Dollars and Sense
The inimitable Oscar Wilde said, “When I was young, I thought that money was the most important thing in life; now that I’m old, I know that it is.” The author Henry David Thoreau may argue that “wealth is the ability to fully experience life” – and in many cases he’d be right – but there’s no denying that while cold, hard cash can’t buy you happiness, there’s a reason just about everyone wants more of it. For starters, it can afford you greater freedom to do whatever you desire, whether it's cruising down the Danube or working your way through Australia’s fine dining scene. It can alleviate stress, provide opportunities and steer you in the direction of the life you’ve always dreamed of.
And yet certain words pertaining to finance have long elicited stifled yawns and glazed eyes. Tax, for instance. Superannuation. But when you really start to think about it – to understand that there are ways you can help your money grow – even when the tap of a traditional income has been turned off, the potential of your bank balance suddenly becomes very interesting indeed.
A little bit of planning goes a long way
The first thing you ought to do? Have a plan. It may seem simple, but according to Matt Bradley, financial adviser at Griffin Financial Services (griffinfinancialservices.com.au), one of the biggest misconceptions about money in retirement is that it’s going to last. Which is why having a strategy is key to ensuring you can keep enjoying your hard-earned coin for as long as you need to.
“Start by asking yourself what you want your retirement to look like. It’s a good idea to know your ‘number’ – the amount of money you’ll need to live comfortably,” he says. “Once you have that figure in mind, you’re able to formulate a plan of how to get there – and if you can’t get there, you might work up a plan around that, and alter your goals accordingly.”
Bradley adds that knowing what your financial and lifestyle goals are is invaluable for creating a map that can help you reach those goals. “There are lots of little things you can do along the way, like cutting back on things that aren’t making you happy and concentrating on the things that do,” he says. “Setting those goals and priorities is really important because without them, you won’t know where your money’s at and it’s much more difficult to save. It’s a good idea to speak to a professional, such as a financial adviser, who can point you in the right direction and give you options about how to get the best return from your money.” Especially when there are holidays to be planned, and life to be enjoyed.
Supercharge your Super
Superannuation is a bit like a pot plant. If you metaphorically water it and look after it (even talk to it, if you’re that way inclined) – it will flourish. But leave it in the dark without nourishment or attention and chances are it won’t do quite as well. It’s your money, after all, so it makes sense to take a serious interest in how that money’s invested.”
“When planning your financial future, take a look at all your assets and get a big picture of what you own,” says Bradley. “A large part of that is your super. People underestimate how valuable super can be, and don’t always understand that it should be treated as an investment. But because your super account may have been set up decades ago, you might not think to reassess how it’s invested and what the investment portfolio looks like now,” he says.
One of your priorities might be protecting your capital, so that if the market drops significantly, it's not going to be a problem for you. Bradley suggests looking at how your money is invested within your super, and trying to protect as much of it as possible from potential market downturns. “Insider super, for example, allows you to invest in income-producing assets as well as capital growth. This means you also have assets that are lower risk but can give you an income as well.” Hello dividends! Let’s go shopping.
Be as tax-effective as possible
It only has three letters and one syllable and yet the word ‘tax’ is perhaps the one that inspires the most groans and eyerolls. Let’s face it – tax can be taxing. And yet there are strategies you can use that might help you feel a little less like giving it the cold shoulder. For example? You may not realise that superannuation is a very tax-effective way of building wealth in retirement, for the simple reason that you’re taxed significantly lower inside of super than you are outside of it. (Which means more money in your pocket than the government’s).
“Any growth inside your super is taxed at up to 15%, which could be more than half of what you might pay if you held shares outside of super,” says Bradley. “So you see, there are clear tax savings to be made.”
And when you turn sixty, there’s another tax-free reason to celebrate. “If you convert your super into a pension at the magic age of 60, you enter a zero tax environment,” Bradley explains, “So the money you pull out of your pension is tax free, as is any investment growth within it. Just make sure you speak to your financial planner for specific advice first.” It’s another way of minimising tax, while maximising possible returns to your wallet. What’s not to love?
Tailor your plan
Much like searching for the perfect handbag (or briefcase, for that matter) there are plenty of financial products on the market to choose from. Some might suit you, others might not, some come with high risk and higher returns, others take a more gentle approach. The one thing that’s certain is that there’s something to be gained from speaking to a professional who can give you an insight into the many options available, and help tailor a plan which can make sure your money’s working as hard for you as possible.
“I think it’s important to bear in mind the importance of diversification within your investment portfolios,” says Bradley. “While you can move your assets into areas that are safer, like bonds, fixed interest or cash, it’s possible in the current market you won’t get as much of a return.” The key is to have a balance between income vs growth – and savings vs life satisfaction. In short? Some advice from a wise old hen: Don't put all your eggs in one basket.