Planning
8 March, 2019 - 01:28 PM GMT

Retirement Jargon buster

AFA

Association of Financial Advisers

When it comes to your retirement and superannuation, it’s easy to be bamboozled by all the financial terms. Our jargon buster will help you understand the fine print.

Age pension

The Age Pension is Income provided by the Government to individuals of a certain age (67+) who meet criteria such as income and assets tests.

Annuity

An annuity is usually part of an insurance policy which guarantees an income stream for retirement under certain criteria – such as inability to work due to a permanent disability.

Asset

Assets come in several forms. They can be a physical asset, such as property, or a financial asset, such as bonds or shares. There are four main asset classes for investment products – cash, shares, fixed interest and property.

Benefit

This is the amount of money in a superannuation fund or RSA which the member is entitled upon reaching ‘preservation age’ at which point if all conditions are met, the money will be released.

Contribution

The money you or your employer puts into a superannuation fund or RSA.

Co-contribution

If you make an after-tax contribution to your super fund, depending upon your income level, the government may make a matching contribution to your superannuation fund if you are elligble.

Diversification

Diversification is a type of investment technique where you spread your investment risks across a range of asset classes. The reason being a portfolio of different investments will, on average, provide a higher return and lower risk than any individual investment within your portfolio.

Dividend

A payment made to the shareholders of a company out of profits made by the company.

Equity

The difference between what you owe and the value (in today’s market) of what you own. Negative equity means you owe more than the total value of what you own. (Yikes!)

Executor

The person you nominate in your will to carry out the provisions of your will.

Gearing

Is the money you borrow for investment purposes.

Income

Money you receive from salary or wages, government benefits,  interest from bank accounts, dividends from shares, and rent from an investment property.

Inflation

The increase in the prices of goods and services in the economy. Inflation can go up or down.

Liquidity

The ability to convert an asset into cash quickly and without any price discount.

Manage fund

A type of investment that pools the assets of many investors into a single fund. Managed funds include property trusts, share funds and cash management trusts.

Pension

A product bought from a superannuation fund to provide an income stream in retirement as opposed to the age pension which is a government benefit.

Personal contribution

This is the money you voluntarily contribute to your superannuation fund from your take home pays.

Premium

These are the payments you make, either monthly or annually to an insurer. Eg home for your home insurance, income protection, car or life.  The higher the risk of loss, theft, damage, destruction or injury, the higher the insurance premium.

Preservation age

The age at which a member of a superannuation fund is able to access the ‘preserved benefits’.

Return

The amount of money your investment earns.

Reverse mortgage

Popular amongst retirees looking to transition into a retirement village. It is a loan you take out that is secured against your home. You can take the money in the form of a lump sum, or as an income stream, or even as a line of credit. Interest is charged, but you are not required to make regular repayments. When the loan ends, such as upon your death, it must be repaid, usually from the proceeds of the sale of the house.

Salary sacrifice

An arrangement between an employer and their employee where the employee sacrifices pre-tax salary and wages into their superannuation fund. Scan be highly beneficial as sacrificed contributions are subject to only 15 per cent tax.

Term deposit

A bank account that offers a higher rate of interest, in return for locking away your funds for a specific time period. For example, three years.