We all want to be debt free, have money saved and be able to live a comfortable lifestyle when it comes to retirement. Sometimes, our decisions or unexpected events may occur which make that dream seem unachievable. With a few considerations that dream doesn’t have to be unachievable.
Get help early on, be prepared for the unexpected and keep your finances on track.
Smart spouse investing
There are a number of potential benefits in taking a coordinated approach to savings and investing, as well as day-to-day budgeting that spouses should consider.
There is a rise in couples thinking about this approach in part, because of the lowering of superannuation contribution caps, the new $1.6 million pension transfer cap and a proposal to increase the maximum number of members in a self-managed superannuation fund (SMSF).
Whether a joint approach to money works in the interest of both spouses, depends on personal circumstances.
Potentially, the benefits of such an approach are that couples are working together to achieve mutually set financial and personal goals.
By contrast, spouses with an uncoordinated approach may be unintentionally pulling in different directions. They may not be making the most of opportunities to save and invest, and perhaps have no realistic impression of how far their savings will stretch in retirement.
Consider making a list of at least the fundamental ways that you and your spouse can harmonise your finances. It is then beneficial to discuss the list with an adviser.
Your list may include: budgeting together, setting shared long-term goals, coordinating investment and saving strategies to achieve those goals, and setting appropriate asset allocations and diversification for portfolios held jointly and individually.
Other critical matters to add to your list include: deciding whether your family has enough life, disability, income-protection and medical insurance; minimising investment costs that handicap investment success; and undertaking coordinated estate planning.
An estimated two-thirds of Australian couples are typically in a marital relationship at retirement ages. As actuaries, Rice Warner comments in a research paper, “it simply makes sense” for them to take a synchronised stance to managing their wealth.
Age pension eligibility and payments are based on “singles” or “couples”, adding to the case for couples to take a coordinated approach.
Raising a family
Couples with a coordinated stance to managing their money typically improve their chances of catching up on their super contributions while one takes a few years off work to raise children. For instance, the partner remaining in the workforce could increase their super contributions if possible or split their contributions with a spouse taking time out of the workforce.
The lowering of the contribution caps and the introduction of the $1.6 million pension transfer cap provides further incentive for a couple to combine and coordinate their savings efforts.
The indexed $1.6 million pension transfer cap is the maximum transferrable from an accumulation to a pension account from 1 July 2017. Further, members with total super balances (in accumulation and pension accounts) greater or equal to the transfer cap can no longer make non-concessional (after-tax) contributions without exceeding the contributions cap.
Self-Managed Superannuation Funds
Rice Warner has observed in the past that most SMSFs are set up by spouses who then mostly “co-mingle the assets” in what is “effectively a joint superannuation account with each partner’s share identified”.
From July 2019, the Government proposes to increase the maximum number of members in an SMSF from four to six. As the Australian Superannuation Handbook 2018-19, published by Thomson Reuters, comments, “the proposal seeks to provide greater flexibility for large families to jointly manage their super”.
Finally, a core benefit for spouses taking a joint approach to family finances is that both should gain a better understanding of their family finances.