Money issues are often cited as the biggest causes of stress in a relationship. Yet despite their importance, a recent survey of Australian couples found that 43% hadn’t discussed how they’d share their incomes before they committed. And close to a third hadn’t talked about their financial situation with their potential partner at all.
Even if you and your partner manage your day-to-day finances well, have you considered the impact your relationship has on your retirement savings? Here are five things that every couple should know about super.
- Understand how super rules apply to you as a couple
When it comes to super, you have the same rights regardless of whether you’re married, in a de facto relationship or in a civil partnership.
This means if your partner passes away, you could be entitled to receive their super – and potentially any life insurance in their super account. What’s more, if your relationship breaks down you could either receive some of their super or need to pay some out to your partner.
In a relationship breakdown, super is considered property by the courts for married couples and those in de facto or civil partnerships. And like other assets, it can be divided between the two people. You can agree to split your super, or the court can order you to do so. Alternatively, you can choose to split your other assets but leave your super benefits untouched. In some cases, you can put off your decision until later on – say, in retirement.
Remember, if you do split your super with your former partner, neither of you can access this money until you reach preservation age or meet another condition for early release of super.
- Work out how much you need for retirement
As a rule of thumb, couples have the better deal when it comes to saving for retirement because they can pool their resources. If you own your home and are in good health, the Association of Superannuation Funds of Australia estimates that you’ll need an annual income of $40,739 for a modest lifestyle in retirement or $62,562 for a comfortable one. By comparison, a single person may need $28,179 or $44,224 respectively. So if you’re part of a couple, it may be easier for you and your partner to reach your retirement goals.
But of course, your situation will differ from other couples. You may have complex health needs, or still have a mortgage by the time you retire. Maybe you don’t own a home – or perhaps you’ll still have financial dependants after you’ve finished working. Whatever your situation, it’s important to discuss with your partner the kind of lifestyle you want in retirement – and how much super you’ll need to support it.
- Find out if you’d benefit from spouse super contributions
If you’re a high earner and your spouse earns $40,000 or less a year, you could both potentially benefit from the spouse contribution strategy.
Here’s how it works: you make an after-tax contribution of at least $3,000 into your spouse’s super. If your spouse earns $37,000 or less, you could then earn a tax offset of $540 – and your spouse gets a welcome boost to their super. You may still receive a partial offset if your spouse earns up to $40,000.
- Consider splitting your super
Did you know that couples can split up to 85% of their Super Guarantee (SG) contributions each year – plus any salary sacrifice and personal super contributions you might make? To do this, your spouse must be under preservation age and not retired, and you must split your contributions at the end of financial year in which they were made.
Splitting super could benefit you as a couple if one of you has substantially more super than the other, and where:
- There is an age difference: The older spouse can reduce their super balance by splitting it with the younger spouse, and then they may be entitled to a part Age Pension when they retire.
- You want to withdraw large lump sums in retirement: Currently, lump sum withdrawals are capped at $215,000 (that’s set to increase to $225,000 for 2021-22). But if you split your super, you could potentially both withdraw up to $430,000 tax-free (or $450,000 from 1 July 2021).
- You want to avoid going over the $1.6 million super cap: While you can have more than $1.6 million in your super account, you can only transfer a maximum of $1.6 million into a tax-free pension account. The transfer balance cap will be indexed and increased to $1.7 million from 1 July 2021.
- Decide if you want to nominate your partner or spouse as a beneficiary to your super
You can decide who you want to nominate as a beneficiary for your super. You might want to nominate your spouse – but you don’t have to. Instead, you could choose someone else who is considered your dependant. For example, a child (including an adopted child or stepchild) or someone who is financially dependent on you.
One strategy is to leave your spouse the family home so they can continue living there – and then leave your super to your children. Or, if you’re a business owner, you could potentially leave the business to your spouse to continue running it and leave your super to your children. A financial adviser can help you work out what approach is most appropriate for your financial situation.
Whoever you decide to leave your super to, it’s a good idea to set up a binding death benefit nomination so you have more certainty about how your super will be paid out if something happens to you.
Source: Colonial First State