Money talks: Julia Newbould

This is an opportune time to confirm we’re on course to achieve financial freedom

Creating financial freedom by making the most of your money and setting yourself up for a comfortable retirement along the way is what Money magazine is all about.

As we go to print this month, the release of the federal government’s retirement income review is imminent. It might tackle the issue of whether Australia can afford to meet the legislated increases to the super guarantee (SG), from 9.5% to 10% on July 1, 2021 and reaching 12% by 2025. On page 8 of this issue, our experts share their thoughts about the proposed 2021 increase going ahead when the country is in the throes of a recession.

Of course, retirement income isn’t just about superannuation. Many of us would like to retire before the pension age (67) and super preservation age (60).

Economics has always been an inexact science and Covid-19 has confirmed this. Some people may have been forced into early retirement, thanks to the high level of unemployment. In many cases, this would have taken place long before they were financially prepared to stop working. This should prompt us to rethink the way we look at our retirement incomes.

If you’ve factored an inheritance into your retirement plan, it might be a good idea to take into account the fact that Australians are living longer – in the past 100 years our life expectancy has increased by more than 20 years. So there’s a good chance mum and dad might not have much to leave behind. A 65-year-old man can now expect to live for another 20 years and a woman of the same age can clock up another 22½ years. A fact that throws another variable into the mix.

We might be living longer but those extra years often come with their fair share of disease or injury. The costs of healthcare and aged care can exceed tens of thousands of dollars a year, and many aged care facilities require an accommodation bond, which at the lowest end of the scale may be $200,000 and in excess of $1.5 million at the higher end. Average aged care bonds in Sydney range from $350,000 to $500,000. The bonds are refunded when the resident dies, with the fees and charges deducted. There may still be a considerable inheritance left, but the timing and costs could seriously disrupt your retirement plans.

It’s clear that retirement is a puzzle with many pieces, and as you approach the end of your working life it pays to talk to a financial adviser to get a clearer picture of where you are.

Also, in this issue and the next, Money is running its annual Super Booster campaign and I encourage you to take a close look at these articles – they could well be the key to a better retirement.

Covid-19 and the lockdowns have made many of us question what we can and can’t live without, leading to less mindless spending and more savings, if we’re lucky.

A clever way to save is the simple “bucket” method. Distributing extra dollars into different accounts for short-term, medium-term and long-term savings works well for many. You can add more buckets as needed – perhaps for a private school fund, renovations fund or holiday fund. Some home lenders offer multiple offset accounts to help you manage your savings while reducing your mortgage payments.

If you’re tempted to invest, remember that experts predict the sharemarket will remain volatile over the next few months. But you can take advantage of dollar cost averaging by drip-feeding your money in regular increments. This way you’ll automatically be investing across a range of prices, but on average you will be riding the sharemarket on an ever-rising curve over the long term.

Many are questioning what we can and can’t live without

Twenty months have passed since the release of the final report from the financial services royal commission and its effects are still being felt. In the first six months of 2020, for example, our six largest banks paid $296 million in compensation to people who were incorrectly charged for financial advice they didn’t receive.

This brings the total compensation bill from these six banks to more than $1.05 billion ... and counting. We say counting because at the end of August the regulator ASIC announced it was bringing civil action against BT Funds Management and Asgard Capital Management (both owned by Westpac) over fees for no service.

Westpac accepted ASIC’s allegations that the subsidiary companies inadvertently charged adviser fees to 404 customers for a total of $130,006 after a request had been made to remove the financial adviser from those customers’ accounts.

You can argue whether the BT and Asgard actions were an accident, but either way ASIC clearly found behaviour that warranted questioning and was not honest and fair. Westpac says it selfreported the 404 cases in July 2017, and customers have been contacted and remediated.

But is this enough? Monetary compensation is one thing, but it is unlikely to improve trust in the banking and super sectors.

Not helping the situation in August was ASIC entering a separate civil court case with State Super Financial Services (StatePlus) for charging 36,592 members for advice that no one received. StatePlus has already paid remediation of more than $100 million but, again, I’m not sure it’s enough to resolve any trust issues.

ASIC has now launched four court cases over fees for no service. The other two – against NULIS Nominees and MLC Nominees; and NAB – and are still going through the court system.

What’s helpful in all of this, though, is that ASIC has indirectly told super members what to look for when it comes to fees for no service. Here are two tips:

• If you’re promised an annual financial planning review (and are to be contacted for it), put a reminder in your diary. If the review hasn’t happened by then, call your super fund to arrange it. If you don’t want a review, make sure you’re not paying for one.

• Watch for fees that are no longer charged on one section of your super but turn up somewhere else under another name.