How Life Events Impact Your Financial Plan (And What to Do About It)
Life is full of milestones and changes. From marriage and children to career shifts, these major life events often come with both exciting opportunities and significant challenges—especially when it comes to managing your finances. How you plan for these events, particularly in relation to your superannuation, can have a profound impact on your financial future.
This article will explore how major life events affect your financial plan and superannuation, and importantly, what steps you can take to ensure your strategy remains on track.
1. Marriage – Combining Finances and Superannuation
Marriage is a significant milestone that requires an update to your financial plan. Whether it's combining incomes, sharing assets, or even coordinating superannuation, the financial decisions made at this point can have lasting effects on your retirement.
What Happens to Your Superannuation During Marriage?
Combining Financial Resources: As a couple, you'll need to align your financial goals. This may mean reviewing both your super funds, setting new retirement targets, and assessing each person’s superannuation balance.
Super Fund Consolidation: It's common for couples to have multiple superannuation accounts. Merging these accounts can help you reduce fees and make it easier to track your retirement savings.
What to Do About It:
Review and Consolidate Super Funds: Take the time to combine multiple super accounts into one. This reduces unnecessary fees and maximises your retirement savings.
Update Your Beneficiaries: Ensure your superannuation beneficiary details are updated, particularly after marriage. This ensures your assets are directed to the correct person should anything happen.
Spouse Contributions: If one partner is earning less or staying at home, consider contributing to their super fund to boost their retirement savings.
2. Children – Adjusting to Financial Responsibilities
The arrival of children is a joyous occasion, but it also brings with it a new set of financial responsibilities. Increased costs for things like childcare, education, and everyday living expenses can put a strain on your finances, and your superannuation may take a back seat during this time.
How Having Children Affects Your Financial Plan:
Time Off Work: Parental leave can result in time off work, which means lower super contributions and potential gaps in your superannuation balance.
Increased Expenses: Raising children comes with added costs. Managing these costs can sometimes mean diverting funds away from super contributions.
What You Can Do About It:
Make Spouse Contributions: If one partner is taking time off or working fewer hours, consider making additional contributions to their superannuation to help balance both parties’ retirement savings.
Government Co-Contribution Scheme: Check if you’re eligible for the government's co-contribution scheme, which could help top up your super if you make personal contributions.
Review Insurance Coverage: Ensure your life insurance, income protection, and TPD coverage are sufficient for the family. If you're the primary breadwinner, this coverage becomes even more crucial.
3. Career Changes – Adapting Your Super Strategy
Whether you’re switching careers, going part-time, or taking a break, career changes can directly impact your superannuation. When your income fluctuates, it’s important to adapt your financial plan to make sure your superannuation continues to grow.
How Career Transitions Affect Your Financial Plan:
Income Changes: A change in job often comes with a change in salary, which can impact your super contributions. If you get a pay rise, you might have the opportunity to increase your contributions; if you take a pay cut, you may need to adjust your strategy.
Career Breaks: Taking a sabbatical or maternity leave can leave gaps in your super contributions. Without regular contributions, your super may not grow as quickly, leaving you at a disadvantage when it comes to retirement planning.
What You Should Do:
Consolidate Lost Super: If you've had multiple jobs and haven't kept track of all your super funds, consolidate them. This reduces fees and helps ensure that all your superannuation is working together for you.
Increase Your Super Contributions: After a promotion or career change, consider salary sacrificing to maximise your super contributions. If your employer offers to match your contributions, try to take full advantage of this benefit.
Review Your Investment Strategy: As your career evolves, so should your investment strategy. When you’re younger, you might take more risks, but as you approach retirement, you may want to shift your strategy to more stable, low-risk investments.
4. Divorce or Separation – Managing the Financial Aftermath
Divorce or separation can be one of the most challenging life events, both emotionally and financially. It often requires revisiting your superannuation and financial plan to ensure that both parties are provided for during the division of assets.
What Happens to Your Superannuation in Divorce?
Super Splitting: In a divorce, your superannuation may be split between you and your ex-partner. This can have a major impact on your retirement plans, especially if your super balance was previously higher.
Financial Reorganisation: You will also need to reassess your financial goals and review your superannuation to adjust to your new circumstances.
What You Can Do About It:
Superannuation Splitting: Work with your legal and financial advisor to ensure the super splitting arrangements are fair. This step is crucial to avoid any future financial pitfalls.
Update Super Beneficiaries: Ensure your superannuation beneficiaries are updated after a separation to reflect your current wishes.
Financial Plan Adjustment: Following a divorce, create a new financial plan to ensure your superannuation remains on track and that you're contributing enough to maintain your retirement goals.
5. Retirement – The Final Phase of Your Financial Journey
The transition into retirement is a significant milestone, and how you manage your superannuation at this stage will dictate your quality of life for many years to come. It’s essential to carefully plan your retirement withdrawals and manage your super to ensure that your money lasts.
What Happens to Your Superannuation in Retirement?
Transition to Retirement: Many people choose to gradually reduce their working hours as they approach retirement. This requires careful planning of your superannuation withdrawals to ensure you have enough income to sustain your lifestyle.
Drawing Down Super: Once retired, your superannuation becomes your primary source of income. It’s crucial to develop a strategy for how much you’ll withdraw, how often, and which accounts you’ll access.
What You Should Do About It:
Create a Withdrawal Strategy: Speak with a financial planner to develop a strategy that ensures your superannuation funds last for the entirety of your retirement. Consider factors like life expectancy, inflation, and future medical expenses.
Consider Government Benefits: You may be eligible for the government’s Age Pension, which can supplement your super. Make sure you understand how this affects your super withdrawals.
Reassess Investments: As you move into retirement, consider adjusting your super’s investment strategy to reduce risk and ensure more stable returns.
Conclusion – Preparing for the Future
Life events—whether expected or unexpected—have a significant impact on your financial planning and superannuation. The key is to be proactive. Regularly reviewing your financial plan in light of life changes ensures that you’re always prepared for the future.
Remember, if you're unsure about how to adjust your super strategy, consulting a financial advisor can help you navigate these life transitions and make the right decisions for your financial future. If you're looking for a review of your superannuation plan, book a complimentary review with Redwood Financial Planning today.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial, tax, or investment advice. We recommend speaking with a qualified financial adviser before making any decisions regarding your superannuation. Every individual’s financial situation is unique, and personalised advice is essential to ensure the best outcome for your specific circumstances.
