Money, Cash & Finance

In order to provide for your retirement investing has become increasingly important over the years, as the future of social security benefits becomes unknown. There are of course many forms of investment, but the main two that are available to the average man in the street are real estate and stocks. If you are interested in investing in the stock market maybe you should read some of Warren Buffet books!.

It is a very normal need for men and women to want to insure their futures, and they know that if they are depending on Social Security benefits, and in some cases retirement plans, that they may be in for a rude awakening when they no longer have the ability. Investing wisely is the answer to the unknowns of the future because it has been shown that most people need much more money to live on in retirement that they think.

You may have been saving cash in a low interest savings account over the years. Now, you want to see that money grow at a faster pace. Perhaps you’ve inherited money or realized some other type of windfall, and you need a way to make that money grow. Again, investing is the answer.

Leaving money in a safe bank account earning maybe 5% a year, if you are lucky, is considered investing by many, but in general it’s a pretty poor deal, after accounting for inflation you are growing your money very little in real terms.

Investing is also a way of paying for the things that you want, such as a new home, a college education for your children, or expensive ‘toys.’ Of course, your financial goals and timeline will determine what type of investing you do.

Trading stocks can also be a form of investing if you have a medium to long term outlook, but make sure that you get some good trading education 1st.

If you want or need to make a lot of money fast, you would be more interested in higher risk investing, which will give you a larger return in a shorter amount of time. If you are saving for something in the far off future, such as retirement, you would want to make safer investments that grow over a longer period of time.

The overall purpose in investing is to create wealth and security, over a period of time. It is important to remember that as you get older you will not always be able to earn an income… you will eventually want to retire.

You also cannot count on the social security system to do what you expect it to do. As we have seen with Enron and other frauds, you also cannot necessarily depend on your company’s retirement plan either. So, again, investing wisely is the key to insuring your own financial future, but you must make smart investments.

When considering investments you have also got to be very carefull to avoid investment trading scams, things to look out for are unrealistic rates of return.

In order to provide for your retirement investing has become increasingly important over the years, as the future of social security benefits becomes unknown. There are of course many forms of investment, but the main two that are available to the average man in the street are real estate and stocks. If you are interested in investing in the stock market maybe you should read some of Warren Buffet books!.

It is a very normal need for people to want to insure their futures, and they know that if they are depending on Social Security benefits, and in some cases retirement plans, that they may be in for a rude awakening when they no longer have the ability to earn a steady income. Investing wisely is the answer to the unknowns of the future because it has been shown that most people need much more money to live on in retirement that they think.

You may have been saving money in a low interest savings account over the years. Now, you want to see that money grow at a faster pace. Perhaps you’ve inherited money or realized some other type of windfall, and you need a way to make that money grow. Again, investing can be the answer.

Leaving money a safe bank account earning maybe 5% a year, if you are lucky, is considered investing by many, but in general it’s a pretty poor deal, after accounting for inflation you are growing your money very little in real terms.

Investing is also a way of paying for the things that you want, such as a new home, a college education for your children, or expensive ‘toys.’ Of course, your financial goals will determine what type of investing you do.

Trading stocks can also be a form of investing if you have a medium to long term outlook, but make sure that you get some good trading education 1st.

If you want or need to make a lot of money fast, you would be more interested in higher risk investing, which will give you a larger return in a shorter amount of time. If you are saving for something in the far off future, such as retirement, you would want to make safer investments that grow over a longer period of time.

The overall purpose in investing is to create wealth and security, over a period of time. It is important to remember that as you get older you will not always be able to earn an income… you will eventually want to retire.

You also cannot count on the social security system to do what you expect it to do. As we have seen with Enron and other frauds, you also cannot necessarily depend on your company’s retirement plan either. So, again, investing is the key to insuring your own financial future, but you must make smart investments.

When considering investments you have also got to be very carefull to avoid investment trading scams, things to look out for are unrealistic rates of return.

Superannuation funds allow you set yourself up financially for retirement. Both yourself and your employer can contribute to it over time and this money is then invested into a variety of  appropriate investments such as shares, property, savings accounts and government bonds.

When you retire, or qualify for your superannuation due to disability or death you will receive the money (less charges and taxes) either as regular payments made periodically, a lump sum payment, or a combination of the two.

The Superannuation Guarantee came into effect on July 1, 1992, making it compulsory for employers to contribute to an employee’s superannuation fund.

The minimum amount of the contribution is 9% of an employee’s wages. This excludes overtime, fringe benefits and leave loading).

However, some employees are not covered by this “guarantee”. The Superannuation Guarantee Act states that it is not compulsory for employers to contribute to the Superannuation Guarantee under certain circumstances.

Some of these exceptions include:

• If an employee earns less than $450 per month;
• If an employee works 30 hours per week or less and is under the age of 18;
• If an employee is over the age of 70;
• If an employee is paid to do domestic or private work for 30 hours per week or less.

Is the employer able to contribute further, exceeding the compulsory limit?

An employer is allowed to make higher contributions than the amount specified in the superannuation guarantee, but only as:

• a reward based on the performance of an employee;
• an employers contribution that increases in line with the employees voluntary contribution;
• a ‘salary-sacrifice’ – this is where the employer makes a contribution which tend to be benefits such that would otherwise be paid as salary.

By seeking advice from a financial advisor you can find out how to get your employer to pay more, but you have to remember that employers are limited by the amount that can be claimed as a deduction for superannuation contributions made.

These limits can change from year to year so check with your superannuation fund or the Australian Tax Office to be sure.

Should employees contribute too?

If you have more disposable income than you require, and feel you are in a position to save this money towards your future, it may be wise to consider making superannuation contributions as opposed to investing it elsewhere.

There are aged limits that dictate whether or not you can contribute to superannuation – for more information on this, see the Australian Taxation Office web site.

The benefits include:

• you generally pay less tax on interest accumulated from superannuation savings than you would on interest from a bank account, although it is worth looking into deals on savings accounts as interest rates can work out higher, thus providing better rewards in the long-run;
• the ’salary sacrifice’ scheme automatically takes the the superannuation contribution from your salary, which eliminates the possibility of you being tempted to spend the money on anything other than savings.
• There are limits involved to the amount that can be added to the salary sacrifice;
• the interest on superannuation savings is added onto the total investment, so effectively the interest earns more interest.
• The Australian Prudential Regulation Authority (APRA) estimates that a sum of money ‘compounded’ at 7% a year will double in value in ten years;
• you may wish to consider taking advantage of incentives offered by the Government, such as the co-contribution scheme. This scheme allows you to be given up to $1500 from the government when you contribute to your fund.

Go to the Australian Taxation Office web site for details.

tax advantages

• The maximum tax rate for contributions made by your employer is 15%.
• The income earned through the fund’s investments is also taxed at a maximum rate of 15%.
• Salary sacrifice contributions are taxed at 15%.
• When an employee hits 60 they can withdraw their superannuation as a one-off lump sum or as a tax free income stream.

laws

Superannuation funds have several boundaries, these include:

• Superannuation Industry Act and Regulations;
• Superannuation Guarantee Act and Regulations;
• Income Tax Assessment Act.

Jargon definitions

Accumulation funds – this is the money is invested and the final benefit depending on the overall contributions, plus earnings of the fund.

Annuity – Similar to a pension. You receive regular payments that are made periodically for either a specified amount of time or until you die.

Benefit – the amount paid to you out of the superannuation fund or kept on your behalf within the fund.

Contribution – the money paid into the superannuation fund by either yourself or your employer.

Lump sum – the entire fund received in a single one-off payment.

Preserved – money that is held on your behalf that you cannot access until retirement or certain other circumstances, such as reaching a certain age or leaving employment either temporarily or permanently. This includes money contributed by an employer, interest earned on the fund or contributions made by a self-employed person which have been claimed as a tax deduction and any contributions not deducted made after 1 July, 1999.

Rollover – moving money from one fund to another.

What you should be aware of

You are entitled to certain information from your superannuation fund. This includes:

• a member statement showing the amount of your benefit at the beginning and end of the related period, the amount that is preserved and contact details;
• a fund report showing the fund’s financial status;
• notification of any changes that affect you;
• a statement that shows your benefit