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SASS Wise

Money wisdom, tips and insights from the SASS community.

Last edition we asked if you had – or were planning to – invest in cryptocurrency. Only 22% said yes. The results are not surprising. Whilst new world cryptocurrencies such as bitcoin promise the potential of high return, it’s a very risky and volatile investment.

For some people the uncertainty of the last two years has prompted them to throw caution to the wind and try new things, for others it has been an anxious time. In this edition, we share tips on how to avoid making emotional money decisions, why it’s important to keep a steady head when investment markets are volatile, and we invite you to test your own investment knowledge in our latest quiz.

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How to avoid making emotional money decisions

Our emotions have much more to do with our spending habits than you might think. We share some tips on how to resist the urge to splurge.


Studies have long shown that our emotions can have a significant effect on the way we think, decide, and solve problems.1 And when it comes to spending money, often it’s our emotions in the driving seat. In this article, we look at how our emotions influence our spending – and what you can do to take back control of your money decisions.

How our spending is linked to our emotions

When we feel anxious, usually it’s because our environment feels uncertain or out of control. One way we get back this control is through spending. Studies show that anxiety is linked to impulse buying and the urge to splurge2. Someone who is anxious, is more likely to make an unplanned purchase. And when it comes to buying big ticket items, such as car, in the state of anxiety we are more likely to opt for safety features over luxury to feel more safe and secure.

Boredom also has a lot to do with our spending. Living through multiple lockdowns over the past couple of years left many of us feeling bored and frustrated. When we’re bored, research shows we’re likely to seek novelty and become more sensitive to reward.3  But it's not just anxiety or boredom driving our buying decisions. Known was the ‘sad-spending effect’, studies have found we’re more likely to spend more when few feel sad4. It’s not surprising, buying new things activates the same part of our brain as when we have a drink or take drugs, triggering the release of the happy hormone, dopamine.5.

The happy feelings we experience when spending money provides the perfect antidote for the uncomfortable feelings of boredom, anxiety or sadness. Why wouldn’t we want to make ourselves feel better now and again? But if you feel stuck in a spiral of spending, there are things you can do to get back some control.

5 tips on making more rational money decisions

  1. Choose delayed not instant gratification – how many times have you regretted a purchase? The beauty of pressing pause is that you avoid making impulsive decisions and allow yourself the potential to make a better one later. Getting out of the habit of instant gratification with your spending can also have positive effects on other areas of your life, such as your health and wellbeing or how you spend your time.
  2. Weigh up the short and long-term benefits of a purchase – the best decisions in life are often well thought through and the same applies to money. When contemplating your next purchase, think about what you would gain both now, and down the track. Is the purchase going to bring you closer or further away from your goals in life? You might find there’s more to be gained from putting your money elsewhere, such as your SASS account or another super account if you have maximised your SASS contributions.
  3. Remove any temptation – the internet is 24/7 and making an online purchase can take mere seconds. Rather than relying on willpower alone, taking away temptation is a great back up plan. This might be avoiding your favourite shopping website, hiding your credit card, or putting your savings on autopilot. Just like you can pay bills by direct debit, you can set up a direct debit for your savings and super contributions too.
  4. Choose experiences over material possessions – studies have shown that spending on experiences increases our happiness and satisfaction more than buying material possessions6.  While a new outfit may make us feel happy in the moment, experiences can stay with us for a lifetime. Experiences don’t have to be as grandiose as an overseas holiday. A dinner with friends could be just what you need to lift your spirits.
  5. Remember that investing money makes you money – while saving and investing your money might not give you the same dopamine hit as spending it, it can bring you much bigger rewards when you retire. Known was ‘compound interest’, any interest you earn on money you’ve invested (in super, for example), compounds over time creating a snowball effect. This happens because the interest you earn is calculated on your original investment plus the interest you’ve earned to date. So, the more you invest, the more interest you earn.

We’re here to help

With the help of an Aware Super financial planner, you can make sure your spending and saving is on track to help you reach your long-term goals, whatever they may be. Call us on 1800 620 305 to book an obligation-free appointment.

 

  

Keeping a steady head in a rapidly changing investment market

We talk to our very own Chief Investment Officer, Damian Graham about how to avoid short-term thinking and stay focused on your longer-term goals.


The last two years have turned the world as we knew it upside down. How can you keep your focus on the long term and stay on track with your financial plan? We asked our Chief Investment Officer, Damian Graham about getting back to key principles and how to sort the fact from the fiction when it comes to investment opportunities.

Q. What is the most common mistake people make when it comes to investing and choosing investments?

A. One of the most common mistakes is getting distracted by short-term considerations rather than focusing on what really matters in the long term. This is especially true for your super, which is all about long-term returns. A balanced, well-diversified portfolio can help you achieve your objectives.

Your retirement, circumstances and goals are all personal to you - so it’s important to stay focused on what’s important to you and not get distracted by what other people are doing or thinking, or by the latest craze. 

What are the key principles to remember when it comes to investing for super/retirement and where can people find information they can rely on?

The first thing is to start contributing early. That way, if things don’t go according to plan, you’ll have more time to recover any losses. Just as important is to spread your risk and take a balanced approach. Cash may seem a safer option in the short term, but it may not provide the returns you need to maintain your lifestyle in retirement. Super is a marathon not a sprint, so it’s crucial to think long term.

Avoid making decisions based on emotion would be another important principle. It’s more fruitful to understand your goals, have a plan for achieving them, and then to stick to it.

And when it comes to finding reliable information, be very aware of following the herd blindly; it might lead you in the right direction, but it could equally lead you to a cliff. Be very wary when you read the media and always consider the credibility of the news source. Would you rather get your information form the Financial Times, the Australian Financial Review, or Twitter?

Why not choose a more stable investment instead of taking a risk with your money?

With life expectancy on the rise, there’s a real possibility that, once you retire, you may need to rely on your savings for up to 30 years or more.

It’s easy to get caught up in short-term market moves, particularly when markets fall. Keeping most of your savings invested in conservative assets, like cash, may seem like a safe option because their price tends to remain relatively stable over time. But focusing on short-term price moves without considering the longer-term impact could mean you lose out as these investments may not grow sufficiently to meet your future needs.

One of the most important risks to consider is the cost of living and general prices rising faster than your savings grow. This is known as price inflation. Inflation erodes the value of money over time.

Investments that are low risk in the short term, may be risky from a longer-term perspective, as they are unlikely to keep up with inflation. However, assets that are riskier in the short term, such as shares, usually turn out to be less risky in the long term as they can grow faster than the rate of inflation and are more likely to provide sufficient funds after you retire.

Growth assets, such as shares, provide opportunities to benefit from the growth of an economy and tend to generate higher returns over the long term, but are more volatile in nature. So, it’s important to consider some growth assets as part of your overall savings mix and manage risk appropriately.

On the other hand, you can also take on too much risk. That’s why a well-diversified, professionally run portfolio can help you maximise the amount you have at retirement while mitigating the risk you have to take on. 

What 3 tips do you have for investors who fear they might be missing out? 

Fear-of-missing-out (or FOMO) can be emotionally driven – and investing based on emotions can be very risky. It often means you will invest purely on how you feel, without sufficiently considering all the facts and risks involved. To avoid this, my 3 tips would be:

  1. Take a step back and give yourself time to think without emotion clouding your judgement
     
  2. Avoid fads and get-rich-quick schemes that can sound enticing but are unproven or not based on factual evidence – they may be riskier than you realise
     
  3. Consider all the risks and opportunities involved and rationally reconsider your views based on the information and advice you’ve received before you act. Make sure they will help you meet your objectives.

Q. Why is a good investment strategy even more important near retirement?

The closer you are to retirement, the more important a clear and appropriate investment strategy is. Near retirement, you will generally have less ability to bear risk and less time to recover from any fall in the value of your super.

This is also typically when your retirement savings are at their highest value, making them more vulnerable to losses when markets fall. An unfavourable sequence of returns or large losses around the time of your retirement can have a lasting impact.

If you retire while markets are strong and continue to earn strong returns into the early part of your retirement, your account may grow large enough to be able to withstand any subsequent downturn, even as you withdraw your regular income. However, if you retire during a large market fall, the need to withdraw funds from a lower level of savings makes it much harder for your savings to recover, reducing the income available to fund your lifestyle in retirement.

The right strategy will very much depend on your individual circumstances and can be complex. It’s all about understanding what your goals are and then investing in a way that will help you meet those goals, while still ensuring you have the peace of mind you need to enjoy your retirement.

We’re here to help

Aware Super financial planners are specialists in the SASS scheme and investing for retirement. Book an obligation-free appointment to understand your options and check that your investment choice and strategy is right for you. Call us on 1800 620 305.

 

  

Quiz: How well do you know your investments?

Studies show that the more you know about money, the better your financial wellness. If you’re thinking about dipping your toe in the water – or stepping up your investing endeavours, test yourself on these investment basics first.

 

Take the quiz

Why you don’t need to panic when markets fall

When markets will rise and fall, it can be tempting to switch to ‘safer’ investments. In this short video, we look at what history tells us about staying invested.

 

 

  

StatePlus and Aware Super: a shared history in defined benefit schemes

In 2020, First State Super and StatePlus became Aware Super. Our simple timeline takes you back in time to where it all began.


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Regulation update

Last year the Federal government increased three superannuation limits to allow you to put more money into super. We explain what these changes could mean for you.


On 1 July this financial year, the Federal government increased three superannuation limits to allow you to put more money into super. We bring you the latest on these changes and how you can make the most of them.

Pre-tax contributions limit raised to $27,500

The maximum amount you can put into super in a year from your pre-tax income while paying only 15% tax (also known as the ‘concessional cap’), has increased from $25,000 to $27,500. Any amounts above this cap will be taxed at your marginal rate.

Depending on your income, you’re likely to be paying more than 15% income tax. So, the more you put into super within the $27,500 cap, the less tax you’ll pay. If you are maximising your contributions to the scheme, you can still make use of any remaining balance of the cap by making additional salary sacrifice contributions or personal deductible contributions to another super fund.

Your pre-tax contributions include:

  • super guarantee contributions (SGC) from your employer
  • personal deductible contributions
  • any salary sacrifice contributions you make
  • notional employer contributions to SASS
  • in some cases, employer-sponsored insurance cover paid for through super contributions.

If you’ve already reached your maximum of 180 accrued benefit points in the scheme, the notional employer contributions counted towards the cap will significantly reduce. This means you’ll usually have room within your pre-tax contribution cap to make contributions taxed at only 15% to a different superannuation scheme.

Note: if you’re a deferred SASS member, you can’t make any further contributions to your SASS deferred account, but you can take advantage of your unused cap by making contributions to another superannuation scheme.

Special protections for SASS members

If you and your employer’s contributions to SASS take you over the cap, they are always deemed to be within the cap so long as your account has contribution cap protection. It’s important to note that you lose this protection permanently if you increase your contribution rate to a higher benefit category than they were in on either 12 May 2009 or 5 September 2006. Your annual SASS statement will confirm whether the special protection continues to apply to your account.

Carrying forward unused caps

From the 2018/2019 financial year onwards, if you didn’t reach your concessional cap, you can carry the unused amount forward for up to five financial years, provided you had a Total Super Balance (TSB) of less than $500,000 at 30 June of the previous financial year. As a SASS member, the amount reported to the ATO to be included in your TSB is the Accumulation Phase Value (APV). You can find more information about your APV on your annual statement.

Limit for after-tax contributions raised to $110,000

Another way to add more money to your super is through after-tax (also known as ‘non-concessional’) contributions. So, if you have money outside of super - such as profits from an investment property, an inheritance or a maturing term deposit - you can use this contribution cap to contribute this money into super as a non-concessional contribution. This year the cap for these has increased from $100,000 to $110,000.

You can only make non-concessional contributions if:

  • you had less than $1,700,000 in super on 30 June 2021
  • you’re under 75, and
  • if you’re 67 or older, you will need to pass the work test which means worked at least 40 hours within a 30-day period at some point during the financial year. (Subject to change from 1 July 2022 onwards)

You won’t be able to do this into your SASS account, you’ll need to open an account with another super fund and make the contributions there.

Bringing forward future caps

If you have a lump sum ready to pay into super now you can bring forward up to three years’ worth of future non-concessional caps into the one year rather than waiting for each year to pass. Bear in mind this only applies if you’re under 67 for at least one day of this financial year, and you had less than $1,480,000 in super on 30 June 2021*. As a SASS member, the Accumulation Phase Value (APV) detailed on your annual SASS statement is included by the ATO, along with any other superannuation holdings you may have, to calculate whether you fall within this limit.

Tax tip: If any non-dependent beneficiaries receive some or all of your super benefit if you die, non-concessional amounts won’t be taxed when they receive the payment.

*Subject to change from1July 2022 onwards

Limit on Super Guarantee Contributions increased to 10%

The requirement for employers to pay 9.5% of your salary as Super Guarantee Contributions has increased to 10%. As your employer is making contributions to your SASS account, they are not required to make Super Guarantee contributions for you. Here’s the good news – contributing SASS members will see the benefit of the 0.5% increase in the Additional Employer Contribution (AEC) within the State Authorities Non-Contributory Scheme (SANCS).

Limit on income streams increased

Once you turn 60 and have met a Commonwealth condition of release, you can rollover your super into an income stream and start paying yourself an income from it. This is known as the ‘retirement income’ phase. It’s tax-effective, because the earnings within the income stream account do not attract any tax and the amounts you take as income are tax-free. The maximum amount you can transfer into the income stream is limited by a Transfer Balance Cap (TBC), which has just increased to $1,700,000.

Whilst a retirement income stream isn’t available within SASS (unless your scheme has a pension option), you could start one by rolling over your SASS retirement benefit to another super fund that offers a retirement income stream. If you have had a retirement income stream since 1 July 2017, your cap will be somewhere between $1,600,000 and $1,700,000. You can contact the ATO to find out what your cap is.

We’re here to help

Making decisions about money when legislation keeps changing can feel challenging. But it doesn’t have to be. With an Aware Super financial planner by your side, you can feel confident that you’re saving on tax and making the most of your retirement savings. Book an obligation-free appointment on 1800 620 305.

 

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