ScoMo Gave You A Gift For The Next 3 yrs…
Election Day. Did my duty, dragged myself to the local voting booth. Oh yeah, and had the mandatory sausage in bread.
Given I help people plan, transition and live a great retirement, I was feeling a little let down by the system.
Expecting the game to change big time post the vote.
Those who know me, know that I don’t get involved in politics so there was no way I was going to sit there and watch the votes come in.
I had better plans, my wife and I had arranged a dinner out without two little rug rats in toe…
We were celebrating our 15 year wedding anniversary, not sure where the years went.
As you do with two young kids, you eat early, so we had booked a nice restaurant and had an early dinner to celebrate the occasion.
We chose the degustation menu, a selection of Italian dishes, it was amazing.
Like you do when you have no kids you look forward to the peace and quiet and take advantage of an early nights sleep.
But this was election night, where everything was going to change big time for my clients.
So after a nice dinner, we headed home not knowing what was going on with the election.
Opened up a nice bottle of red and with glass in hand turned the TV onto the election.
I was not looking forward to a change in government and all the early polls showed there was going to be a change.
It was going to have massive implications, not only for my clients but anyone who’s worked hard and trying to save for a comfortable retirement.
There was going to be less opportunity to save tax effectively and less income in retirement.
It was going to be an absolute game changer.
But there I was, watching a Steven Bradbury moment occurring right in front of my eyes.
And then ScoMo was reelected.
It was a relief as I took another sip of red I had in my hand.
Out of nowhere, all the concerns my clients had prior to the election now all gone. We could now get back to business.
But here’s the thing, while ScoMo (aka the new Steven Bradbury) got reelected, the writing was on the wall.
As more and more baby boomers retire the tax receipts, the money the government uses to run the country is going to get less and less.
Eventually, they are going to have to look at the superannuation system, which is massive and make further changes.
Be warned, the writing is on the wall.
However, there’s an opportunity is here and now. Boost your nest egg before it all changes and it’s all too late.
Now, I’m not saying it’s going to be doom and gloom but if you don’t take action now, you’re going to be in a world of hurt if there is a change of government at the next election.
There is a massive opportunity for you right now, whether you like super or not to use the rules to boost your nest egg. It’s going to reward you big time in the future.
There’s no better time to be saving and investing tax effectively.
Don’t ignore it due to the misconceptions about possible future changes. It’s going to be around for many years to come, perhaps with further adjustments reducing the tax benefits somewhat.
It’s still the best tax structure going around. I think it will be long into the future. It’s getting your money in there that’s going to be harder. No longer can you leave it all until it’s all too late.
Either use it or lose it.
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So, what are the opportunities?
We’ll look at three of the most common areas to boost your nest egg.
Personal Tax Deductible Contributions
For most, this is going to be the big one.
This is going to give you the biggest bang for your buck. Don’t go chasing the next best investment, this will give you a significant return straight off the bat with no risk.
Currently, your employer contributes 9.5% of your salary. It’s what’s known as concessional contributions. Where the contribution is taxed at a maximum tax rate of 15% rather than being taxed at your marginal tax rate.
The government allows a maximum of $25,000 pa for everyone whether you are working for someone as an employee or you run a business.
Let’s say you’re on a $100,000 income. Your employer will pay into your super fund 9.5% of your salary. That’s $9,500 big ones going towards your retirement fund.
Given the limit is $25,000, you are able to contribute via salary sacrifice up to another $15,500 pa. Now you can make that up by just making a one-off contribution by the end of the financial year and claim a tax deduction for the contribution.
Now, let’s say you didn’t salary sacrifice over the financial year but you have cash sitting around in the bank account. Provided you don’t need to funds for anything you could use these funds and make a contribution to your super prior to June 30 and claim a tax deduction in your tax return.
As long as you keep it all under the $25,000 limit you’ll be fine. Just make sure your super fund knows you will be claiming a tax deduction.
I know how much you’ll love that tax-deduction…
Boost Your Super Even Further
We know the reality is that it’s only when the kids are off your hands, your income has peaked (particularly for people in their 50’s) that you are able to focus on saving for your retirement.
This is the time you have more free cash flow or maybe even receive an inheritance.
If you have the funds and don’t need them until retirement this is the best opportunity you’re going to have to boost your nest egg in a tax effective manner.
You see, the writing was on the way in this election campaign. There was to be a lowering of what we call non-concessional contributions. These are the contributions you make after you have paid tax on them.
Over the years the government has made a point of reducing the amount you can contribute. A bit unfair I think when in your 50’s and 60’s you have the biggest opportunity to contribute as you close in on retirement.
Rarely do you have more when you’re putting kids through school, advancing your career, living life and trying to pay the mortgage off?
Currently, you are allowed to contribute up to $100,000 pa into super from your own funds. Generally, these are funds that have had tax paid on them previously.
You can also use what they call the bring forward rule. That is you can bring forward the next 2 yrs worth of contributions provided you are under the age of 65. Therefore you could contribute up to $300,000 into super in one go.
Remember, you can’t contribute any more than $300,000 over a 3 yr period.
Depending on the amount you are contributing you might want to consider seeking advice to maximise the amount you can contribute.
Why would you even consider such a contribution?
You’re going to be taxed less in your super fund, max 15% on income and 10% on capital gains than most other tax structures. One way of increasing your nest egg when you can.
There’s no doubt going to more changes to come so take advantage of them while you can.
Play Catch Up With Your Super
I think this one is a massive opportunity to boost your super if you have a total super balance less than $500,000.
So, if you have a total super balance less than $500,000 on June 30 of the prior year, the first one starts June 30, 2019, you are able to catch up on your super contributions.
So what does this really mean?
If you read above, you’ll know your total concession contributions are $25,000 pa. That is contributions for which you have received a tax benefit, ie taxed at 15% rather than your marginal tax rate.
You may find that you are not able to take full advantage of these contributions. Whether it be due to work breaks, no spare cash or your focus is elsewhere.
There is now a massive opportunity to make up for any contributions you were unable to take advantage of in previous years. It may be that you have the free income or have built up cash reserves you would like to put to work.
How does it work?
The 2020 financial year is the first year this will come into operation. So, if your super balance is below $500,000 on June 30, 2019, and you have not used up your contribution cap of $25,000 in the 2019 financial year, the amount you did not use will roll to the next financial year. This can happen for the next five financial years.
Let’s say that you were able to take advantage of this in the 2020 financial year.
Your income is $100,000 pa and you have not made any extra contributions apart from your employers 9.5% contribution.
In the financial year 2019, you would have a carried forward unused amount of $15,500 ($25,000-$9,500).
Assuming your income hasn’t changed, you could potentially contribute $31,000 in the 2020 financial year and claim a full tax deduction for it.
That’s a massive benefit not to be passed up.
It could be useful if you have received an inheritance, sold an investment property with capital gains or you have built up cash and have no use for it.
Cut Through All The Noise! Don’t Be OverWhelmed Again!
Are you looking for answers to these questions?
- Will I have enough?/Do I have enough?
- When can I Retire?/If Retired will it last?
- Will I be ok?/Will I outlive my money?
- If something happens to me will my spouse and family be ok?
It’s hard to decipher all the information and work out which way to go.
Let’s get on the phone and we’ll help you answer all those questions.
On this free 30 minute call, we’ll help you work it out.
You’ll walk away with all the key information. How much you will need. How you are currently positioned. What are the options and opportunities to get you there quicker and in better shape?
No longer will you feel overwhelmed. You’ll have a weight lifted off your shoulder financially feeling in control so you can roll into retirement with a lot more confidence.
Your life will have a little less stress and more fun knowing you have a gameplan to enjoy your DREAM Retirement.
Simplify your life now, and plan with intention.
Approaching the $1.6 million level in super?
I have a little laugh about this one with clients.
Picture this, we’re sitting there discussing their super, and generally, the husband has the larger super balance but not always.
Then I start talking about transferring money to his wife. I get the whole, ah I thought you were on my side, I’m not so sure about that.
In all honesty, it’s a little bit of banter between partners. Either way, if anything happens they have split it all anyway.
I believe this is the one that many do not take advantage off and requires long term planning particularly if you are likely to hit and exceed the cap.
If your spouse has lower super balances, then this is going to work big time for you.
You see, at the end of each financial year, whatever contributions have been made and have been taxed, ie under the $25,000 personal concessional contribution cap you can transfer after the end of the financial year.
This is one way of balancing your super balances to ensure you are able to take advantage of both $1.6 million cap limits. This applies when you move your super from accumulation to paying an income from your super. Where you can receive favorable tax treatment.
Whatever your position, there are opportunities aplenty to boost your retirement nest egg. While you may have negative views on super given the rate of rule changes, we have a government that hopefully will see out the next 3yrs.
It’s now time to take action and benefit from the rules in place.
Retirement Planning and super can be complex so it’s advisable to seek professional advice so your position is maximised so you can retire successfully.
Ready to take control, plan with intention instead of winging it?
Jump over to our Retirement Review Call page and find out more?
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Make it a great Life!
Challenging the Status Quo!
Glenn Doherty – CFP – Founder & Financial Organiser at Jigsaw Private Wealth