feel free to contact us.

For the majority of us, leaving our office desks forever is something we can only imagine about as it’s so far away. For the luckier ones that are much closer to retirement, this can be a time of excitement and relaxation. Spending our days at the golf course or with our community groups, families and friends all day every day sounds like heaven on earth. The transition from full time work to full time play however may become unbearable.

Here are 5 facts about retirement that you should be looking at before retiring.

1 – Time – One of the first things our clients discover about retirement is that they have too much time on their hands with nothing to do. Playing a round of golf with mates, or enjoying a drink at the bar will only fill up a certain amount of time in the day and you can’t go doing the same routine day after day. Couples and singles alike will quickly become very unhappy once they run out of ideas on what to do with their time. Having ideas in your head on what to do in retirement is one thing; however actually doing them is another. Some experts are suggesting retirees have a day to day plan on what they want to do and even seek a therapist leading up to retirement. You will never be as busy as you were pre-retirement so it’s important to map out ongoing hobbies, part time work and social events before embarking on retirement.

2 – Retired husband syndrome – Many couples get very excited about retiring together, travelling the world together and spending intensive time together. If this is you then consider the fact that you and your other half may have been together for the past 30 years working full time. Aside from weekends and holidays, you never have to see each other for more than a couple of hours in the morning and night. Now all of a sudden you see each other 24 / 7 and may even start to discover that you can’t stand being together for a prolonged period of time. A great plan is ensuring each of you have your own hobbies, goals and friends. As my mother often said to my father “I married you for better or worse, but not for lunch”.

3 – Not having enough money to fund retirement – Once retired you might have the goal to travel, see the world and complete your bucket list, unfortunately you might not have the funds to do so. Travelling can become very costly. A single international trip can set you back a lot more than you’ve budgeted for. By the time your second trip comes around you may find that you don’t have enough funds anymore, so eating out may be out of the question and this year you won’t be able to travel overseas to see your grandchildren. By speaking with the team at JBS early on we can help prepare you and set realistic goals for your retirement, putting in allowances for those additional goals that you want to tick off your bucket list. This way at least you have a more clear expectation of what you can afford in retirement and prevent any nasty surprises once you’ve retired.

4 – Entitlement to social security – Depending on what year you were born, the Australian Pension Age is at least 65 but is gradually increasing to age 67. During retirement some retirees aren’t aware of what social security benefits they’re entitled to. Even if you are receiving funds from your Superannuation benefits, you may still be entitled to government age pension (subject to income and asset tests). We will help ensure you’re kept up to date regarding any social security payments you’re entitled to and consider how we can structure your wealth to maximise these for you.

5 – Losing your identity from not being at work – For those of us who are passionate about our profession, this becomes our identity. Anytime your friends or family think of Engineer, Accountant or Doctor, they think of you. So it’s no surprise that once you retire you may feel like you’ve lost your identity, which may lead to discontent and even depression. Without the daily interaction of your work colleagues, your mental and even physical health may start to deteriorate. Retirees who are not very active tend to decline rather quickly mentally and physically. Joining up to the local gym, taking up classes and just continuing to meet new people will have a longer lasting affect for you. After all, we all need something exciting to look forward to in the future.

If you are one of the lucky ones thinking about retirement, make sure you talk to the team at JBS so there are no nasty surprises. Remember good planning takes time.

I often get asked why I love being a financial adviser – well the answer is simple, I get to help our clients every day of the year. Along with my awesome team we are able to make such a difference in the lives of our clients whether it be when we get to help them retire, hold their hands when something goes wrong in their lives or be at the end of the phone when the markets get the wobbles.

Being an adviser comes with a huge amount of responsibility, that we often take for  granted and it’s not until we are able to sit back and reflect on all the good that we do that we often realise just how much of a difference we can and do make in our client’s lives. Take today, let me tell you about three clients, their stories and how it all unfolded, firstly let me introduce you John* and Sue*, they are both 70 and fairly typical retiree clients. They have combined investible assets of $850,000 and are receiving overseas pension income of $17,000. Their living expenses are around $60,000 including some low-cost holidays and they don’t qualify for any Centrelink at this point.

Their worry is how long will their money last, can they keep taking annual holidays, travel more than once a year, or do they need to cut back, especially with the current volatility that we are experiencing in the market. Now this is not an uncommon question and whenever we catch up with our clients to discuss their strategies, this question if it’s not asked, it’s certainly on their minds.

By anticipating their needs through experience, we had already projected out what continuing to receive a total retirement income of $60,000 would do for their retirement plans. In addition, we had prepared 2 other projections at $70,000 and $80,000 to highlight just how long on conservative projections their funds would last. Now the portfolio that John and Sue have within their fund is nothing sexy, more a very stable mix of quality blue chip Australian Shares, some international and local ETF’s, term deposits and some bank hybrids. Diversified enough that volatility is reduced and a portfolio that reflects their risk profile along with two to three years of cash plus dividends and income to fund pensions and ensure that in a downturn they wouldn’t have to sell any of their growth assets.

Our reward was to then experience the delight that they wouldn’t run out of money until they were hitting 100 years of age and that was on the projection for higher drawings. Turning a conversation around from how long will my money last, to what places we’d love to travel to and what would we love to tick off our bucket list just makes our day.

To keep reading this article click here

– Jenny Brown –

*The names of clients have been changed to protect their privacy.

We often ask ourselves what we should be investing in. Should we invest in shares? What shares should we buy? Is now a good time to be buying shares? Should I instead look at putting my money into a more defensive asset like a term deposit? Or even look at an investment property.

While all these questions are good, the first question we need to ask ourselves is who should own the investment, in other words what structure should we use?

When purchasing an investment we have a number of options available to us when it comes to ownership. Do we own the asset personally, jointly, within superannuation or another trust structure or even within a company of our own.

The majority of investments that we can choose can be owned by any of these entities. There are some exceptions however this article will not go into specifics. For the most part though, one of the main differences between the different ownership options is the tax treatment.

Individuals
When you own an asset as an individual, the earnings are attributed to you personally and hence you will need to pay tax at your marginal rate. You will also be eligible for a 50% capital gains discount when you hold assets for longer than 12 months. As you will be paying tax at your marginal rates, owning assets as an individual can be beneficial for someone with a low income and hence low marginal rate but detrimental for someone who is already on a high income and high marginal tax rate.

Joint
The tax rules around jointly owned assets are very similar to that of an individual with one main difference. The earnings and hence tax is split between each of the owners. A husband and wife for example can split the earnings 50/50 between the two of them. This comes in handy when both partners are on high incomes for example although other options may be preferable.

Superannuation
A common misconception is that superannuation is an asset in itself. This is not the case, it is simply a structure that owns the investments. The main benefit of superannuation funds is that the tax on the income is charged at 15% and capital gains (if the asset is held for longer than 12 months) are taxed at 10%. Current legislation also states that when the superannuation fund is turned into a pension account the tax on the earnings within that pension account attracts 0% tax. This is clearly the best way to hold assets from a tax perspective however the obvious downside is that you aren’t allowed to access the money/investment until you meet a condition of release. The government has also put a cap on the amount of money that you are able to contribute into superannuation each year and also the amount of money that you can transfer into a pension account. These restrictions have been discussed in detail in previous articles so I will not go into them here.

Trusts
There are lots of different types of trusts (superannuation being one of them) however here we will cover unit trusts and discretionary trusts in particular.

In the majority of circumstances the trusts themselves do not pay any tax and instead the tax is paid by the beneficiaries as all income is distributed through to the beneficiaries. For a unit trust, the distributions are paid according to the amount of units owned. For example, if a unit trust has 10 units, and person A owns 7 of those units, then person A will receive 70% of the distribution and hence will be required to pay tax on the amount. As the income flows through to an individual in this example, they will receive a 50% capital gains discount for the unit trust holding the asset longer than 12 months. A unit trust may be applicable for someone running a business with other people who are not part of their family with distributions to be allocated according to the % ownership.

A discretionary trust while similar to a unit trust has one distinct advantage. The earnings can be distributed to any beneficiary on a discretionary basis. That is, you can choose how much of the distribution gets paid to each individual beneficiary and this can vary from year to year. You can therefore allocate more income to those on lower tax rates and less or even no income to those on higher tax rates. This is often used for family owned businesses where money is often allocated to children, non-working spouses or even retired parents in order to keep the tax low and is where the name “Family Trust” originated from. This is the most flexible of structures to hold investments in although you need to remember that all earnings need to be distributed to the unit holders and there are costs associated with the setting up and running of the trust.

Companies
Companies are similar to Unit Trusts in that the amount of income that is distributed to shareholders is determined by the share of the company that they own. If you own 70% of the company you get 70% of the distributions. However there are some big differences.

The first one is that the company pays tax (ranging from 27.5% – 30% depending on the size of the company). This means that as dividends are distributed to the company owners they receive what is known as franking credits to offset the tax already paid by the company.

The second difference is that unlike a trust, earnings can be kept inside the company structure rather than being paid out to the company owners. This can help build the assets inside the company where the tax rate is only 27.5% compared to the individual where that tax rate may be up to 45%.

The main disadvantage when it comes to companies is that they are regulated by ASIC. Unlike other ownership options, there is some compliance that needs to be adhered to when running a company and hence more fees may be payable and more work is required.

Structuring the investments in the right way to ensure the minimum tax payable is extremely important but tax is only one factor that needs to be taken into account. If you want to know more, not just about investments but about setting up the correct structure for your goals and needs please contact our offices today.

From the 1st of July 2018, if you are at least 65 years old and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your Superannuation fund of up to $300,000 from the proceeds of selling your home. Normally after age 65 you would need to meet a work test in order to contribute into Super, the great thing about this is that you don’t need to meet the work test to be eligible.

The contribution will not be counted as a Non-Concessional Contribution and will not count towards any contributions caps. The downsizer contribution can still be made even if you have a total super balance greater than $1.6 million, however if your balance is above $1.6 million you are still restricted to having $1.6 million in the pension phase.

The contribution is only able to be made once on the sale of one home, therefore if you sell a second home you can’t make the contribution again. There is also no requirement that you have to purchase another home or actually downsize your home as the name may suggest. In order to be eligible you must tick all of the following criteria:

– You are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)

– The amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1st of July 2018

– Your home was owned by you or your spouse for 10 years or more prior to the sale. The ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale

– Your home is in Australia and is not a caravan, houseboat or other mobile home

– The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT asset (acquired before 20th of September 1985)

– You have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution

– You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement

– You have not previously made a downsizer contribution to your super from the sale of another home.

It is important to note that if your home was owned by just the one spouse, the spouse that did not have an ownership interest may also make a downsizer contribution, provided they meet all of the other requirements.

The maximum contribution you can make under the downsizer rules is $300,000, or $300,000 each if a member of a couple. However, the contribution can’t be greater than the total proceeds of the sale of your home. For example if you and your partner sell your home for $400,000 you’re only eligible to make contributions of $200,000 each, or it can be split in another way such as $300,000 and $100,000.

You must also make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. In some circumstances the ATO may at their discretion extend this 90 day period, but you will need to apply for it. It is also possible to make the contributions in multiple batches, but the total amount can’t exceed $300,000, and all contributions must be made within the 90 day period.

If you’re thinking of downsizing your home and wish to explore your options in relation to making downsizer contributions, please don’t hesitate to contact JBS and we can assess your options and eligibility. It is a really great opportunity to help build your wealth in a tax effective manner.

Many of you would have automatic Insurance through your default Super Fund that you would have been signed up through your employer. But what you may not realise is some of the caveats in these policies.

1. Renewability of Cover:
Some super funds have the ability to cancel your cover when certain events occur. If you were to claim on this policy the insurer can simply decide to not cover you any longer. This puts you at potential risk of not being covered for a significant portion of your life. A retail insurance policy may guarantee your cover as long as your premium is being paid, giving you peace of mind if something was to happen to you.

2. Claims while off work
If you have default income protection cover within your Super Fund it is prudent you check the terms and conditions. Some insurance policies held in Super Fund may have a clause in their Income Protection policies that if you are unemployed for any reason, you will not be covered. For example this could be due to taking a long holiday or going on maternity leave.

3. Stepped vs. Level premiums
A stepped premium will increase each year as you get older, eventually becoming expensive. On a Level premium, you essentially lock in the premium at the age in which you take out the policy, and only indexes slightly each year. Although stepped premiums can be more beneficial in some circumstances, when holding cover for a long period of time level premiums are generally more affordable. Most super funds do not offer cover on level premiums, or if they do the cover usually decreases as you age.

4. Cover whilst overseas
Default cover within your Super Fund may not allow you to remain overseas for any length of time to receive treatment whilst on a claim. In order to meet their definition, you must either be in Australia to claim or return to Australia for treatment. Retail insurance policies may allow you to remain overseas to allow you to receive treatment and stay on claim.

5. Differing definitions of disability
Cover within Super Funds generally will only classify you as fully disabled once you can no longer conduct your occupation at all and needs to remain the case to continue the claim. This is fairly restrictive for members who may want to get back to work in some capacity. For example, there may be a member can work 1 day per week. A retail insurance policy may have a three tier definition of total disability

– Initially, you cannot perform one important duty of your regular occupation

– 10 hour definition – allows members to work up to 10 hours per week whilst on full claim.

– Loss of income definition – allows member to earn up to 20% of pre-disability income without losing any claim benefits.

We note however that these definitions can vary slightly between insurers but are generally very similar.

As always – check the details or give us a call
When comparing insurance within various superannuation plans, we often find that not only are the definitions widely different, but that often if you haven’t reviewed your cover for a while you might find that the premiums have increased significantly and as the insurance is coming from a default superannuation fund, you may be unaware of these changes.

If you would like a review of your current insurance policies and to get a better understanding of what you are and aren’t covered for, feel free to contact JBS.

– Peter Folk –

As long as you’re an Australian resident, you will have some form of personal insurance through Government agencies and bodies such as Centrelink, TAC and WorkCover. Often when asked about personal insurance cover, most people would simply suggest they have automatic cover through Work and their superannuation funds. There are several main concerns here. Firstly there are many misconceptions about what types of covers are offered by government organisations. For instance workcover will only cover you if you get injured at work and not if you injure yourself during out of work hours. Secondly people misunderstand the conditions which needs to be met before the insurance companies accept the claim. Lastly the cover amount may not be sufficient. For example work cover will only cover death for up to the maximum amount of $611,430 per person, which wouldn’t be sufficient if that person happens to have $700,000 of debt.

Let’s firstly have a look at the disability pension through Centrelink. To be eligible you must firstly be between ages 16 to pension age, pass the residency requirements and meet the income / asset test. Once you’ve met all these conditions your disability will then be assessed. To meet the disability requirement, you must be either permanently blind or assessed to be physically / mentally impaired and unable to work for more than 15 hours or more per week for the next 2 years. Furthermore you may be required to participate in support programs going forward. In other words your disability or condition must be very severe and permanent for you to receive support from Centrelink. Then there’s the NDIS (National Disability Insurance Scheme), which again is run by the government for anyone who suffers permanent disability such as permanent blindness, Down syndrome and autism. The biggest misconception regarding what the NDIS offers is the fact that NDIS does not offer monetary support, but rather provides aids and equipment to anyone who is eligible.

Now let’s have a look at the covers offered through WorkCover and TAC. Workcover provides insurance cover for all working Victorians. Each state has their own body, which operate similarly. Both WorkCover and TAC operate on a no fault policy meaning you will be covered at work or on the roads, even if it’s your fault that led to your injury / disability. The main consideration here is that you have to be either at work or on the roads, at the time of the incident. Furthermore it’s important to note that there are limits on how much WorkCover and TAC will payout in the event of death, total disablement and income supplement.

The last type of insurance we will look at is the default cover offered by our superannuation companies. For those of us who have super accounts will also have personal insurance cover attached. There are generally 3 types of insurance offered by industry super funds. Death / TPD or Income Protection. Depending on your super fund you may either have all 3, just one of them or none. Although generally more cheaper to fund, it’s important to point out that default insurance through super funds are very general and will most likely be on reduced cover, meaning the amount insured will reduce over time. This is exactly what you don’t want considering as we get older the chances of us claiming on insurance increases, whilst on the other hand the default cover is reducing on an annual basis.

So here’s a question. If you suffered a heart attack or stroke and required large sums of money for treatment, which of the above insurance covers will pay? The answer is none of them. Overall most of us will have access to some form of default personal insurance. It’s important to understand that these default covers in most cases will not provide you with adequate cover. Having a personalised insurance policy is crucial as it will provide you with customised insurance cover to meet your specific needs.

If you are unsure about what insurance you currently have or would like to review your insurance, please get in touch with the team at JBS to ensure you have the right cover in place.

Most of us can only dream about leaving our work forever to do as we please. For those who are close to retirement however, this can be a time of excitement and relaxation. Spending countless days at the golf course or with our community groups, families and friends sounds like heaven on earth. The transition from full time work to full time play however may have some unforeseen pitfalls. Here are 5 facts about retirement that you should consider before retiring.

Time
One of the first things retirees quickly discover is that they have too much time on their hands with nothing to do. Playing a round of golf with mates or enjoying a drink at the bar will only fill up a certain amount of time in the day and you can’t go doing the same thing every day. Retired couples and singles alike will quickly become very unhappy once they run out of things to do.

Having ideas in your head about what to do in retirement is one thing; however actually doing them is another. Some experts are suggesting retirees have a day to day plan on what they want to do and even seek an adviser leading up to retirement. You will never be as busy as you were pre-retirement so it’s important to map out ongoing hobbies, part time work and social events before embarking on retirement.

Retired husband syndrome
Many couples get very excited about retiring together, travelling the world together and spending a lot of time together. If this is you then consider the fact that you and your other half may have been together for the past 30 years working full time. Aside from weekends and holidays, you never have to see each other for more than a couple of hours in the morning and night. Now all of a sudden you see each other 24 / 7 and may even start to discover that you can’t stand being together for a prolonged period of time. Determining your own hobbies, goals and friends will assist to avoid “retired husband syndrome’. Again, seeking help from an adviser may also assist in preparing you and your loving partner for retirement.

Not having enough money to fund retirement
Once retired you might have the goal to travel, see the world and complete your bucket list, unfortunately you might not have the funds to do so. Travelling can become very costly. A single international trip can set you back several thousand dollars if not more. By the time your second trip comes around you may find that your retirement funds are not adequate and you’ll need to start tightening the belt. Having a good financial planner early on can prepare you and set realistic goals for your retirement. This way you will have a clear expectation of what you can afford in retirement and prevent any nasty surprises once you’ve retired.

Entitlement to social security
At the moment the Australian pension age is age 65.5 and increasing with each year. During retirement some retirees aren’t aware of what social security benefits they’re entitled to. Even if you are receiving funds from your Superannuation benefits, you may still be entitled to a government age pension (subject to the income and asset tests). Having a good financial adviser by your side will ensure you’re kept up to date regarding any social security payments you’re entitled to.

Losing your identity from not being at work
For those of us who are passionate about our profession, this becomes our identity. Anytime your friends or family think of Engineer, Accountant or Doctor, they think of you. So it’s no surprise that once you retire you may feel like you’ve lost your identity, which may lead to discontent and even depression. Without the daily interaction of your work colleagues your mental and even physical health may start to deteriorate. Retirees who are not very active tend to decline rather quickly mentally and physically. Joining up to the local gym, taking up classes and just continuing to meet new people will have a longer lasting effect for you.

Financial independence gives you the freedom to make your own choices, speak to the team at JBS to start your retirement journey today.

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Over the next few years the age at which you can begin to start receiving the Age Pension will gradually increase from age 65 to age 67 (depending on your birthdate), with most people now having to be 65 and a half before they can access the Age Pension. Every time the Age Pension age increases or there’s talk of it increasing, you’ll hear all over the media people who now can’t retire because they have to wait a few more years before they can access the Age Pension.

Unfortunately for some, the Age Pension will be critical to fund their retirement, but the Age Pension age doesn’t need to be your Retirement Age. There’s a few things you can do to help reduce your reliance on the Age Pension and retire when you want to retire, our motto is that we’d rather you be working because you want to, not because you have to.

Super Contributions – Your employer pays 9.50% of your wage into Super as a Super Guarantee Contribution (SGC), but if your cash flow allows for it, you can top that up through a Salary Sacrifice arrangement or making Personal Concessional Contributions, up to an annual cap of $25,000 (which includes your SGC). This allows you to boost your Super Savings while at the same time helping you save tax personally.

You also have the opportunity to put up to $100,000 in as a Non-Concessional (After-Tax) Contribution and even up to $300,000 utilising the bring-forward rule in one year (if you haven’t made large contributions previously). Depending on your Super Fund, this can be a transfer of any cash you may have or even other assets such as shares. Remember that the new $1.6mil balance rules need to be taken into consideration.

Depending on your income, if you make a Non-Concessional Contribution the government may give you a Government Co-Contribution up to $500 on a $1,000 contribution (you can contribute more, but the co-contribution is based on a maximum $1,000). If your income is below $36,813 for FY18 you will receive the full $500 Co-Contribution, and you will receive a pro-rata amount if your income is above $36,813 but below $51,813.

Consolidate your Super – For some you may have multiple Super accounts, each time you start a new job your employer may start a new Super Fund for you if you haven’t given them the details of your existing Super Fund. If you’ve got multiple Super accounts it may be worth consolidating them into the one account which may help to reduce the total fees you’re paying on your Super accounts. However, you need to be careful that when you rollover any Super into another account you will lose any insurance you may hold.

Review your Insurance – Most Super accounts come with default insurance cover, and insurance is a very powerful tool to protect you and your family in case something happens to you. For those later in life, who are empty nesters, paid off the mortgage and are close to retirement, your need for cover may not be as important as someone who’s just starting a family and recently taken on a mortgage. Although insurance may be needed, it is always worth reviewing it on a regular basis to ensure your level of cover is appropriate and you’re paying for what you need, as the premiums come out of your Super balance. In some circumstances it may also be worthwhile holding some of your insurance cover outside Super.

JBS can help provide a full review of your Superannuation and Insurance and help you put strategies in place to ensure that you’re working because you want to, not because you have to. We’d rather you work towards your Retirement Age.

– Peter Folk –

As the baby boomers of Australia are now entering retirement, the topic of longevity risk within superannuation has become increasingly important. The longevity risk of superannuation refers to the risk of retirees running out of money in their super account before they die.

Contrary to the common thought of Aussies using up their entire super benefits earlier on, close to 50% of retirees draw down the minimum amounts from their super accounts, in an attempt to protect themselves against longevity risk. Whilst there are still a portion of retirees drawing down unsustainable amounts from their retirement benefits each year, it’s crucial to get the right balance in order to have a comfortable retirement. Furthermore understanding and managing the longevity risks in super can be the difference between having enough in retirement and running short.

There are 3 components of longevity risk which are;

Mortality Risk – This risk is associated with the chance of death along a certain time frame. With medical and technological advancements, the average life span of Aussies continue to increase each year, which means our super benefits need to also last that extra distance.

Volatility and Sequencing Risks – Volatility risk relates to the chance of suffering losses in our super funds due to volatility in the financial markets. Whilst sequencing risk is associated with the order of returns, which results in the retiree with less money due to losses suffered in the initial stages of retirement. Take for example the following table, which shows Tony and Mark, both starting off their retirement with $500,000 in super and drawing an annual income for $43,695 per annum (Association of Superannuaton Funds of Australia’s standard for comfortable retirement), from their retirement benefits.

As shown in the above table, over a 9 year period with an average return of 8%, we can see Tony is in a better position as his super fund performed really well early on in his retirement. Whereas Mark suffered poor performance early on in his retirement, which affects the balance of his retirements benefits in future years.

Expenses Risk – This risk is associated with the expenses depleting retirees super benefits early on in their retirement. Aside from the travelling and discretionary spending one type of expense that is commonly missed is medical and personal care expenses. Tied to morality risk, being able to live longer with the help of modern medicine and technology often doesn’t come cheap or free. As such taking into account medical and carer expenses, is crucial.

Ensuring sufficient super benefits in retirement can be very daunting, especially considering all the risks associated with longevity. There are however professionals such as financial advisers, who can assist in making the journey much smoother. Aside from being able to assist clients in reaching their retirement goals, an adviser can also help in determining an optimal amount to withdraw from super each year so their clients get a well-balanced retirement life.

– Andy Lay –