Post tax time planning

The beginning of a new financial year is a good time to talk to your financial planner about some of the tax effective strategies that suit your situation and assist with your financial future, retirement and savings goals.

The main concept around setting a SMART goal; is to be thoughtful about your goals, make them matter, ensure there is clarity, monitor their progress towards completion. Financial Advisers use this common concept to achieve their client’s goals and objectives.

According to Dr Edwin Locke1, individuals who follow this formulation have higher performance in achieving goals than those who set easy goals:

  • S – Specific
  • M – Measurable
  • A – Achievable
  • R – Realistic
  • T – Timely

Some examples of our client goals are provided below. Please keep in mind, these are examples only and we encourage all individuals to engage with a Financial Planner to discuss the best option for you.

The advantages of putting money into superannuation (2)

  • Tax effective growth because you pay less tax on investment earnings inside super (15% as opposed to their marginal tax rate of up to 37%, plus medicare levy of 2%).
  • Making a Concessional Contribution may enable you to reduce your PAYG for the year.
  • Broader investment opportunities than sitting in cash or fixed interest (term deposit).
  • Reduce the amount of tax in retirement to maximise your retirement income.
  • With the expert help from a Financial Adviser, you have a structured plan in place to achieve your financial objectives.

Meet Sally

Sally (Age 32) has recently had her first child and will be working casually for the next 5 years. Her income is estimated to be $25,000 p.a. Her main concern is around her superannuation balance not growing & being eroded by fees.

Specific – Sally wants to ensure her superannuation continues to grow.

Measurable – Review my budget and if cash flow is available, to look at contributing into super.

Achievable – This is achievable through monitoring expenses and cutting back ‘wants’ to have available income.

Realistic – Yes, cash flow is available through her salary.

Timely – Each year, over the next 5 years until Sally returns back into the workforce.

In the next financial year, we have recommended Sally to make a Non-Concessional Contribution of $1,000 into super ($84 per month). Based on her income, Sally will be eligible for the Government Co-Contribution of $500. An additional $2,500 over the next 5 years.

Meet Tom

Tom (Age 35) has started with a new employer and is earning $80,000 p.a. He has never been good with budgeting but would like to make sure his money is being used wisely for his future.

Specific – Tom wants to use his money wisely for his future and build wealth effectively.

Measurable – This is measured through tax saving due to high income and using a portion of his income to put away to build wealth.

Achievable – Tom can save $150 per fortnight from his pay.

Realistic – Yes, cash flow and capacity is available.

Timely – Long term time frame, he would like to retire around age 65.

Once we reviewed his budget, we recommended Tom to make Salary Sacrifice contributions of $150 per fortnight ($3,900 per annum). This is a tax effective strategy, he has an additional $761 in his superannuation and tax benefit per year.

Superannuation balance at retirement (Age 65)*;

No Salary Sacrifice – $668,649

With Salary Sacrifice – $1,386,551

* Assumptions used, Tom has an initial super balance of $30,000. Earning rate 7% p.a. no other changes have been made to his employment.

Meet Mitch & Jessica

Mitch (Age 55) and Jess (Age 49), they would like to start preparing for retirement. They have nearly paid off their mortgage & would like to begin putting more into their superannuation.

Specific – We would like to live comfortably during retirement & have a holiday every two years.

Measurable – We expect our lifestyle expenses during retirement to be $40,000 p.a.

Achievable – Yes, this is achievable once our mortgage is paid off. This reduces our lifestyle expenses to $40,000 p.a.

Realistic – Yes, we both work and able to save $2,000 per month from our combined income.

Timely – We plan on retiring at Age 65.

After retaining an emergency fund, we have recommended that Mitch and Jess begin putting $1,000 each into superannuation fund as a personal concessional contribution. An additional combined total of $24,000 into superannuation each year. This remains under their concessional contribution limit per year ($27,500 p.a – starting 2021/2022 financial year).