Job change checklist

Changing jobs is often an exciting time of life. It can also be a busy time. Following is a checklist of important items to promptly address to ensure you keep your financial well-being on track.

Changing jobs is often an exciting time of life. It can also be a busy time.

Following is a checklist of important items to promptly address to ensure you keep your financial well-being on track.

Cash Flow

  • If your pay date will change then consider resetting the automatic transfers that support your smart budgeting techniques
  • Revisit your budget to accommodate changes in remuneration. If you’re going to be paid more also see the wealth creation tips below.

Use free online calculators, like those from the ATO, to help you work out your new net (after-tax) pay.

Wealth Creation

All pay rises are terrific opportunities to accelerate your wealth creation. I suggest you put at least half of your pay rise towards a combination of the following:

  • Higher loan repayments.
  • Increased allocation to long term investment. For example you could boost your salary sacrifice to superannuation, which will soften the tax blow on your pay rise whilst making you wealthier.

Plan in advance and be ready to adjust your automatic transfers as soon as you start your new job.

Employer share plans

Do you have an employer share loan you need to repay upon leaving employment? If so, a common way to repay the loan is to sell some or all of the shares. If you don’t have a broker then read this article to discover how to sell shares without a broker.

Superannuation Fund

Don’t:

  • Blindly nominate your previous employer’s fund to receive contributions ‘just to keep things easy’. Your new employer may have a cracking deal on offer.
  • Blindly accept the default fund offered by your new employer. It may be a shocker compared to your old fund.
  • Blindly roll your old fund into your new employer’s fund. When you rollover you automatically lose your insurance cover. “So what?“, you ask. Well almost all Australians don’t have enough cover, so odds are you probably need to keep what you already have.

Do:

  • Promptly investigate what happens to your balance and linked insurance when you leave your employer. Do this before your last day in your old job.
    • Is the balance automatically rolled to a new ‘holding’ fund within a certain number of days?
    • Is some or all of the insurance automatically cancelled? If so, can you apply to have it continued? (If a continuation option is available you usually have around 30 or 45 days to apply.)
  • Complete a comparison of your new employer’s fund to your previous fund to ascertain which is better for you. I recommend you also consider some off-the-shelf funds in that comparison.

Employer Funded Insurance

One great thing about employer group insurance policies such as group salary continuance is that you probably didn’t need to disclose anything about your health to get it. So you can potentially be a basket case and still be covered.
The older you get the more likely that is.

Keeping that cover is therefore a golden opportunity.

Group insurance policies often have continuation options that allow you to retain cover under a personally owned policy without medical underwriting. However you have to apply quickly – usually within 30 or 45 days of leaving your employer.

In my experience it helps to contact HR before your last day. They’ll usually refer you to the adviser appointed to the group policy who will then guide you through the process.

Call your adviser

If you have previously worked with a financial planner then a job change is one of those moments you should proactively contact them. Changes in income can trigger tweaking of your strategy. Also job changes sometimes occur as a result of the natural evolution of what you want in life. Your financial well-being strategy needs to evolve with you.

Your financial planner will be able to guide you through all of the above and alert you to anything else you should think of.

An example of how DIY is costly

Do-it-yourself financial planning can be costly because often you don’t know what you need to know.  With a litte more knowledge you would make a more informed financial decision that can both save and make you money.

This was clearly illustrated in my conversation just now with one of the other tenants in my office building. Let’s call him John…

John’s DIY Superannuation Strategy

John mentioned that about 18 months ago he had cancelled his salary sacrifice into superannuation because, with markets falling the value of his contribution reduced soon after being made. Now that markets have recovered substantially he is going to restart his salary sacrifice.

That all sounds reasonable, right?

Well it was a costly decision and not because of the market movements.

The bit John overlooked…

One of the main benefits of salary sacrifice to superannuation is that you save tax on your gross income. By cancelling your salary sacrifice you end up paying more tax.

I asked John “did you know you could’ve directed your superannuation contributions into a cash investment rather than your former investment option?” Clearly he didn’t know that.

John could’ve kept saving tax by continuing to salary sacrifice to superannuation. In addition he could have avoided losing money on the contributions by directing them to a cash option.

Asking a smart financial adviser before changing his strategy would’ve meant John was wealthier already. The advice fee would’ve been quickly covered by avoiding a costly outcome.

If you, like John, didn’t know you could do that in your superannuation then I am pleased you have read this article. Ponder this: is it possible there are other things about superannuation you perhaps do not know that could be making you wealthier?

If you don’t know how, just ask

Perhaps the next questions that may pops into your head is “how?” How do you direct your contributions into cash but keep your existing balance invested and positioned for recovery?

Well, there are plenty of low cost, value-for-money superannuation products that have that facility. (Hint: they are generally not the industry funds who spend your money on advertising.)

Just ask your financial planner to review your superannuation account. Call me for a low-cost quick super review to see if there are better value-for-money accounts available to you.

John may also have benefited by pondering this before he acted: by what percentage does your investment in superannuation need to fall so that your “loss” equals the extra tax you would pay at your marginal tax rate (by keeping the contribution outside of superannuation)?

Do-it-yourself financial planning can be costly. Great financial planning advice will minimise your downside as much as maximising your upside. You’ll only know when you give it a proper go by hiring a true financial planner (like me, of course. 🙂 )

Ensure your employer paid your super last month

In a presentation last Thursday night, Australian Taxation Office (ATO) second commissioner Jennie Granger said that of the 2,200 employers selected and visited since July 2008, around 1,045 had not met their superannuation guarantee obligations. (Reported here.)

With many small businesses struggling with cash flow at the moment it can be very tempting for them to not pay their compulsory superannuation contributions on time, if at all. There have been plenty of segments on current affairs shows of employees suddenly discovering they have not been paid superannuation for years. Then the business goes into liquidation and they never receive what they are owed.

This should not happen to you – unless you are ignoring your superannuation.

The compulsory 9% contribution must be paid at least quarterly. The deadline is the 28th day after the end of the last quarter. The last contribution was due on 28th January. So go online or call your superannuation fund and check your last contribution was paid. (Salary sacrifice amounts must be contributed in the same month they are sacrificed.)

If you are missing a contribution then confront your employer. Be as understanding as you like but just make sure you are informed about why it is late and precisely when it will be paid.

This could be one of your best indicators of the health of your employer and the likelihood of you losing your job.

Industry super funds are under-performing

Industry Super Funds LogoIndustry Super Funds would have you believe that one of their logos on your superannuation statement could mean thousands of dollars more in your superannuation. What they fail to mention is that it also could mean thousands of dollars less.

In a submission to the Australian Industrial Relations Commission on award modernisation and default superannuation funds, Minister for Superannuation and Corporate Law, Senator Nick Sherry said:

“Aggregated, unpublished Australian Prudential Regulation Authority (APRA) data shows that there are 24 industry funds (out of a total of about 84 such funds), potential default funds in awards, that have under-performed over the long-term.”

Sherry said this underperformance was as high as 1.6 per cent a year and the funds had a membership of around 3 million accounts in a system wide total of around 21 million accounts. (Read the article here.)

Oh my goodness! That is 28.5 percent of funds are under-performing and 14 percent of fund account members that could be affected.

The Industry Super Funds network are extremely vocal about the fees charged by retail super funds and apparent under performance of retail funds. This brings to mind the phrase “Me thinks you protest too much!” Their incessant headline grabbing behaviour appears to be a smoke screen for the real story.

And anyway, who is paying for the millions of dollars of advertising spent by the Industry Super Funds network? The members! “Run only to profit members” – yeah right! If you are going to make a claim, make sure it is true!

The lesson here is to not be complacent and accept the BS fed to you by your providers. Take a few moments a year to compare their performance to relevant benchmarks and Crack The Whip Over Your Wealth!

Has some of your superannuation been stolen?

On Friday night the current affairs show, Today Tonight reported that $300 million of superannuation has been stolen by employers. It’s a shocking situation for sure. Could some of your superannuation have been stolen?

The way employers “steal” your superannuation is by not paying compulsory superannuation guarantee contributions (9%) into your account on time, if ever. Some people in the story went 2 or 3 years without superannuation having been paid.

The truth is, if your superannuation is unpaid for over one year you must take some responsibility for that.

If superannuation goes unpaid for over a year it means that you ignored your annual superannuation statement when it was sent to you. Superannuation is your money; your wealth; your future lifestyle – ignore it at your peril!

How To Avoid Your Superannuation Being Stolen

If you want to avoid working for an employer who does not have the integrity to pay their full obligations then check your superannuation at least every three months. Employers are obligated to pay their superannuation guarantee by the 28th day after the end of each quarter. If you salary sacrifice into superannuation then your employer is obligated to contribute more regularly. And I dare say you have a greater interest in ensuring they do.

So I recommend that you check your superannuation account at least 4 times per year; on the 1st day of February, May, August and November. It should take less than five minutes each time, since most funds offer online access these days. Set a recurring reminder in your diary right now. Go on,  set one now.

And once you’ve done that quickly check your account to ensure that last quarter’s contributions have been paid. You don’t want to working one day longer for an employer who won’t or can’t pay their obligations.

Superant – financial literacy for littlies

A new educational website has been launched, called SuperAnt. Anything to do with money and finance can make many people’s eyes glaze over. This is perhaps even more so with younger people who have not yet had the life experience to realise the value of money in facilitating life experiences.

If you prefer to learn in fun, interactive ways (as many of us do) then check out the SuperAnt website, developed for TasPlan. It has lots of budgeting tips that will be useful for your teenage children too.

You are never too young, or old to learn how to make your money work harder for you. 

Chronology of superannuation and retirement income in Australia

Do you have a massive orientation towards details and would love to learn more about superannuation in Australia? If so, you are in luck as the Parliamentary Library of Australia has just published a Chronology of superannuation and retirement income in Australia.

It is a wonderful resource for financial advisory geeks like me, but you may find the later years interesting too.

Many people grizzle that superannuation is constantly changing and that it is always bad. It is usual for any new idea to be continually tweaked as experience demonstrates the weaknesses and the strengths.  And I suggest that most of the changes to superannuation in the last decade have been beneficial to improving the long term wealth creation of Australians.

You can decide for yourself – make a cuppa and peruse the chronology… 🙂

Staff get more legal rights to claim superannuation in company collapses

Reported across several media outlets are the changes to laws giving staff greater ability to claim unpaid superannuation when companies collapse. Here is an excerpt from The Australian (read in full here):

Under new laws, which came into effect this week, superannuation will be given the same priority as other debts and will rank equally with employee entitlements such as unpaid wages and annual leave.

The Australian Taxation Office says any outstanding superannuation contributions and superannuation guarantee charge will be paid to employees before payments to ordinary unsecured creditors and once priority creditors and liquidators’ fees are paid.

The change is good news, but not one that would have me rejoicing. You see, it could takes years before the company is liquidated and the superannuation debt paid to former employees. (Ansett Airlines is still being liquidated many years after it collapsed.)

A better path is to keep an eye on your superannuation guarantee payments. If they are not paid on time one month then you approach your employer as it could be an early warning sign of a sinking ship. (It could also be an honest mistake in the timing of the payments, so be open to a quick satisfactory resolution.)

Under current regulations compulsory superannuation guarantee payments must be made quarterly. Salary sacrifice contributions must be paid in the month following the month they were sacrificed. (Actual deadline dates are listed on the ATO website.)

So at least take a quick glance at your superannuation account once every quarter to check on superannuation contributions. It may give you an early signal that you should start looking for a job with a different employer.

Almost $12 billion in lost superannuation

As at 30th June 2007 there is $11.9 billion in lost superannuation, according to the Australian Commissioner of Taxation’s Annual Report for the financial year 2006-07.  This staggeringly large amount of money is spread across 6.1 million accounts. That’s an average of $1,950 of lost superannuation per account.

Could some of this lost superannuation be yours? It may well be, even if you think you have rolled all of your funds together.

The amount in lost superannuation is so large that it is worth taking the few minutes to conduct an online search. (A few months ago I found some lost superannuation for a client who had thought they had identified all of their superannuation.) You can do this now for free using the ATO’s online Super Seeker tool. All you need is your tax file number, date of birth and name.

You wouldn’t just take $1,950 out of your bank account, throw it on the ground and ignore it, would you? So take the few minutes now to find your lost superannuation and get it working hard for you.

Retirement simulator launched by AMP

Today AMP launched a new online tool called the “Retirement Simulator“. I’d like to congratulate them as it is a well constructed, flexible tool for estimating how much you may need to save to achieve your desired retirement lifestyle and for that lifestyle to last until at least your life expectancy.

By necessity the tool has been simplified so that it can be usable on the Internet by a broad range of people. The simplification is that it assumes that your only retirement saving is done through superannuation. For wise wealth creators, like the people who read this blog, you are likely to be creating wealth both inside and outside of superannuation. But the tool is still very useful in giving you a point in the general direction of the level of savings required.

I encourage you to read the “Assumptions & Methodology” section on the opening page of the retirement simulator as it provides some very interesting information from which you could learn a lot.

It is pleasing to see that some of the profits from investment administration and management are being reinvested in providing high quality educational tools – for free. Thanks AMP.

Check out the AMP Retirement Simulator now.

Superannuation in the showroom

“Buying a new car is exciting. There is so much choice, so many colors, body styles, engines and brands to choose from. Your budget helps narrow the choices substantially. Some brands will resonate; others will be a real turn off while practical stuff like four doors or two, work needs, number of children, hobbies and lifestyle will all have to be factored in.Then there are test drives and the haggling about price and options.

Make no mistake buying a new car is a serious financial decision – but it is also fun -even if you realise that the day you drive out the showroom door in your shiny new car you just took a depreciation hit the likes of which would you cause you sleepless nights if it happened to your investment portfolio.

If you have bought a new car in the recent past think about how much time you invested in the process.

Now think about how much time you would spend buying a new super fund.”

…the above is an excerpt from an interesting article by Robin Bowerman of Vanguard Investments (Australia). Continue reading here…

Robin makes an excellent observation. It’s a real paradox the amount of time that most of us spent taking care of growing our finances compared with spending them. (I’m also reminded a little of the way we are using our precious environmental resources like trees. But I digress…)

The challenge most of us face in sorting out our superannuation is in understanding it, and then knowing what to look for. If you are keen to crack the whip over your superannuation then I have written a book and e-course to help you do just that. Check out “Create Wealth with Super Choice” to learn how to easily add $100,000 to your superannuation balance.

Be wary of league tables

This time every year mainstream media often report on the league tables for investments and superannuation accounts. The reports mostly talk about “the best fund”. Was your fund one of the best? Or have lost money through missed opportunity?

They are unreliable

If your fund doesn’t feature among “the best” don’t despair (yet). I think that these tables are unreliable as a basis for an investment decision.

The tables generally judge the best based on investment performance over the past 12 months. This time frame is way too short to be the basis of an investment decision.

Most of the tables in the newspapers judge performance for multi-sector managed funds that invest across several asset classes. They do this because most people are invested in multi-sector funds. But just because most people are in these funds doesn’t mean they are the best way to get top class performance. If you really want “the best” you need to broaden your scope.

The best superannuation account is often reported based on the performance of its balanced fund. Again the reason is that around 80 percent of Australians are invested in balanced funds. I have two concerns with this judgement:

  • There is no clear definition of what constitutes a “balanced” asset allocation so the funds being compared can be quite different. Hardly a like-for-like basis for annointing “the best”.
  • As above, just because most people are in balanced funds doesn’t mean it is correct to associate the entire super account with the performance of its balanced fund.

Unreliable but useful

Whilst I believe the reported tables are unreliable as a basis for an investment decision the fact they are published in mainstream media is actually quite useful.

The appearance of the reports each year serve as a wonderful reminder to make an annual critical review of the performance of our portfolios and accounts. Particularly if you have changed employers during the past 12 months it is a great idea to review your superannuation accounts.

Click here to learn how to conduct a critical review of your account.