Flexible super for life’s different stages

By AMP Financial Planner Russel Molin*

Life goes through so many changes – often in the blink of an eye.

Investing, planning and setting long-term goals can seem ridiculously ambitious when you are young – as does planning for retirement when you are just starting a family. But laying these foundation stones early can make all the difference and allow people to take control of their financial future.

What people should be thinking about financially at what age depends on many factors, but there are some major turning points in life when most people need to reconsider their financial position, especially when it comes to a retirement savings plan, investment strategies and, importantly, insurance protection.

There’s no doubt that with people’s busy lifestyles and the challenges they face in juggling work, family and a social life, there’s often little time left to stop and consider strategies to improve their financial well being. Managing superannuation can be simplified with super accounts that are capable of evolving through a person’s different life stages, from their first job, to having a family, through to retirement.

Long-term planning for a 20-year-old university student usually revolves around what is happening next weekend, certainly not retirement which seems lifetimes away. However, it’s never too early to start thinking about financial planning issues and setting up a basic superannuation savings account.

The rollercoaster ride which comes with having a family is enough to make your bank account scream, but financial planning and family planning actually go hand in hand. Young families paying off a mortgage should review their investments in super and ensure they have enough protection for their family. Families with a limited cash flow can cost-effectively take out life cover and total and permanent disability insurance, as well as other essential insurance cover, such as income protection, through their super account.

Retirement, of course, should be the phase of life when people are enjoying the fruits of their labour. Retirees may no longer have a need for insurance protection, but they may wish to start drawing an income stream from their super account, even before they retire, and have a greater say in their investments.

To help make saving for retirement easier, people could look for super accounts that are simple and flexible with no in-built commissions. Super accounts like this allow people to choose the investment and insurance levels appropriate to their needs as they move through their different life stages.

No matter what stage of life a person is at, it’s important to be able to make choices about how they invest – and spend – their money. Everyone’s circumstances and needs are different though, so it’s important for people to seek out quality financial planning advice to determine the appropriate retirement plan for them.

Insuring for a secure future

For most people, the journey of life comes with its fair share of ups and downs.

Unfortunately, things happen in our lives that are out of our control. It’s not a nice thought, but what if you or your partner passed away or suffered a serious illness or injury and was unable to work? Suddenly your world can turn upside down and your financial security placed in jeopardy if you did not have the ability to repay debts and look after your family.

Surprisingly, personal insurance is still one of the most neglected aspects of the average person’s financial planning. While many Australians don’t think twice about insuring their car, home and contents, their most valuable asset is often overlooked. That’s right - you.

Consider this: A 40-year-old earning $40,000 per year (increasing 5 per cent per year) will earn $1,909,000 in total by the time they reach 65. This makes your ability to earn an income and provide for yourself and your family a valuable asset worth protecting.

There are a few different types of insurance worth considering in order to protect you and your family.

Income Protection

Protecting your income means protecting your lifestyle. Income Protection usually pays a monthly benefit of up to 75 per cent of your regular income if you’re too sick or injured to work.

This type of insurance – which is even more important for self-employed people – is designed to help you continue paying the mortgage, children’s school fees, phone and utility bills, run your car, buy food and clothes, basically cover your day-to-day living expenses.

Total and Permanent Disablement (TPD)

TPD cover provides a lump sum payment if you’re totally and permanently disabled. This cover can help you pay for medical expenses, repay major debts and help provide for your future.

Trauma Cover

Trauma cover provides a lump sum payment if you’re diagnosed with a specified ‘trauma’ condition. The types of conditions that trauma insurance will cover you for include heart attack, multiple sclerosis, motor neurone disease, major organ transplant, severe burns, cancers, dementia, stroke or paralysis.

Trauma cover is designed to help cover your increased medical costs and living expenses, providing you some financial security during the important recovery process, even after you have returned to work.

Death Cover

Death cover offers you the security that, should the unthinkable happen, at least your family won’t have to worry about money.

Death cover works by making a lump sum payment to your family if you die. Some death cover will also offer an option of receiving the funds if you are diagnosed with a terminal illness.

It’s important for people of all ages, especially if you have others relying on you financially or you have large debts such as a mortgage.

There are many different insurance options available, so it’s important to speak with a qualified financial planner to ensure you get the right insurance solution for your specific needs. Even if you already have insurance, review your policies to make sure that the cover meets your current needs and that you are not paying too much.

Death and TPD cover can often be built into your superannuation which can be a simple and effective option, especially if cash flow is an issue.

*Russel Molin is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.