What to consider when helping your children buy a home
So you want to help your children buy a house. But will that generosity hurt your down the line?
In an ideal world, we’d retire from work when we felt like it – free to travel the world, take up a new interest, or just relax. But many women just don’t have that luxury. They’re living longer than men – and between the ages of 55 to 64 have just $196,000, in super compared to $310,000 for men of the same age.1 For many women, that can mean fewer choices about the type of lifestyle they can enjoy in retirement.
What key factors are causing the gender super gap?
The way to achieve a better super balance comes down to you. Rest assured, there are many ways you can do it.
Mike Beal, a Financial Planner from the Sunshine Coast, says his first piece of advice to women is to work backwards. “Figure out how much money you think you’ll need at retirement allowing for inflation, and you’ll get a good idea of how much you should put into your super,” he says.
It’s advice that applies to any age or gender. If you have limited knowledge of financial matters, learning how to drive your super more effectively doesn’t have to be a stretch. You can visit an independent site such as the Australian Securities and Investment Commission’s MoneySmart for easy-to-understand information about how super works and your range of options.
Not your thing? In that case, the next step may be to talk to a financial adviser. This is a specialist who’ll assess your financial position, discuss your plans for the future and provide a plan to help you track and achieve your financial goals. You can start by visiting the Financial Planning Association of Australia website.
If you’re a young woman starting out in your career, retirement is hardly a pressing concern – but making your money stretch further can be. Making a small change now could make a big difference to your future finances.
One of the best things you can do is to start early in building your retirement income.
Making extra contributions to your super, on top of what your employer pays in, could help to boost your super savings.2 It’s a good idea to speak to your employer about contributing to your super through a salary sacrifice arrangement. This means your employer will pay money out of your before-tax salary into your super account.2 The amount will generally be taxed at 15%, a big saving on your ordinary tax rate (if you earn more than $37,000).3
It’s never too late to make a difference.
You can still benefit if you have continued employment (while you’re working, you can contribute to super); have a budget (live within your means); and get good financial advice (understand it yourself or talk to an expert).
“If you’re not contributing enough or anything to super, the biggest thing you’re missing out on is compounding interest,” Beal says. “The longer you leave it, the harder it becomes.”
There are other ways to boost your super balance. If you’re married and you earn $37,000 or less, your spouse may be able to contribute to your super, and possibly earn a tax offset by doing so. Alternatively, you may be able to split contributions with your spouse. Check with a financial adviser to see if this strategy would work for you.
You may also be eligible for a boost of up to $500 direct from the government, if you make a personal (after-tax) contribution to your super and you earn less than $52,697. It’s known as a co-contribution. Check the ATO website for more information.
Small business owners, struggling with secure cash flow, often leave their own super payments in the too-hard basket. And more than a third of all small business owners are women.4 But finding a way to pay yourself first by putting aside money for your super will help you plan and take control of your future.
2. Before-tax (concessional) contributions are limited to a general cap of $25,000 in a financial year, with additional tax applying for contributions in excess of this cap. Concessional contributions include employer super guarantee payments, salary sacrifice contributions and any personal contributions for which you claim a tax deduction. Unused concessional cap carry forward: If you haven't reached your concessional contributions cap during a financial year, you may be able to carry forward unused concessional cap amounts to use in future years. Access to unused concessional cap amounts applies from 1 July 2019 and is limited to people with a total superannuation balance less than $500,000 and to unused amounts from the previous five financial years (starting from 1 July 2018).
3. ABS Australian Bureau of Statistics. The highest marginal tax rate is 45% plus 2% Medicare levy. Concessional contributions such as salary sacrifice are generally taxed at just 15% when received by your fund. However, a higher rate of tax may be payable on part or all of these contributions if your income and before-tax contributions are more than $250,000 in a financial year.
Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Colonial First State is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.
Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
Colonial First State is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.