Uncensored Money Season Three: Catching Up on Superannuation

Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 23/03/2022

Show Notes

In the fourth episode of Season 3, Mel and Lawsie continue the discussion from last week’s episode about the impact of having a break, for whatever reason, from contributing to your super.

In this episode, they discuss language, bias, the importance of having choices and being aware of the financial impact of those choices and then they get super practical sharing 5 strategies to catch up on your super (including additional contributions, superannuation rebates, co-contributions, using round-up apps).

During this episode, Mel also mentions a calculator you can use to determine the cost of your career break on your superannuation and how to catch up on it: https://www.melissabrowne.com.au/supercostandcatchup

Transcript

Mel: Over on Insta and here as well, I've been talking a lot about career breaks and super. That's because whether it's starting a business, having a child, taking a sabbatical, doing some further study travelling or whatever reason you have for a career break, too often the forgotten cost of that is superannuation.

Now if you missed that chat, then head to the last episode or jump onto my Insta, which is more money for shoes and take a look and join in the conversation.

But today I'm joined with Lawsie and we are gonna talk two things; language and bias. That's one and two is how you can catch up that lost super.

Welcome back Lawsie.

Lawsie: Thank you. It's been a while just letting you do your solo gig.

Mel: You know how I like talking to myself? It's really not a stretch. So when it comes to language and bias, I have to confess. I am shocked at how many people suggested that I didn't value staying at home with children.

And these are comments, DMs that I've received over an Insta. And can I just say, I know I don't have children, but what I do value above all things is choice. So if you want to stay home and have at have children and then be at home with them, I'm all about you having the choice to do that. If you wanna go back to work, I'm all about you having the choice to do that. If you don't want kids, I'm all about you having the choice to do that. So if you're thinking I don't value that, (a) you're wrong.

But number two, the other thing that I have received is messages saying that I'm only interested in money. And I'm going to say, I am interested in money. I'm a finance professional.

And of course I'm interested in money. I don't know when that became a bad thing. And if this is where I think on Insta, there's way too many lists where it's either an and/or. I'm interested in money and I'm interested in you having choice. That means, I'm interested if you are choosing to stay home and have kids, as far as I'm concerned, that's amazing. And I'm interested in the financial aspects of that choice. So the bottom line of that is I'm interested in looking after you and making sure you don't simply have that time with your kids today and not living your car at age 60. Because the stats are that women over 55 are most at risk of homelessness. One in two marriages end in divorce, and one woman messaged me or put a comment saying that's such a cynical way to look at life. No, that's the reality of the statistics. And I'm absolutely not saying that your marriage will fail. I hope that you work on your marriage, but as a statistic myself, it's being smart about that.

You know, I have both Scottish and Chinese heritage. I put sunscreen on every day, regardless of that heritage, maybe because of that heritage, but I'll put sunscreen on every day. I don't go, oh, what percentage of me needs to be careful? Like, no, I'm just gonna put sunscreen on every day. I see you looking after your super, as you putting sunscreen on your finances, if you're choosing to have a career break. And you know what? If you don't, if your marriage does stay together, perfect. But even if it stays together, it means you both will then have choice later on because you'll have more super and that can only be a good thing. So Lawsie, rant over.

Lawsie: No, but I actually think that's an important rant to have, because yeah, at no point with any of this where we are suggesting that you can't stay at home and have time off with the kids or to travel or whatever that break is that you're wanting to take. But it's just making sure that people are aware because you and I see it all the time. Like people that are still working don't even take into account their super. They just think it's this random place that money gets sent to, rather than thinking of it as something that is actually theirs.

And yes, there's rules and everything else around it, but you need to be aware of where that money is and that it's invested the way that you want it. And it's performing the way that you would like when you compare it to other funds. So this is exactly just the next extension of that around if you are choosing to have a break for whatever the reason or choosing not to, it is making sure that you are not missing out or forgetting about something as important and super. And when 10% of your wage is going there, that's something that you need to be concerned about. And if you can be doing something in your twenties, which means that it's a really small cost over the long, you know, cause you've got time on your side. Or if you're older and you go, yeah, actually I do need to make up for that. Like just being aware of that. Yes, you might not be able to make up to it to the exact dollar, but at least doing something and being a bit proactive about it can only be a good thing, surely?

Mel: Absolutely. And I will say that probably 75% of comments and messages are, oh my gosh, I didn't realise this. I wish I'd known this earlier and also replying to women that have made those other comments to, if they haven't DMed me to say, I think you're missing the point or there was one woman that said I work with women that are at risk of homelessness. I see this every day, this is an important conversation to have, whether you believe that or not. So there was also women saying that. But it's also where I find the "but you're only interested in money" argument interesting, you don't stop paying your mortgage because you have kids. There's a lot of financial decisions we still make or that we take into effect or, or we look at how the impact of us, staying at home and having kids or starting a business or having any other career breaks..Why can't we also consider the implication of super? So I find if you are having that thought around, but that's wrong, I want you to think about what's the reasons behind that? Is it a money story you've grown up with around it's not feminine? Is it a money story around the role of women in society? Is it your own perception on how you are valued as a stay at home mum? Because I think if you look at the emotion behind the reasons you are so argh! with the discussion, you might realise that, oh, okay this says a lot more about me, then it does what the actual thing is.\

And we could substitute stopping to have maternity leave for business. When I owned my accounting firm for more than two decades, we saw so many women. So women start businesses at a faster rate than men. That's the stats. But a) they're not doing it as profitably. That's a whole different conversation. And a) they're not contributing towards super because often they're considering it as just a home-based business or just a small business. And I think all my money should go towards my family because that's what I value and prioritise when really this is another example of and, not or. Prioritise your family and contribute to super because contributing to super for yourself is like putting on your financial oxygen mask and you're prioritising, therefore your family, just not for today. You're prioritising them for the future as well. And removing words like 'just' and 'only' then you stop your diminishment of your business.

So it's not just maternity leave we're talking here. It's also, as we said at the top further study, starting a business, particularly that's a big one wasn't it Lawsie

Lawsie: Absolutely.

Mel: Or any other reason to have a career break?

Lawsie: Yeah, no super, super important. You know, we definitely need to be, and everyone regardless needs to just in general, be more aware of their super, like we was saying before. And when you are doing these other things, making sure that super forms part of that conversation and all the steps and strategies and everything else that you're putting in place regardless of why you're stepping out of the workforce for a little while or a long time.

Mel: So if you didn't listen to our last chat, go and listen to that. That's particularly important if you are looking at stopping work and you're starting to have those conversations around childcare's such a large percentage of my wage, it's not worth me stopping. Since when did it become a percentage of her wage and not a percentage of both wages and then that compounding effective loss super is extraordinary. So you wanna go back and listen to that and we've got calculators and everything. We'll drop them in the show notes of this as well to help you not just realise what that break is costing you in super and the compounded returns, but also how you can catch it.

And that's what we are talking about today. So we wanna not just make you go, oh, crap, yeah, that's a really big hole as my girlfriend texted me on Saturday when she downloaded and did her projections. She's like, oh crap. That's a lot.

We also want you to have a plan to catch it up. And that plan could be, if you're in your twenties, it's a plan now using your superpower of compound interest and time to catch up by putting extra in now. Or if you are on that career break or you've started a business and you haven't been contributing, it's figuring out how much do I need to start contributing now? Or if you're in your forties, fifties, sixties and you didn't realise this was a thing, it's understanding how could you catch up now?

So one, we have a calculator for you down in the show notes. Super simple. Do not be put off by the fact that it says calculator really. It's just you putting in numbers and...

Lawsie: Playing. Like you were literally totally playing.

Mel: Yeah but here's five strategies that you could do in order to catch. So Lawsie. Do you want to talk about the first one? And the first one is really all about making extra contributions.

Lawsie: Yeah. Yeah. So I think with any of this stuff, it's acknowledging if you want to have that break or if you've had that break that yes, there is a cost on super.

And if you've listened this far in, we know that you get that message now. And so what we need to do, or what we encourage you to think about, is starting to make contributions to either preemptively catch that up or if you've already taken that break, to go back and catch up that super.

So your employer obviously, or if you are self-employed, we're hoping you as your own employer are putting in super, and you can put up to a maximum of 27 and a half K a year into super. That's from this current 22 financial year. And that's, so that can be made up of a combination of what your employer puts in, what you decide to salary sacrifice, what you decide just to put in personally and claim a tax deduction for. All of those get amalgamated into that cap. And without scaring too many people, you can also catch up caps from the last couple of years as well.

So if you are suddenly in a position where you've got a lot of spare cash and you go, oh, I don't really know what I wanna do. That might be something that you look at. You might just go, you know what, I'm just gonna do this big lump sum, use my spare caps from the last couple of years and this year, dump it in and go, ah, and let the power of time and interest and earnings and everything else catch up for that career break.

But obviously 27 and a half K a lot of money for a lot of people. And so we're certainly not suggesting that you've gotta go up to there. And what you might prefer to do is when you've played with the calculators and you go, oh, I need to contribute, say someone in their twenties might need to just put in $45 a month and that's all that they have to put in extra to cover for the next 10 years.

Mel: Like it's like 10 bucks a week. Like you're spending that on coffee.

Lawsie: Yeah. Yeah. It's small amounts. But it is it's, there's gonna be those incidental things that you were spending money on at, be it coffee, be it whatever each week. So it is that you could just have those smaller amounts. And just set it and forget it.

Like you are not going to miss $10. For most people, you are not gonna miss $10 a week. And if you know that, you know, you only have to do that for 10 years and you've caught up, or at least bought yourself that security of then taking a few years out of the workforce down the track for whatever the reason is, awesome. Like, that's one less thing that you've gotta factor in. Obviously by the time you start getting a bit older, the amount that you need to contribute is going to increase.

Mel: So in your thirties, it's potentially more like 25 a week. In your forties it's more like, uh, 70 bucks a week. In your fifties, it's more like, hundred and 60, 180 bucks a week. So it really climbs the definitely the later you leave it. Or you could also make larger amounts for a shorter amount of time. Cause those small amounts Lawsie just mentioned, you have to do those all the way through to retirement.

But you could choose to for two years before you have the career break, just put in the dollars that you were gonna miss for the next four years say while you're on a bigger income, for example.

Lawsie: Yeah, definitely. So I think it's just about being aware that you've got those options and, without getting too technical, but in some cases, there's a tax bonus. So a tax incentive from that, because you can claim a tax deduction for them. So again, you might feel like you're putting in that $10 a week, but you're not out of pocket by the time you factor in your tax savings. So you really might only be out of pocket for example, $7. So it's just being aware that those are things there and just that you can be putting in those extra contributions.

Yes, you're gonna have to maybe talk to your employer about salary sacrifice or talk to your super fund about, well, how can I make those personal contributions from me, but then know, that I can still claim a tax reduction for it. It's gonna be a bit of life admin and you're gonna have to, you know, talk to someone, no doubt, fill in a form, make sure that you're making those payments to the right places. But once you've done that, it's set and forget, you know, that all of that's ticking along. So it's worth taking half an hour to look into that and get things set up.

Mel: And if you wanna do it occasionally and you are thinking, oh my employers just hard to deal with. Or you're concerned. Like just say, you're in hospitality and you're like, I dunno that they're making my contributions. You can do it yourself. And a lot of the time it's so easy. So you just need to figure it out. There's usually you can BPAY it. Or there's usually something else that you can do. It's just, and as Lawsie said, once you figure out how to do it once, you can automate it so it just happens regularly. So that's the first way is doing it yourself.

So either catching up early, uh, during the career break or starting after and doing it in larger amounts or just small amounts regularly. But the other thing you could do is, particularly once you were in a couple and particularly if you are the one going on the career break, you might have a chat to your partner and say, so I also value having some time off and I'm putting my hand up. I'm the one happy to do that. However, I'm really concerned about a compounding loss of super. I get that I'm gonna lose a wage and that's fine. But can we have a chat about us contributing to that? So that whole discussion we just had, why should it just be you contributing? I would have the discussion around. Let's make sure this is contributed to, so it might be, say you had four years off. You're on 72 grand a year. And your super would say seven grand a year. Your partner might contribute seven grand a year during your four years off to your super fund. Suddenly, issue dealt with, and you're fine.

Or your partner and you might agree to go halves every year up to retirement. Or your partner, if they're on a high income, there, there are rebates available if they're making contributions to your super fund. Now you're gonna wanna jump on and we'll put a link in the show notes. You're gonna jump on, and there are income thresholds and all things like that. But there are rebates available of around the maximum is 540 for a $3,000 maximum contribution, but there's money for your partner to have to soften the blow of making extra contributions. So it's being wise to those sort of things, too.

Mel: And, and if you're in this together, it's having the discussion around so how are "we" (and not the Royal we), but we going to catch up these contributions.

Lawsie: Yes, definitely. And yeah, absolutely check it out. It's not as easy as just going, I'm gonna put three grand in and I'm gonna get this, you know, $540 tax rebate, but check to see if you are eligible and the process that you need to follow to do that.

Lawsie: But again, it's spending the half an hour, an hour doing it, have those conversations and then just make sure you take action around that if you are finding that it is something that's gonna work for both of you, not just one of you, to make sure that you've got those dollars going in.

Mel: Or it could be a five-minute call to your accountant or an email whipped off to them if you've got a great accountant. If you don't have a great accountant, go find a great accountant, cause this is the sort of thing they should help you with.

Mel: Number three is free money Lawsie.

Lawsie: Love that.

Mel: I know. Three and four. Actually three, four, and five are all about free money and let's be honest, the rebate was two. So one is co-contributions. So do you wanna us talk us through that Ms. Law.

Lawsie: Yeah. So this is another one where actually it's not a "we", it's a "you" would need to be doing this one.

But depending on the income that you earn, if you decide to make an after-tax contribution, so not salary sacrifice, not any of those that we were talking about earlier, but you just deciding to go, all right, I've got a thousand dollars sitting in my bank account and I'm just gonna pay that over into my super and not claim a tax deduction or anything for it.

Then the government will match you with a co-contribution. So again, it's free money, inverted commas. So you're gonna have to check out if are you eligible, because depending on your income and what you earn.. So if you're already on 180 K no, this to be the right thing for you.

Mel: But while you got that time off, it could be a beautiful thing to do, cause you're on low income.

Lawsie: Yeah, yeah. The contribution is up to 500 bucks.

Mel: The co-contribution

Lawsie: The co-contribution, sorry that you are getting, so that's a really nice return on if you're putting a thousand bucks in and you can get 500 well, hello, that's 50% return on that. So I guess it is, it is being aware that that exists. It used to be a whole lot more advantageous back in the day, but still not a bad way or not a bad thing to take advantage of. And particularly, like you said before, if you're thinking of and doing it preemptively and going, well, I am gonna take that career break or I'm even just reducing the hours that I'm working. It doesn't necessarily have to be that full career break. Just knowing that that exists and making sure that you've got dollars set aside that you can pop in, particularly if you know you're gonna get back that co-contribution. So I would absolutely recommend checking that out.

Mel: And a lot of people work part-time during that career break or they're on low income. So the threshold's 41 K. So it's not nothing. So if you're thinking, oh yeah, but I'm working two days a week. You could still get this. So it's just being aware of these sort of things and making sure you're doing everything you're entitled to. And even if you only could afford to contribute $500, the government will still match that with 250.

Mel: So you can still get some of it if you can't afford to do all of it. So it's just being really aware of that.

Mel: More free money is Roundup apps.

Lawsie: You love them. What's your favourite?

Mel: Oh, so I don't use, I used to use Roundup apps back in the day. Now I use Cash Back, which we'll talk about in a sec.

Lawsie: Sorry. Yes, that is your favourite.

Mel: That is my fav, but there are actually super Roundup apps. So there is one called Super Rewards. That's probably the main one that I know of where it'll round up and it will put it into your Superfund. So you also can shop using the app and get cash rewards as well.

So it's just being aware of all those caps that we talked. So if you've had a big inheritance and you decide to maximise your after tax contributions to super, which is about 150 K a year, you're gonna know if you're gonna do it, then you may wanna unsubscribe from these tips. But my guess is if you're doing these tips, you're not maximising that? Yeah. So Super Rewards is the name. It's a shopping platform plus shop backs as well as roundup. And that will put the money straight into your super, you don't even need to think about it.

Lawsie: Yeah, it's like the other Roundup investing apps and stuff like that. I just think if you can have those other little things that you're not gonna miss the dollar here and the dollar there.

And know that that's going in and you've just still got something else, either going into your super while nothing else is, or yeah, that's still just going in addition to whatever you've got contributing now. That's good. That's very good. We like those extra little bits.

Mel: We love those, but the fifth one is so just so you're listening and going that I love all these tips, but you don't understand how skin I am. I don't have any cash for this. So the last tap tip is to use a cash backup. So Shop Back is the one that I use. There's also one, I think that's called Cash Back. And once you register, I put an extension on my browser, so it alerts me every time I shop to say, and you'll be surprised how many there are, everything from retailers like The Iconic and Big w all the way through to Bunnings and Dan Murphy's.

And, and let's be honest who hasn't gone to Dan Murphy's in the last couple of years. And some, you might only earn a little bit off some. But every single bit helps. So my thoughts with this; use cash back. When you get the cash back, then you could take that and then you could double it or 50% it more.

Mel: So if I then was eligible for the co-contribution, I could put that money in as an after-tax contribution and the government would pay me 50% on. So it's money that I, that is not mine that I don't have to get from anywhere of my own funds and the government will give me dollars for that.

So it's kind of like a bonus round. Or if you are on a decent income, then you could just put that in as a tax-deductible amount into super, if you're not eligible for the co-contribution. But using cash back sites and using that to catch up on your super can be a really beautiful way if you're really struggling to find dollars for this, but you know that it's necessary.

Lawsie: Yeah, definitely. And even if you can find the dollars and this is just an extra thing that you can be doing just to top it up as well. Like I think it's just how many little things can you be doing, because we all know that if you can add several of those smaller things together, then the big difference it's gonna cumulatively.

Mel: So I agree. So what you might do is every month go so my financial challenge is... so just say, you're in your thirties. You need 109 a month. You might go what's my challenge to find a hundred bucks this month. What do I have to sell? Rent? I might do surveys online. So we've actually got a download of 33 ways to find 10 K. We're gonna have a lot of links in this show. So we'll put that as well. You may decide to do a financial challenge every month to find a hundred bucks and that way it's not coming out of extra money. And this is your beautiful way of having that agency around making sure you are financially looked after in that you are not missing out on those compounding returns for your super.

Lawsie: Definitely. But I think, yeah, the main thing is though if any of this is ringing in your ears and if you've got that thing going, yeah, I need to do it, make sure that you actually put one or more of these things into play and that you take action for it. And it doesn't just become this thing of, oh yeah, I heard this thing about, yeah, this is some things I should be doing and I really loved at the time it didn't take any action. Because as we've already pointed out with the numbers, the longer you leave it, the more you're gonna have to contribute to catch up because you don't have as much time.

So the earlier that you can start working towards sort of catching up, be it preemptively or because you've taken a break in the past, it's going to have huge long-term benefits for you.

Mel: Agreed. And if you are listening to this and you know, and you have a partner, download the calculator, go take them to brunch, do the sums with them. And then come up with a plan together. This should not just be on you to catch up. This is a family thing. This is a family decision. If this is for a career break, so do it together.

If you've started a business, then sit down and go, right? how could I make an extra, a hundred bucks in my business each month in order to pay for this. So however it is, as Lawsie said, you just need to spend the time and you need to value yourself enough. Cause trust me, when I say that future you is sitting there in a car going, I don't want to live here. Or she's sitting there with her cask rosé going, I don't want to drink this.

So however you wanna retire, whether you are concerned about living in your car, or you're concerned that it's a far dropped standard of income to what you are used to living now, let's make sure we solve that for you today.

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