Retirement Savings Investment Choices

This assignment involves analyzing the importance of asset allocation in retirement savings, with a focus on minimizing risk and maximizing returns. It also requires reviewing several studies on retirement planning in Australia, including topics such as superannuation knowledge, taxation, pensions, ageing, and retirement adequacy. The analysis will help identify key factors that influence retirement planning decisions, providing insights for individuals and policymakers alike.

Superannuation and
Retirement

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Current situation...........................................................................................................................1
Retirement goals and objectives .................................................................................................2
Will your goals be achieved following your current strategy ....................................................4
Strategy and recommendations....................................................................................................4
Investment risk.............................................................................................................................9
Summary ...................................................................................................................................11
CONCLUSION ............................................................................................................................11
REFERENCES .............................................................................................................................13

INTRODUCTION
Superannuation is a corporation pension programme which is develop by an organisation
for the benefits of its staffs. The amount is deposited in superannuation account will grow over
the period of time and person can withdraw the funds after retirement. The retirement is the
process in which an individual chooses to leave the workplace and does not want to work. To
survive in life after retirement is not easy so it is require for the people to select best investment
options which provide higher returns so that a person does not have to face the problem of
shortage of funds and can spend the life happily. The main aim of this report is to provide advise
to Thomas and Jessica about superannuation and retirement. There are various topics are covered
in this report such as: current situation associated to retirement goals, strategy and
recommendations related to investment vehicle, types of contribution and caps, contribution
schedule and current capital assets. Apart from this it also discuss about investment risk which
involves risk profile and asset allocation & summary that focuses about goals and objectives.
MAIN BODY
Current situation
As per the case scenario, Thomas and Jessica are the couple and want to develop plan for
their retirement in 5 years and want to pay off their mortgage by retirement and have enough
amount to buy a new car and take a holiday. Both of people are earning and want to make a
proper investment for the purpose of retirement so that they can spent their life happily. The
couple have contributed in superannuation funds. As the current financial situation of both
individuals are as follows: combine salary is $160,000 and investment income is $14000,
concessional contribution super is $10000. Income tax includes Medicare levy is $ 41361.50 and
net income is around $122638.50. The expenditure in mortgage principle home is approx
$28500, mortgage investment property is around $ 8250 and household expenditures is around $
42000 so total expenses are approx $ 78750 and total annual income is $ 43888.40. The current
investment which is done by Thomas and Jessica has involves: UA managed funds & investment
property (Speelman and Gerrans, 2013).
This is the current situation of both couples and they want to investment their funds in
productive vehicles so that they get higher returns. In retirement an individual left the job and
spent their life by using savings and investment. All people have to retire some day so it is
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important for them to start savings and make investment. As a result they does not face the
problem related to shortage of funds as because the sources of income has got reduced after the
retirement and people have to depend on others for their bread and butter so that they can sustain
in their life. The sources of income for Thomas and Jessica will reduce after the retirement but
the expenses will not reduce and to meet the expenditures they need money so that they can
survive in their life and fulfil their expectations.
Retirement goals and objectives
To make the goals and objectives for retirement is important and retirement refers to the
withdrawal from one's position or occupation or from one's active working life. Many people
retire from the job when they become eligible for private or public pension benefits. As there are
various nations which provide pension on retirement in old age. As the retirement planning is a
comprehensive approach to dealing with the many, often interrelated issues that face retiring
individuals & couples. There are various investment options in context to the retirement which
involves: superannuation, UA Managed Funds, Investment property, insurance etc (Warren,
2015). Every person who involve in work has to retire and it have some specific purpose which
are require to be fulfil.
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There are various goals and objectives which are set by Thomas and Jessica and these are
as describe as below:
 To pay off their mortgage by retirement and have sufficient funds to buy a new car
 ($ 30,000) and take a holiday ($25,000) (a total of $ 55,000 on top of any outstanding
 mortgage).
 To having retirement income of $ 57,000 per annum so that they can meet the expenses
and survive in their life without facing any difficulty.
 To maximize the sources of income which are helpful to generate the funds for the
purpose of retirement.
 While contributing in pension funds, their tax liability will be minimise.
 To get maximum utilization of funds through better investment plan so that both couples
can develop effective investment strategy in context to the retirement.
 To make self depended so that Thomas and Jessica will not depend on age pension
support.
 To manage the funds in effective manner and take better financial decisions which are
helpful for the purpose of retirement planning.
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 To give $ 40,000 to their children's so that they can start their saving plans and secure its
life.
 To meet the health related expenses so that they can get healthy.
 To spent the life happily and does not need to compromise with the desire as there are
various expenses which are require to be fulfil such as: food, medical, health and day to
day general expenses.
 To successfully spent the holidays after retirement.
So these are various goals and objectives which are associated to the retirement and with
the help of these goals Thomas and Jessica can spent their life successfully after the retirement
and does not need to depend on others. As because at the time when an individual is earning
than it can manage the expenses and can survive in its life and effectively manage bread and
butter. After the retirement the sources of revenue will reduce and individuals have to suffer
from the financial problems. So retirement goals and objectives are helpful in retirement
planning.
Will your goals be achieved following your current strategy
As per the current strategy the goals can be achieved but there are some scope for
improvement is available. According to current strategy Thomas and Jessica are engaged to
make plan for their retirement in 5 years. For that purpose they make contribution in
superannuation so that after retirement they does not face the financial problems. Apart from this
they make investment in property and UA managed funds. But from the property they are not
getting higher returns as per the expectations so it it important for them to select an other
investment option for the purpose of retirement planning. As there are other investment options
such as: shares, term deposits, mutual funds and it involves some risk but the returns are high
and it can fulfil the financial needs of both couples. To make investment is require to get
maximum returns so that desires of individuals can be fulfil. But it is important to take
calculative risk while making investment for the purpose of retirement. So it has been analysed
that current strategy is require to be improve so that Thomas and Jessica does not face the
problem related to shortage of funds and happily spent their life after the retirement and they can
get income more than $ 57,000 per annum (Austen and Hodgson, 2015).
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Strategy and recommendations
Explain superannuation as investment vehicle
Superannuation is a type of pension programme wherein, employees deposit some part of
their salaries to protect the future. After the retirement, the deposited amount is paid by the
organisation to the employees as pension. Eventually, the superannuation works as an investment
because people makes the investment with an expectation to get return in the future same as
when employees deposit money in the superannuation plan then it acts as an investment. Herein,
the case of Thomas and Jessica, deposit some part of their income for the superannuation. As
per the data they have $10000 superannuation for future that is not enough. As well as this
contribution is only of the Thomas not from the Jessica. Eventually, they are needed more
superannuation contribution for their secure future because it is like an investment without any
tax. The superannuation is divided into two types which are as follows:
 Defined benefit plan- It is type of benefit plan that is related to the benefits are based on
the various factors like salary, age, number of years served to the organisation etc.
Eventually, this type of the superannuation is complex and risky.
 Defined contribution plan- The defined contribution plan is totally opposite from the
define benefit plan. In this, benefits are given on the basis of contribution made by the
employee. Additionally, this plan is better from the above plan because it is less risky and
complex (Secunda, 2015).
Eventually, the superannuation works as the investment because of its working process.
Herein, some reasons are defined which states that superannuation is a type of
investment:
 Requires deposit as the investment- This includes deposit as the investment. Like in the
investment customer deposit the money for return. Same as in the superannuation,
employees makes the deposit by reducing some amount from the salary.
 Gives benefits after a certain time period- The superannuation, provides the benefits after
the some particular time period as the investment.
 Offers excess amount in compare to deposited amount- Generally, people makes the
investment for the purpose of getting extra money. Same as in the superannuation plan,
employees get the additional amount after the retirement.
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So these are the facts which shows that superannuation is a type of investment. Herein,
the case of the Thomas and Jessica, their superannuation fund is low, they have to increase to
secure their future. Like their superannuation fund is of $10000, it is not enough. It should be of
at least $30000. Eventually, this plan has versatile benefits because it is just like an investment so
the couple should try to increase their fund of superannuation (Ntalianis, 2012).
Types of contribution and caps
In the aspect of the organisations, contribution means a sum of amount which is
contributed by the employees. There are different types of contribution caps, some of them are
mentioned below:
Concessional contribution- The concessional contributions are those contribution which
are made before to the tax. Additionally, it is a type of contribution that is made to a person's
complying super fund which are added in the income of super fund. The included incomes are :
 Contribution is made by other.
 Contribution, that makes able to the contributor for the deduction.
 Amount transferred from foreign super fund to Australian super fund.
This type of contribution does not include following contributions:
 Contribution made on the behalf of the spouse.
 Government contribution.
 Contribution that is made for a child.
Like in the given case of Thomas and Jessica, they have the concessional contribution of the
$10000. This contribution is made only by the Thomas not by the Jessica so the the amount is
personal of the Thomas.
Concessional contribution cap- The concessional contribution cap does not limit the
amount of concessional contribution. Eventually, this contribution cap is applicable on per
person not according to the per employer.
Non concessional contribution-These contributions are also known by the after tax
contribution. In this contribution, the contributor is not responsible to pay the tax concession to
make the contribution. This type of contribution includes followings:
 Contribution made by a person that is not included in the income of the super fund.
 Contribution of spouse.
 Contribution which are made for a person who is less then 18 years old.
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 The amount allocated to a person that is not assemble from the super fund.
On the other hand, this contribution excludes followings:
 Government contribution.
 Super benefits of roll-over.
 Contribution that is made to the CPF (Noone and Kendig, 2012).
Non concessional contribution cap- The non concessional contribution cap is a type of
contribution cap which is not affected due to the increase in the concessional contribution cap.
In the case of Thomas and Jessica, they don't have joint contribution. Only Thomas has
the concessional contribution of $ 10000. This is not suitable for their future because this
contribution is not suitable in the terms of tax pay. On the other hand, they do not have any non
concessional contribution which is not good for them. This is why because the non concessional
contribution is made after the tax. Due to this contributor does not require to pay the tax. So the
above couple should have the non concessional contribution that can help them in the future.
Basically, in this context the recent trend is the non concessional contribution system that
can benefit to the Thomas and Jessica. This is why because it is beneficial in protecting the
individuals from additional tax payment on the contribution. As well as if Thomas and Jessica
will make the non concessional contribution then it can help them in upcoming future.
Co- contribution.
Co- contribution is just like a boost to the saving of retirement of the eligible people.
Eventually, this contribution is additional contribution that is made by the government for the
people. The criteria of the government to make the contribution is the level of income of the
individual as well as their family status. Basically, the government makes the contribution of
maximum amount of $500 to the eligible families. As well as government also consider the
factor of tax payment. If someone is paying the tax on the time, then government will make co-
contribution for that person because due to tax payment it will be easy to evaluate the income
level. As also it will indicate that the person is paying for the country development (MacDonald
and Drew, 2012).
Eventually, to get the benefit of the co contribution a person is needed to complete
following eligibilities:
 If person not contributed more then two times in the non concessional
contribution cap.
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 Candidate must be below 71 years old during the completion of the financial year.
 The person should not has the temporary visa during the financial year.
 If person pays the tax on the time in all the financial year.
So these are the eligibility criteria of the government for the co contribution. If Thomas
and Jessica covers all the above mentioned points then they will be able to get the co-
contribution from the government.
Apart from the co contribution, there are many other contribution that can boost the
retirement earnings of the individuals. Like spouse contribution.
Spouse contribution- It is a kind of contribution which can be made for those spouses
whose earning is up-to $40000. If income is below $37000, then spouse can claim for the
contribution. Herein, the case of the Thomas and Jessica the income of Jessica is $34325.50. It
means spouse(Wife) of the Thomas has the income below the $37000 so they can not claim for
the spouse contribution. So overall, the above couple is not able to get the contribution of spouse.
For this purpose, the income of the Jessica should be more then $37000 so that they can claim
and can safe their future.
Contribution schedule
The contribution schedule is a kind of form that consists all the information regarding to
the contribution which are made by the employee during a particular time period. As well as it
shows that how much amount an employee contribute in the organisation in a particular time
period. Basically in the contribution schedule an entry is made for every member enrolled in the
scheme, including their name. Due to contribution schedule, organisation can check about each
employee's individual contribution. The contribution schedule benefits to the employees in
following way:
Helps in providing reward- Due to the contribution schedule, employees can be
selected to the reward on the basis of the contribution.
Assessment of employees income- Eventually, contribution schedule also helpful in
assessing the employee's income level. If employee fill more contribution schedule then income
will be high.
So the contribution schedule is beneficial in the evaluation of future benefits to the
employees. Herein, the case of the Thomas and Jessica they contributed in the concession
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contribution of $10000, that is not enough. They have to fill more contribution in the
contribution schedule to get benefits from the company after the retirement.
Recommendations on current capital assets
Herein, the case of the Thomas and Jessica they have the investment property and UA
managed funds. Their investment property is of worth $220000, its value is of $300000. If they
sell it then it would be beneficial for them and they can generate the profit of $80000. On the
other hand, their UA managed funds are of $100000. Its value is of $85000 in the market. If they
sell it, then this can loss them (Hodgson and Marriott, 2013).
Recommendation- In the case, they have two commodities. The selling of investment
property can be beneficial. So they should sell the investment property. While UA managed
funds have the lower market value so they should not sell it and should wait in future to sell.
Apart from it, the capital gain tax is applicable on both the assets. Herein, this case they can
manage the this tax by selling of investment property because it will be a beneficial contract for
them. Though they have to bear the capital gain tax of the UA managed investment but selling of
the investment property is profitable.
Investment risk
Risk profile: Risk refer to the willingness of an individual to take risk while making
investment decision. As risk can lead to both positive as well as negative outcome due to which
it depends upon people whether to invest in high, medium or low risky situation. Additionally,
higher the risk higher can be the chances to gain profitability as well as growth due to which
people tend to take potential risk. In context to Thomas and Jessica the risk taking profile is
mentioned below:
Superannuation programme are the pension plan which are prepared by company to
provide special advantage for the employee of company once they get retired from organisation.
These funds are generally used either to run the livelihood or makes an investment in various
programme such as insurance scheme. Herein, Thomas and Jessica plans to utilise their
superannuation funds for only two to five years that is a specifically for medium range (Gerrans,
2012).
Usually the excess funds are either invested or saved by an individual in various
platform. As economic cycle keeps on changing so in case of inflation can erode the saving
value. Whereas, long term investment growth opportunity helps to encounter the diminishing
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effect of inflation by exposing an individual or organisation towards short term losses. In relation
to Thomas and Jessica are conscious to take high risk due to which they take measure to limit the
risk.
Both the individual are familiar with investment and importance of diversifying the
investment in order to minimise the chances of loss
Moreover, as both of them less likely to take high risk due to which the major investment
decision which they took was investment that was done on 'property' that is less prone to risk.
As business operate in dynamic environment due to which the value of investment either
done in shares, debentures, property and so on keeps on changing. Thomas and Jessica faced the
decrease in portfolio investment that was by 20% so in this adverse situation they took the
decision to wait and for the circumstances to change rather than withdrawing the amount.
For both of them income as well as growth in capital is equally essential to gain long
term profitability (Ganegoda and Evans, 2017).
In case of liquidity requirement, both the individual believes that they should have small
proportion of fund that needs to be accessible during the time of requirement.
Investment return as well as tax saving are the most optimum mix that can benefit both of
them while indulging in investment plans.
Thus, both of them prefer moderate risk while making the decision regarding investment
of capital.
Assets allocation
Assets allocation is requite to minimize the investment risk. Investment risk refer to the
probability of risk or return that company can get from taking high, moderate or low risk. Thus,
the profitability as well as occurrence of loss directly depend upon making investment in
different sectors. There are various type of investor such as defensive, moderate, balanced,
growth and high growth which are stated below:
Defensive: In this type of investment investor does not prefer risk due to which they take
minimal risk because of which the chance of return is low. So the external negative factor such
as inflation rate or change in tax does not harm the investment of defensive investor.
Moderate: Moderate investor are one who again prefer low risk and receives basic return
for their investment (Drew and West, 2014).
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Balanced: Such Investor have long term financial goal due to which they take risk but
calculative risk.
Growth: Growth investor are aggressive investor due to which they make long term
investment.
High growth: These investor take high level of risk in order to generate high level of
profit.
Thus, among various investments Thomas and Jessica who wants to make investment but
are less comfortable in taking high degree of risk prefer moderate risk. Thus, both of them are
moderate investor they seeks for those investment whose return are basic. Moreover, as they
have invested in property and UA managed funds whose current value is $3,00,000 and $85,000
respectively which determine that they are less aggressive in context to growth and development
because they do not take much risk in various kinds of investments due to which both of them
maintain their accumulated wealth.
Summary
Goals and objectives has met at some extent in context to the retirement but it can be
improved by assets allocation so that risk factor can be minimise which help the person to get
higher returns from the investment. While making retirement plan it is important to analyse the
investment risk so that individuals does not suffer from the financial problems. To achieve the
goals and objectives Thomas and Jessica make an investment plan for the purpose of retirement
and they make investment in property, insurance, UA Managed Funds and superannuation so
that they can get higher returns from it. According to the investment procedure both couples are
focuses to take minimum risk so that they does not bear the financial problems and their funds
cab safe and generate higher returns.
The goals and objectives which are set by Thomas and Jessica are as: to pay off mortgage
by retirement and have enough funds to buy a new car and take holiday, to minimise tax liability,
to self support, to take better financial decisions which maximize the returns (Agnew and Thorp,
2012).
CONCLUSION
As from the above report, it has been concluded that it is important for Thomas and
Jessica to make effective retirement plan so that they can spend their life happily and does not
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face the problem which is associated to shortage of funds. There are various investment vehicles
which are chosen by the individuals and provide returns to them and it includes UA Managed
Funds, insurance, property and superannuation. The strategy related to retirement planning have
contributed to achieve goals and objectives. It is important to make proper strategies which are
related to types of contributions, contribution schedule and current capital assets. While making
investment it is require to analyse the risk which is associated with it and for that purpose it is
necessary to make proper asset allocation so that chances of risk will minimize and chances of
returns can maximize.
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REFERENCES
Books and Journals
Agnew, J. R., Bateman, H. and Thorp, S., 2012. Superannuation knowledge and plan behaviour.
UNSW Australian School of Business Research Paper, (2012ACTL14).
Austen, S., Sharp, R. and Hodgson, H., 2015. Gender impact analysis and the taxation of
retirement savings in Australia. Austl. Tax F.30. p.763.
Chomik, R. and Piggott, J., 2012. Pensions, Ageing and Retirement in Australia: Long‐Term
Projections and Policies. Australian Economic Review.45(3). pp.350-361.
Drew, M., Stoltz, P., Walk, A. and West, J., 2014. Retirement Adequacy through Higher
Contributions: Is This the Only Way?. The Journal of Retirement.1(4). pp.57-74.
Ganegoda, A. and Evans, J., 2017. The Australian retirement lottery: A system failure. Australian
Journal of Management.42(1). pp.3-31.
Gerrans, P., 2012. Retirement savings investment choices in response to the global financial
crisis: Australian evidence. Australian Journal of Management.37(3). pp.415-439.
Griffin, B., Loe, D. and Hesketh, B., 2012. Using proactivity, time discounting, and the theory of
planned behavior to identify predictors of retirement planning. Educational
Gerontology.38(12). pp.877-889.
Hodgson, H. and Marriott, L., 2013. Retirement savings and gender: An Australasian
comparison. Austl. Tax F.28. p.725.
MacDonald, K., Bianchi, R. J. and Drew, M. E., 2012. KiwiSaver and retirement adequacy.
Noone, J., O'loughlin, K. and Kendig, H., 2012. Socioeconomic, psychological and demographic
determinants of Australian baby boomers' financial planning for retirement.
Australasian journal on ageing.31(3). pp.194-197.
Ntalianis, M., 2012. Preferred sources of financial information and communications for
superannuation decisions. International Review of Business Research Papers.8(5).
pp.55-64.
Secunda, P. M., 2015. The behavioral economic case for paternalistic workplace retirement
plans. Ind. LJ.91. p.505.
Speelman, C. P., Clark-Murphy, M. and Gerrans, P., 2013. Decision making clusters in
retirement savings: Gender differences dominate. Journal of family and economic
issues.34(3). pp.329-339.
Warren, D. A., 2015. Retirement decisions of couples in Australia: The impact of spousal
characteristics and preferences. The Journal of the Economics of Ageing.6. pp.149-162.
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