The Governments 4 pillars of retirement funding

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Super Solutions for Busy PeopleWhile the vast majority of people expect to retire in the future, many have no idea when or how.

For some it’s because they’re active in their lives and don’t want the traditional view of retirement. They prefer the thought of being physically and mentally active until their time is done.

For others, they can’t ever imagine the Age Pension as being enough money to enjoy life.

Perhaps this is why an ever increasing number of people, in recent years, have been talking of active retirement with part time work or not ever retiring at all.

For many, the deciding factor will be the amount of money they’ll have available.

So while there are many places for you to deposit hard earned savings, I thought I’d outline the four pillars of the Governments Retirement Income Policy to help you better understand some of the decisions they make about your financial future.

Age Pension – The Federal Government provides a safety net, albeit a small one, for those who are unable to provide for themselves.

While many alarmists would have you believe that there will be no Age Pension in the future, it is far more likely that it will always exist. It will just become harder to obtain and you won’t get it until you’re a lot older. One recommendation is that Age Pension eligibility be increased to age 75. It’s already been increased to 67 for anyone born after 1 January 1957.

*If it’s true that we’re only 10 years away from unlocking the genetic code that will us to live to 150 then expect this to be increased further.

Superannuation Guarantee – Compulsory Super contributions made by employers on behalf of their employees.

While compulsory Super has been in force since 1992, it only reached the contribution level of 9% in 2002. Many commentators agree that this is still nowhere near enough. Unfortunately, if you’re hoping to rely on your employers super this means that this second pillar will leave many Gen X & Y future retirees short of cash.

Fortunately, there are things you can do to help.

Tax Concessions – The Government provides tax savings for people who elect to contribute a portion of their income to Superannuation.

Care needs to be taken with this as excess contributions above the age based limits will result in even more severe tax. I’ve seen this strategy dramatically increase the wealth of clients who ordinarily struggle to save money in non super investments.

Government Co-contribution – If you earn less than $61,920 per year the Government will reward you for saving into super from your after tax cashflow.

The maximum contribution from the government is $1,000 and starts reducing from income levels above $31,920 per year. People on these lower levels of income usually find it harder to save so the concept of getting a 100% return on the first $1,000 they contribute is a great sweetener.

While the first two pillars and their machinations are generally beyond your control, the second two provide options for most people.

You probably already know someone who is trying to exist on the safety net of the Age Pension. Is that a life you want for yourself?

Me Either.

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