Now is the time to review your financial situation for 2024

Have a good think about your finances for 2024.

Have a good think about your finances for 2024. Photo: Getty

As the new year rolls around, take the opportunity to review your financial strategies to ensure you maximise your position and build a better retirement.

How your super fund performs is extremely important in building your retirement balance. So check your fund’s latest performance and compare that with the overall performance of super funds with your asset allocation.

If your fund is significantly below the average return for your asset allocation in the past year then check it over time – say for three and five years.

If it is continually underperforming then think about changing over to a better-performing fund.

The average growth fund has returned 7.5 per cent annually for three years. Many big funds now enable you to check the performance of your fund against a couple of other competitors in detail, so check whether your fund has this option.

Another indicator of underperformance will be a letter from the regulator or your fund telling you that APRA has declared it an under-performer.

That is a serious alarm bell, so if you get one of those seriously consider a fund change.

Investment strategies

If you are still working it pays to consider your savings and investments at the start of the year.

For those with a mortgage, interest rates will have gone up significantly over 2023. If you’re feeling the pain have a good look at what you’re spending to save some cash.

That could go into the mortgage or savings you are putting aside to build a deposit.

Wayne Leggett, principal with Paramount Financial Solutions, says if you have some cash you need to weigh up where you should put it.

“Remember, if you’re in your 30s and you can’t touch your super till you are at least 60, you need to weigh up the pros and cons of putting any extra cash in super as opposed to paying down debt,”

Boosting super

If you are looking to boost your retirement savings, there are a few things to think about.

Firstly, government legislation means that you will be getting a boost in super contributions in July when the Super Guarantee rate goes from 11 per cent to 11.5 per cent.

If you’re on a salary of $70,000, including super, then your annual super contribution will increase by $350 over the year to July 2025.

For those who want to boost super savings more than that, remember you can now make a total of $27,500 in concessional or tax-deductible superannuation payments.

Anyone wanting to make bigger contributions than that now has the benefit of an increase in non-concessional contributions.

Since July 2023 the non-concessional cap has increased to $110,000 a year or a total of $330,000 carried forward for three years.

But remember to make non-concessional contributions you must have less than $1.7 million in your fund.

For concessional contributions there is no balance limit but you must be under 75 to make them.

What about retirees?

If you are retired then it is a good time to consider how much you are withdrawing from super.

For many retirees superannuation withdrawals are not the only funding source for retirement.

The majority are receiving some government pension as the chart from Super Consumers Australia (above) demonstrates. Others work part-time or receive some income from investments.

The government mandates retirees take a minimum amount from their super depending on age, as the chart below shows.

For example, those between 65 and 74 must take out 5 per cent of their fund each year.

But a recent survey from Super Consumers Australia found that only 23 per cent of people are taking out more than the minimum amount.

And for many people that minimum is what they view as the government recommendation of their spend.

That is not true, however, and that mentality risks having a more frugal retirement than you can actually afford.

A survey from National Seniors and Challenger in 2022 found that 23 per cent of retirees were not taking enough out of super to reduce their balances and planned to die with all their super intact.

Those withdrawing only the bare minimum are doing so for a range of reasons as the chart below identifies.

If you are currently retired it makes sense to reconsider your drawdown level to ensure you are not selling yourself short on retirement income.

There will be lots of points to consider, such as likely health and aged-care costs in the future and the sort of bequests you plan to leave your children.

A financial adviser could be useful in helping you determine your retirement needs.

“Yet our research also found that only 43 per cent of older Australians have sought some kind of advice about money in retirement,” Super Consumers Australia acting director Gerard Brody said.

If you don’t have an adviser the government’s Moneysmart website has a retirement calculator that will help you determine your needs.

Asset allocations

Regardless of whether you are working or retired it is valuable to reassess your asset allocations in superannuation.

Most people choose the balanced option in their super, which has somewhere between 60 and 80 per cent in growth assets.

That allocation is useful because it has delivered in the long term.

Chant West’s research shows that over five years it has returned an average of 5.7 per cent and 6.6 per cent over 10 years.

That has almost always been well above the inflation rate so it builds real wealth for super fund members.

Leggett says in retirement it is important not to be too conservative.

“Consider that you might have 30 years to live in retirement and if you take too conservative an approach your money might not meet the lifestyle objectives you have set for yourself,” he said.

Younger people could benefit from taking a more aggressive allocation that will return more over time.

The New Daily is owned by Industry Super Holdings

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