Following your own path to retirement
While two-thirds of older workers felt that they had enough money saved for their retirement, there are things you can do to help maximise your retirement savings.
And when it happens later in life, you’re likely to each bring assets, debts and perhaps children into the relationship.
Previously you may have had an image in mind of what life will be like when you retire, whether it be travelling the world or spending time with family. And, thinking ahead, you may have even started getting financially prepared.
Then a new partner enters the picture, which typically means sharing your plans for the future. Indeed, this scenario is becoming increasingly common as more Australians begin new relationships later in life.
Take the most recent marriage and divorce figures from the Australian Bureau of Statistics, for example, which show that 20.9 per cent of grooms and 18.9 per cent of brides in 2015 had been married before. And for the same year, the median age of males at divorce was 45.3 years and 42.7 years for females.1
With this in mind, here are some key questions you may wish to consider as you plan for retirement together:
1. What’s your partner’s net worth?
When we talk about ‘net worth’ we mean the total value of your assets minus your debts. Being frank about what you each earn, own and owe will give you both a clear picture of the financial foundation you’re starting on as a couple.
2. How much money will you both need in retirement?
You may need to re-think how much you need to save for retirement when you become part of a couple.
As a guide, the Association of Superannuation Funds of Australia (ASFA) puts annual dollar amounts, updated quarterly, on how much single retirees and retiree couples may need to fund ‘comfortable’ and ‘modest’ retirement lifestyles.
For the December 2016 quarter, a couple aged around 65, looking to achieve a comfortable retirement, needs to spend $59,808 and a single person needs to spend $43,538 a year.2
3. How does your new relationship status affect your Government Age Pension entitlements?
The maximum fortnightly payment rates are different for couples and singles. Your rate also depends on your income, assets, and other circumstances, with income and assets test thresholds different for singles and couples.
You can find out more about the Age Pension, including the current maximum rates and thresholds, on the Department of Human Services website.
4. Could you give your partner’s super a boost?
Helping your partner increase their super balance might be something you’d like to consider if, for example, they’re younger or earn less.
You may be able to split up to 85 per cent of your concessional (before-tax) super contributions (these include your employer’s Super Guarantee contributions and any salary sacrifice contributions you make) to their super.
Remember that there are limits to how much concessional contributions you can make before additional tax applies and, in order to split contributions, your partner must be under age 65 and not retired. The rules can be complex so it’s a good idea to talk to a financial adviser or your accountant before you act. You can also find out more at the ATO website.
Alternatively, you could choose to make eligible spouse contributions from your after-tax income straight to your partner’s super account. As well as building their super balance, you could qualify for a tax offset of up to $540, depending on your partner’s income and the amount you contribute.
Again, limits apply to the total level of after-tax contribution that your partner can receive into their super account before additional tax applies, and to receive spouse contributions they need to be under 65 or 65 to 69 and have satisfied a work test during the year.
5. Will you own assets separately or jointly?
Something to consider when putting assets and liabilities in joint names is that you’ll not only share ownership of the asset, you’ll also both be responsible for the debt.
It’s also worth keeping in mind that, if you pass away, a jointly owned asset (assuming it’s owned in a ‘joint tenants’ arrangement) automatically goes to the other joint owner without forming part of your estate. You should obtain legal advice to better understand this issue.
6. Do you want to open joint accounts?
Setting up joint savings, cheque and credit card accounts has its pros, such as there are less fees with one account, it can be easier to make joint home loan, rent and bill payments and you can build up your savings together.
However, if you have different attitudes towards spending and saving, it may be wise to consider keeping some or all of your accounts separate.
7. Do you want to review your estate plan?
A well-crafted estate plan will give you the assurance that your dependants will be provided for the way you intend.
In most cases, when a person dies their super fund pays their remaining super to their nominated beneficiary, according to the ATO. Super paid after a person's death is called a 'super death benefit'.3
Under super rules, death benefits must be paid to one or more of your dependants or your legal personal representative/estate.
If the rules of your fund allow it, you can provide your super fund with a nomination of whom you wish to receive your super in the event of death. This nomination may be non-binding or binding.
If a binding death benefit nomination is allowed and is valid at the time of death, the trustee of your super fund must pay your death benefits to the dependants/legal personal representative you have nominated. To find out more, visit the ATO website.
It is also recommended that you review your broader estate plan with a legal adviser, including updating wills, powers of attorney and insurance nominations, as these would often need to change when someone has a new partner.
Before you start planning, it's important to remember that everyone's situation is different – so please consider obtaining professional advice, including from a financial adviser.