Important information This workbook is intended to provide general information only and has been prepared by MLC Limited (ABN 90 000 000 402 AFSL 230694 without taking into account any particular person's objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial, investment or insurance decision. MLC Limited has its registered offices at 105-153 Miller Street North Sydney NSW 2060 and is a member of the National Australia Bank Limited (ABN 12 004 044 937) group of companies. The trustee of MLC MasterKey Business Super is MLC Nominees Pty Limited (ABN 93 002 814 959, AFSL 230702, RSE Licence Number L0002998). Information about MLC MasterKey Business Super is contained in the Product Disclosure Statement (PDS). Copies of the PDS are available from MLC s registered offices, by phoning the MLC Client Service Centre on 132 652 or by visiting mlc.com.au Persons should consider the PDS in deciding whether to acquire, or to continue to hold, an investment in MLC MasterKey Business Super. An investment in MLC MasterKey Business Super does not represent a deposit with or a liability of the National Australia Bank Limited or other member of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss of income and capital invested. No member of the National Australia Bank group of companies or appointed managers, guarantee the capital value or performance of MLC MasterKey Business Super unless specifically stated in the PDS. While due care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information. Except where under statute liability cannot be excluded, no liability (whether arising in negligence or otherwise) is accepted by any member of the National Australia Bank group of companies for any error or omission or for any loss caused to any person acting on the information contained in this publication.
Your super learning objectives Superannuation has never been more in the news, and never more important to get right. After all, it s your retirement account. What you do from now, right through to when you finish working, will determine what sort of retirement you have. Many people still believe super is something they ll think about down the track. The thing is, if you re working, your employer is already making super contributions on your behalf. While it can be a bit daunting to think about how much you ll need in retirement and how much you need to put away now, it doesn t have to be. This workbook can help you get a better idea of how to plan for your retirement. Learning Objectives Step 1 Set your retirement goals 4 Step 2 Choose your investment strategy 6 Step 3 Contribute to your super regularly 8 Step 4 Protect your family 10 Step 5 Keep it in the family 12 Step 6 Consolidate your super 13 3
Set your retirement goals Whether retirement is 10 years off or so far away you think it s just an old person s thing, you need to have an idea of how you want to spend your retirement. Study note In 1971, only 7.8% of the population was aged 65 years or older. By 2021, this group will be 16.3% of the population. With such a high proportion of retirees, we may not always be able to receive the Age Pension or rely on public health services for our medical needs. Source: ABS Yearbook 2002 1301.2 Retirement means different things to different people. Some imagine staying in their home and spending more time with their family or pottering around and others dream of exploring the world and making new friends. No matter what your vision is, you will need money to retire. At what age do you think you will retire? How much is enough? years How much you need depends on what you expect to do in your retirement. If you want to spend your retirement gardening, you probably won t need as much as if you want to spend it travelling the world. In today s dollars, what after-tax income do you think you ll need each year in retirement? $ pa The worksheet opposite can help give you a general sense of how much money you might need for retirement. These figures are in today s dollars, so if you don t plan to retire for a number of years the actual amount you may need could be significantly higher due to inflation. If your retirement age and income aren't listed on the worksheet opposite, round up to the nearest age or amount. It s better to have too much retirement savings than too little. Step 1 4
Working out your retirement goals Preferred retirement age After-tax income required pa (in today s dollars) $30,000 $40,000 $50,000 $60,000 55 $695,000 $925,000 $1,155,000 $1,390,000 60 $650,000 $865,000 $1,080,000 $1,295,000 65 $600,000 $800,000 $995,000 $1,195,000 Assumes your capital earns a rate of return of 3% pa after tax and inflation and your capital is used up over a period equivalent to the average life expectancy at each of these preferred retirement ages, plus a buffer of 10 years. Figures are rounded to the nearest $5,000. Using the answers you ve written on the opposite page, choose the amount you ll need for day-to-day living expenses from the table above. $ Do you think you ll upgrade your car? How much would you spend? $ + Would you take a big overseas holiday? How much will that cost? $ + Do you want to provide an inheritance? How much? $ + TOTAL (in today s dollars) $ = This is your bottom line retirement figure. Homework To find out if you re on track to achieving your retirement goals visit mlc.com.au and use the Retirement savings gap calculator. For a comprehensive assessment of your retirement savings needs, it s best to seek financial advice. 5
Choose your investment strategy Choosing the right investment strategy can play a key role in helping you reach the retirement goals you've set. Strategies risk and reward Different investments perform differently over time, and the portfolio you choose should be based on many factors, including your investment goals, risk profile and how long until you retire. If you look at shares and property over a short period of time, they tend to be more volatile than low risk investments like cash and bonds. Property and shares can fluctuate very sharply from one year to the next, where cash and bonds tend to have steady returns year on year. Ironically, a conservative portfolio of cash and bonds can be a risky strategy over a long period of time. You might get consistent returns, but will they be enough for the retirement lifestyle you have in mind? $350,000 Asset class comparison $10,000 invested $300,000 $250,000 $287,600 $254,900 $253,200 $200,000 $150,000 $100,000 $50,000 $125,500 $81,500 $0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Global Shares Australian Shares Australian Property Australian Bonds Cash Note: Year ended 30 June This comparison is based on historical performance and is not indicative of future performance. Future performance is not guaranteed and is dependent upon economic conditions, investment management and future taxation. Source data: Australian shares: S&P/ASX 200 Accumulation Index (All Ordinaries Accumulation Index prior to April 2000); Global shares: MSCI World Gross Accumulation Index ($A); Property: ASX 200 Property Accumulation Index (Property Trust Accumulation Index prior to July 2000); Australian bonds: UBS Composite Bond Index All maturities (Commonwealth Bank Bond Index prior to November 1987); Cash: UBS Bank Bill Index (RBA 13 Week Treasury Notes prior to April 1987). Step 2 6
Complete the questionnaire It s important to remember a long planning time horizon gives you the opportunity to ride out market ups and downs, and potentially earn you higher investment returns. To make choosing your retirement portfolio easier try completing the following questionnaire. Please note: while we believe this questionnaire is a helpful guide, it is not a substitute for personal advice as it does not take into account your particular needs and circumstances. For example, the questionnaire may not be appropriate if you are about to retire and plan to spend your super over a short period eg five years or less. 1. Saving more than my employer s current superannuation contributions is an important part of my retirement investment strategy. 2. In addition to accumulating enough money to fund my retirement, it is important for me to have some left over to leave to my family. 3. I plan to retire and begin spending my super in 4. After I retire and begin making withdrawals from super, I plan to spend it over a period of 5. I am prepared to accept some negative short-term (1 3 years) returns if I can maximise my retirement capital in the long term. 6. Investments can go up or down in value, particularly in the short-term. By how much could a $10,000 investment go down in the short term (1 3 years) before you would begin to feel uncomfortable? 7. Generally, I prefer an investment with little or no ups and downs in value and I m willing to accept the lower returns these investments make. Strongly disagree Disagree Agree Strongly agree Strongly disagree Disagree Agree Strongly agree 5 years or less 6 to 10 years 11 to 15 years More than 15 years 5 years or less (see note above) 6 to 10 years 11 to 15 years More than 15 years Strongly agree Agree Somewhat agree Disagree Strongly disagree Any fall would make me feel uncomfortable $1,000 $3,000 I m not worried about market falls, I m investing for the long term Strongly agree Agree Somewhat agree Disagree Strongly disagree Points 12 9 6 3 Your score 3 6 9 12 + 0 10 17 24 + 0 5 8 12 + 15 9 6 3 1 + 0 5 10 15 + 2 4 6 8 10 + TOTAL = Homework When you have completed the questionnaire, total your score and refer to the About your investment choices in the back of this workbook. Use the Update your account details form and select the investment which best suits your needs. 7
Contribute to your super regularly You ve chosen your investment strategy and your employer is adding at least 9% of your salary to your super. You re ready to sit back and watch it grow. Or are you? If you want to make the most of the benefits of investing in super, you have a couple of options open to you. Study note Industry commentators say that for many Australians, the 9% compulsory super contributions won t be enough to maintain a reasonable lifestyle in retirement. 1. Co-contributions free money? It almost seems too good to be true, but the Australian Government is giving away superannuation co-contributions. If you are currently earning less than $58,000 pa* and you make a personal after-tax (undeducted) super contribution, the Government may add up to $1,500 to your account. If eligible, the amount you could receive depends on your contribution and your income, as shown below: If you make a personal after-tax contribution for example of: And your income* is $1,000 $500 The super co-contribution will be $28,000 or less $1,500 $750 $32,000 $1,300 $750 $36,000 $1,100 $750 $40,000 $900 $750 $44,000 $700 $700 $48,000 $500 $500 $52,000 $300 $300 $56,000 $100 $100 $58,000 or more $0 $0 * Includes assessable income and reportable fringe benefits. Step 3 Homework 8 Making additional after-tax super contributions has never been easier with BPAY. Contact the MLC Client Service Centre on 132 652 to get the BPAY code and your customer reference number.
2. Salary sacrifice Another way to make additional contributions to your super is through salary sacrifice. This is where you arrange with your boss to contribute some of your pre-tax salary, wages or a bonus directly into your super. Salary sacrificed contributions to super are only taxed at 15% rather than your marginal rate which could be as high as 46.5% (including Medicare levy of 1.5%). Example Zoe is 45 years of age and receives a salary of $60,000 pa. She has performed well in her job and is anticipating a $10,000 bonus. Zoe negotiates with her employer to have the bonus contributed to her super to supplement her employer s contributions. As shown below, salary sacrificing her bonus will enable Zoe to invest an extra $1,650 for her retirement. Bonus as after-tax salary Bonus as salary sacrifice Pre-tax bonus $10,000 $10,000 Study note Remember the sixties? If you remember the sixties, you ll be looking forward to 1 July 2007, when the Government has proposed that all benefits received from taxed super funds will be tax-free for those aged 60 and over. Less income tax at 31.5%* ($3,150) (N/A) Less contributions tax at 15% (N/A) ($1,500) Net amount to invest $6,850 $8,500 Additional amount to invest $1,650 * Includes a Medicare Levy of 1.5%. Homework Contact your employer to see if you re eligible to make salary sacrifice contributions. 9
Protect your family Study note Three types of insurance may be available in a super fund: Life insurance, which provides a lump sum in the event of your death. TPD insurance, which provides a lump sum if you suffer a total and permanent disability and are unable to work again. Income Protection insurance (also known as Salary Continuance insurance), which provides you with a monthly payment (usually up to 75% of your income for up to two years) if you are temporarily unable to work due to disability. If something goes wrong, you want to be sure your family will have enough money to maintain their standard of living. Take a moment to think about whether your family would cope financially if you die or become totally and permanently disabled. While a benefit may be paid from your super fund, will it be enough to meet your family s day to day living expenses, pay for your children s education and give them the start to life you want them to have? How much after-tax income would your family need if they lost your income? $ pa How long do you expect to provide financial support to your family (eg until your children reach 18 years)? years The worksheet opposite can help give you a general sense of how much life and total and permanent disability insurance you may need to protect your family. Remember to round up if the period of support and income required aren t listed in the worksheet. Step 4 10
How much life and TPD insurance cover is enough? Years you expect to provide financial support to your family After-tax income required pa (in today s dollars) $30,000 $40,000 $50,000 $60,000 10 $265,000 $350,000 $440,000 $525,000 Study note 15 $370,000 $490,000 $615,000 $740,000 20 $460,000 $615,000 $765,000 $920,000 25 $540,000 $715,000 $895,000 $1,075,000 30 $605,000 $810,000 $1,010,000 $1,210,000 Assumes your capital earns a rate of return of 3% pa after tax and inflation and your capital is used up over the period you expect to provide financial support to your family. Figures are rounded to the nearest $5,000. Life and total and permanent disability insurance can be more tax-effective if you purchase it through your super rather than outside. Choose the amount of cover your family would need if they lost your income from the above table. $ How much would you need to pay off your debts? $ + TOTAL $ = This is the amount of cover your family may need. Homework Check your annual super statement to see what amount your family would receive in the event of your death or total and permanent disability. If it s less than what you ve worked out, contact your financial adviser or call 132 652 to arrange increasing your cover. 11
Keep it in the family If you intend to spend your retirement with someone, it makes sense to save for it together. Study note Contribution splitting Splitting super contributions received after 31 December 2005 into your spouse s account could enable you to receive your combined super balances in a more tax-effective manner. Family accounts By having your family members join your employer plan they can enjoy the same benefits you do, including large plan rebates. Talk to your adviser about the benefits. Binding nominations By completing what is known as a binding nomination, your employer plan enables you to elect for your super to be paid to your estate or certain beneficiaries who are considered dependant s for superannuation purposes. These include your spouse, your children, a financial dependant and an interdependent person. Without a valid binding nomination, the fund trustee generally has the final say when determining who should receive your benefit. As a result, your super could be distributed in a manner that doesn t reflect your wishes. Homework Step 5 1. In order to nominate your beneficiary, complete the Update your account details form in the back of this workbook. 2. To find out more about family accounts call MLC on 132 652. 12
Consolidate your super If you ve changed jobs and not rolled over your super, it s likely you have one or more super accounts. It may be easier and more cost effective for you to manage your super by consolidating it into a single account. Bringing all your accounts into the one makes sense. Potentially you can save on fees and get a snapshot of your super position in one statement. If you roll your super into one account as you change jobs you have less chance of losing track of it. Consolidating your super can be simple. All you need to do is complete a Consolidate your super form at the back of this workbook and return it to MLC. For any other help with the form you can contact the MLC Client Service Centre on 132 652. The Australian Taxation Office keeps a Lost Member Register. If you re a member of a fund and they lose track of you, they ll put your name on this register. If you can t find all your super accounts, contact the Australian Taxation Office on 131 020 or find your super online at ato.gov.au/super Please note some super funds charge exit fees and there may be other costs associated with transferring from one super fund to another. Homework 1. Complete the Consolidate your super form at the back of this workbook and return it to MLC. Step 6 2. Check the ATO website to see if you have any outstanding super accounts. Visit ato.gov.au and follow the Super Seeker prompts. 13
Homework checklist Learning Area Have you Yes No Set your retirement goals Choose your investment strategy Contribute to super regularly Protect your family Keep it in the family Consolidate your super Visited mlc.com.au and used our Retirement Savings Gap Calculator to see if you're on track to reach your retirement goals? Selected your investment strategy using the Update your account details form in the back of this workbook? Called 132 652 to obtain your BPAY details to make additional after-tax contributions? Talked to your employer to see if you re eligible to salary sacrifice? Checked if you have enough insurance cover to protect your family if anything bad happens? Applied for more insurance if you need it? Contacted MLC on 132 652 to find out more about family accounts? Nominated a beneficiary in the Update your account details form in the back of this workbook? Completed the Consolidate your super form at the back of this workbook? Visited ato.gov.au to find any lost super? The value of advice While this workbook should give you a running start on how to make the most of your super, it s also useful for you to get some professional advice. After all, Sir Edmund Hillary was a great mountaineer, but even he needed a guide to get to the top of Mt Everest. Your financial adviser can make a real difference to your long term goals, through providing regular reviews of your financial position and coaching. When you consider what s at stake, seeking advice could be one of your better decisions. Financial advisers get to know you, your circumstances and what your financial limitations are. They ll work with you to develop a retirement savings strategy and balance your goals with a realistic plan. There is a range of things financial advisers can help you with including: which super portfolio is best for you how much you should save in super (and how) tax and government initiatives debt management cash flow wealth protection, and estate planning. 14