Category

Retirement

Insurance towards retirement

Why it’s important to think about insurance ahead of retirement

By | Financial advice, Retirement, Wealth Protection | No Comments

If retirement’s coming up on your horizon, you’ll be keen to make sure your plans stay on track. It makes sense to concentrate on things you can control, such as insurance.

Too-high premiums can chew away at the foundations of your savings, at a time when they’re more important than ever. Under-insure and one day your floor may collapse, undone by events you can’t foresee.

Cover for a changing life

As you get close to retirement, you may want to make sure you’re holding the right insurance for the lifestyle you want. Here’s a simple checklist that may help:

  • Ask yourself how much money your family would have if you were to pass away or become disabled;
  • Compare that with how much money your family might need in the same situation, including how they’d manage paying for day-to-day costs like child-care and mortgages;
  • The difference between the two can help you work out how much insurance you may need.

Many of us take out insurance and are done with it – it’s enough to know we have the proverbial rainy day covered off. However, with economic clouds gathering, now’s a good time to review what you’ve already got and assess if it’s still right for you and your needs.

So, dig out your existing insurance agreements, taking special note of when they’re due to expire and your continued eligibility for the policies they hold.

An important area for many Australians is insurance held inside superannuation.

Insurance inside super

Insurance inside super can help us out when we really need it. Like any type of insurance, it works best when you’ve got the right level of protection for your situation. As you head towards retirement and your life changes, so might your priorities.

As well as life insurance, you might have total and permanent disablement (TPD) inside super. TPD cover may provide you with a lump-sum payment if you suffer a disability that prevents you from ever working again.

TPD could help you pay for ongoing medical expenses, alterations to your home to make day-to-day life easier and help provide future financial stability.

Total salary continuance, also known as income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.

Typically, within super, income protection provides you with cover either for a two-year or five-year period or until you turn 65, depending on the terms in your employer plan.

What to look out for

There are pros and cons of insurance within super. Things to think about if you’re approaching retirement include:

  • Cover through super may end when you reach a certain age (usually 65 or 70). That’s generally different to cover that’s outside a super account;
  • Taxes may be applied to TPD benefits depending on your age;
  • Claim payments may take longer, as the money is normally paid by the insurer to the trustee of the super fund before it’s paid to you or your dependants.

Don’t double up and stay flexible

As part of your review, it’s also a good idea to check insurance you hold inside super against other policies you might have outside super.

Then compare your cover, check whether you have any insurance double ups – if you have more than one super account with the same type of insurance, you may be paying for more insurance than you need.

As well as comparing the level of cover you get, consider any exclusions, such as the treatment of any pre-existing medical conditions, and waiting periods. Remember that if you do cancel your insurance, you might lose access to features and benefits and may not be able to sign back up at the same rate.

It’s also important to disclose your situation to your insurer honestly. Otherwise, the insurer may be entitled to refuse your claim.

Any change calls for flexible thinking, whatever age you are. The lead up to retirement is a great time to review your insurance and adapt to changing circumstances.

Source: AMP

6 ways to reduce debt before retirement

6 ways to help reduce your debts before you retire

By | Preparing For Retirement, Retirement | No Comments

Carrying debt into retirement is something many Aussies will face, but the good news is there are a number of things you can do now while you’ve still got time on your side and earning an income.

1 – Take simple steps to minimise what you owe

  • Work out your debtsand what they total
  • Do a comparison of what you earn, owe and spend
  • Look into whether you might benefit from rolling your debts into one
  • Pay your debts on time to avoid additional charges
  • Try to pay the full amount rather than the minimum owing
  • Look at whether you can afford to make extra repayments
  • Shop around for providers with lower interest rates and no annual fee
  • Have a contingency plan, such as an emergency fund, if you can afford to
  • If you’re experiencing financial hardship, talk to your providers, as most can assess your situation and help you find alternative payment plans.

2 – Get serious about having a budget

If you’re approaching retirement, you may be prioritising things such as living costs, utility bills, health care and even helping the kids out. With many Aussies looking at a retirement (which in reality, could span a few decades), another thing to give some thought to is recreation and your social life.

A good starting point when it comes to setting up a workable budget, so you can manage these things, is figuring out what money you have coming in, what expenses you have and what you might be able to put aside.

Meanwhile, if you’re wondering how much money you’ll need generally, the Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget needed to fund different retirement lifestyles, based on an assumption people own their home and are relatively healthy.

June 2020 figures show individuals and couples, around age 65, looking to retire today would need an annual budget of $43,687 and $61,909 respectively to fund a comfortable lifestyle, or $27,902 and $40,380 respectively to live a modest lifestyle.

3 – Consider what money you might have access to

The money you use to fund your life in retirement will likely come from a range of different sources, including the following:

Super – Generally you can start accessing super when you reach your preservation age, which will be between 55 and 60, depending on when you were born. Knowing your super balance is a crucial part of planning for retirement, as it’s likely to form a substantial part of your savings.

If you’ve got more than one super account, there may also be advantages to rolling your accounts into one, such as paying one set of fees, which could save you hundreds of dollars each year. However, there could be other fees and features lost in the process, so make sure you’re across everything before you consolidate.

Investments, savings, inheritance – You may be planning to sell shares or an investment property, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. An inheritance or proceeds from your family’s estate may also help in your later years.

The government’s Age Pension – Depending on your circumstances and assets, you could be eligible for a full or part Age Pension from age 65 to 67 onwards (depending on when you were born), or you may not be eligible for government assistance at all.

4 – Know where your money is sitting and what it’s doing

Having spare money sitting in the one place mightn’t be the best thing. For instance, if you’ve got cash in a transaction account, could you be earning more if it was invested elsewhere, or even placed in an offset account linked to your home loan to reduce what you pay in interest?

Looking at different investment options inside your super could also potentially generate more income. Do keep in mind though that a more conservative approach may be a better option as you get older, as when you’re younger, you generally have more time to ride out market highs and lows.

5 – Consider downsizing your home or refinancing

Find out what you need to know about downsizing your home as this could help you top up your retirement savings.

You might also be interested to know that when you reach age 65, you can make a tax-free contribution to your super of up to $300,000 using the proceeds from the sale of your main residence. There will however be potential advantages and rules that you’ll want to be across.

Refinancing, whereby you replace your existing home loan with a new one, could also create cost benefits and more financial flexibility.

Remember, your living arrangements in retirement should be based on more than just your finances. Your health, partner, family and what activities you want to pursue once you stop work will play a part.

6 – Think about working a bit longer

This could help you to boost your savings as well as your super balance, so that you have a more comfortable lifestyle in retirement. In fact, the main reason most older Aussies said they wanted to stay in the workforce was financial security.

It’s also interesting to note, retirement isn’t necessarily a one-time event, particularly when it comes to the 45 to 54 and 55 to 59 age groups, with as many as 26.7% returning to employment annually.

Source: AMP Insights

Is-one-million-dollars-enough-to-retire-on-1

Is $1 million enough to retire on?

By | Financial advice, Preparing For Retirement, Retirement | No Comments

Everyone who’s approaching retirement wants to know how much money they need to save – how much is enough to leave work confidently and then live comfortably? Lately, we’ve been seeing $1 million dollars bandied around as the magic number but is $1 million enough?

Well, it depends. If you’re a high-income earner and want to maintain a similar lifestyle when you retire, then $1 million might not stretch as far as you think. If you’re happy to spend less, then it may be enough.

The Association of Super Funds of Australia (ASFA) calls this the difference between a ‘modest’ and a ‘comfortable’ retirement. It estimates that a couple needs an annual income of around $40,000 for a ‘modest’ life and $60,000 for a ‘comfortable’ life.

Gold Coast or Amalfi Coast?

While ASFA recommends $60,000 for a ‘comfortable’ life, if you’re used to a much higher income, then this probably won’t keep you as comfortable as you’d like. The amount of money you’ll need will vary a lot depending on your personal situation. Here are some of the most common variables:

Your home

If you own your home, you’ll need less income. Retirees who own their homes outright spend on average 5% of their income on housing, compared to 30% for retirees who rent.

Your health.

You are likely to spend more on healthcare as you age. While Medicare should cover much of the increase, private healthcare costs are rising much faster than inflation, going up 66% since 2009.

Dependents

If you’re supporting children, or parents – or both, you’ll need to think about how their financial needs will affect your financial needs over the years.

Less over time

Most people spend less as they age (spending falls by 15% on average between the ages of 70-90). This is because as they get older many people have bought most things they really want (and can afford) and have less desire to be so busy.

Longevity

People are living longer and longer, which is fantastic, but it does make it harder to work out exactly how much money you’ll need. Do you need to fund a retirement that lasts till you’re 88 or 108?

Keeping the money flowing

When you’ve worked out roughly how much income you’ll need, the next step is to work out how to get it. Here are some of the main ways:

Account-based pensions

You generate regular income payments by transferring some, or all, of your super to an account-based pension account. It’s generally tax free (as it stays within super), but your income will fluctuate depending on how your investments perform.

Annuities

An annuity gives you a set income for a defined period, or for the rest of your life. It’s great for reliability (you’ll always receive the same income), but not so great if you need extra cash for an emergency or a one-off purchase. You may also get locked into whatever rate is available when you buy it – which may not be great when interest rates are at all-time lows.

Dividend investing

Share dividends can be a great (and growing) source of income. While shares have potential for excellent returns, they also come with greater risk.

Government assistance

Even if you’re reasonably well off, you may still be eligible for a part pension – 2/3 of retirees are – and then there’s the seniors healthcare cards, travel discounts and other concessions.

Term deposits

You receive a set rate of interest for the term of your investment. Great for security and guaranteed income, but often a lower rate of return than other investments.

Rental property

Renting out an investment property is a common way to diversify your investments and gain a consistent income. Difficulties can occur if you have problems with tenants, you need to make expensive repairs, or rents or the value of your property falls.

Work

Many people choose not to stop working entirely. They enjoy their work and it keeps them mentally active while giving them purpose, a sense of identity and time with friends.

It’s never too late to get advice – or too early

As you can see, working out exactly how much money you’ll need to retire is complex. A financial adviser can unravel the complexity for you and get you closer to your ideal retirement life.

Source: Perpetual

How-to-recover-from-a-financial-setback-1

How to overcome a financial setback

By | Financial advice, Retirement | No Comments

When considering the financial position they’ve achieved in retirement, many Australian retirees share the same opinion: “I wish I’d saved more.”

For some people, keeping up with day-to-day living expenses and staying on top of debts is challenging enough, and investing for the future can seem out of reach. Meanwhile, others are better at sticking to a budget and putting aside money on a regular basis so they can build wealth over time.

But even with a retirement plan in place, what happens when someone’s life takes an unexpected turn that changes their financial position? For instance, if they or their partner became seriously ill or injured. While some people would still be able to keep up with their living expenses while investing for the future at the same time, others would struggle to make ends meet – putting them on the back foot financially for years to come.

Life is nothing if not unpredictable, so the best thing to do is put measures in place that will minimise the impact of unexpected financial shocks before they happen.

How can you improve your financial wellbeing?

Review your Insurance

Consider taking out personal insurance such as life, disability, trauma and/or income protection cover, in addition to private health insurance. With personal insurance, you can receive either a lump sum or regular payments to cover your living and medical expenses if you have to stop working due to illness or injury. We can help you choose the right level of insurance for your needs and advise whether to take out your cover through your super fund.

Understand your entitlements

If you or your partner has to stop working due to illness or injury, you may be eligible for government assistance in the form of a sickness allowance or carer payment. We can help ensure you receive all the financial support you’re entitled to.

Put some money aside

If you’re suddenly faced with a financial setback, it helps to have a safety net. If you’re not already saving regularly, review your household budget to see if you can afford to put some money from each paycheque into a separate savings account. Then, if you get seriously ill or injured, this money can help tide you over while you’re making an insurance claim.

Create an estate plan

A strong estate plan is the best way to protect your family’s finances if the worst happens to you. It’s important to get legal advice when building your estate plan and to update your will whenever your personal or financial circumstances change. Your financial adviser can also help you create a binding death nomination with your super fund so your super balance and insurance benefits are distributed according to your wishes when you pass away.

Maximise your super

While you’re healthy and working, it might be worth putting extra money into your super. That way, your retirement savings don’t suffer if you’re off work for an extended period or you need to retire sooner than planned. Salary sacrificing is a tax-effective way to boost your super, allowing your nest egg to grow faster.

Source: Colonial First State

3-factors-affecting-retirement-income

3 factors affecting retirement income

By | Financial advice, Retirement | No Comments

In Australia, people are living longer and interest rates are lower than ever. While the first is good news, the second carries risks if you’re looking for an adequate income to see you through retirement.

Here we look at three elements that affect a post-work reasonable income – interest rates, inflation, and longevity.

  1. Interest rates – high valuations, low returns

Historically low interest rates have driven valuations of defensive assets such as cash and fixed interest to unprecedented highs. Generally, a defensive asset is seen as a lower-risk, lower reward investment.

High valuations mean low yields (or percentage income returns in the form of dividends and interest) for defensive assets.

Low interest rates affect variables such as inflation and investment returns, which in turn affect how we save for retirement.

In the high interest rate era of the late 1970s and 80s even relatively low-risk assets like term deposits and bonds offered double-digit returns. These days rates of return are all closer to one per cent.

Similarly, property yields in Australia are around two to four per cent depending on the type of property and geography. Better yields may be available via Australian equities, but many retirees are not in a position to take on a higher level of risk.

  1. The inflation perspective

Inflation has a big impact on retirees who are less able to earn and save more after their working lives have finished. Falling returns mean providing for retirement is challenging, but although returns are low now compared to in the past, the impact is eased when you take inflation into account.

Inflation was running at around 15 per cent in the late 70s and 80s, which ate up much of the bond and term deposit returns.

Nevertheless, the combination of low interest rates and low inflation make it hard for retirees to find returns.

There are risks too, should the current global inflation rate of about three per cent shift higher than the defensive asset classes. As these assets are priced for the very low inflation of today, they would face major negative revisions.

  1. The longevity conundrum

In Japan, adult diapers are forecast to outsell those for babies within a few years. Many developed countries are having to adapt to the demands of an ageing population.

Australians are also living longer, increasing the risk that a retiree will outlive their savings. Back in 1980, a man starting a pension at age 65 had a life expectancy of 78 – 13 more years. Now, a male starting a pension at 65 has a life expectancy of 86 – an additional 21 years. While this is great news in many ways, financially it means higher income needs and the need to grow the assets over time to make up for rising costs of living.

This is a concern in an environment which sees retirees drawing down on their pool of retirement assets because they can no longer generate sufficient income returns. This means retirement account balances are being depleted relatively quicker than in the past, especially if retirees lack exposure to growth assets to generate some capital growth over their longer lives.

Supporting an ageing population to achieve their retirement goals in a market of lower investment returns is a major challenge. A stable policy framework for superannuation and a long-term approach will be important in giving retirees the best chance of achieving a comfortable retirement.

Source: AMP

What are the best investments for your retirement?

By | Financial advice, Preparing For Retirement, Retirement | No Comments

In the simplest terms, investing your money means buying an asset with the expectation of earning returns from ownership of that asset. If you own an investment property, for example, you can expect to receive rent as income. But if you then sell the property for a higher price than you paid, you’ve increased your returns from your asset even more.  This is known as a capital gain – the growth in value of an asset over time.

Different types of investments are grouped together into asset classes – a group of investments with similar characteristics, such as term deposits, bonds, property or shares/equities. When it comes to choosing between different investment options, they generally fall into two broad categories, defensive and growth assets.

Defensive assets offer less opportunity for growth, but more stability and security for your original investment. A term deposit is an example of a defensive asset – the interest you’ll earn is fixed but you’re guaranteed to get your original deposit back at the end of the term. Growth assets, such as shares, carry more risk but offer more potential to grow your wealth over time.

Why diversification is important

When choosing growth assets and defensive assets to invest in you’re looking at how much you can expect to earn compared with the risk of losing some of the original sum invested. Diversifying your investments can be a good way to strike a balance between risk and reward. Because different asset classes behave differently at different times, spreading your money across a number of assets can help you earn more stable investment returns overall.

Investing costs

Every type of investment comes with costs. For buying and selling shares, you’ll pay brokerage fees for each transaction. When you buy and own property, there are upfront and ongoing costs such as stamp duty, agency fees and maintenance costs. Plus, you’ll be liable for tax on the income from your investments and on any capital gain you earn when you sell assets. These are all things you need to take into account when looking at different investment options.

Should you invest in a super fund?

You can invest in all sorts of assets outside of super, either directly or through managed funds. Most super funds will also offer a wide range of choices for investing your money, including their own blended investment options, such as growth, conservative (defensive) or balanced.  So should you be investing your retirement savings in super or look elsewhere?

A key benefit of investing through your super fund is the potential savings on the tax on your investment income. Any investment earnings in your super fund are taxed at a maximum rate of 15%, regardless of the marginal tax rate on the rest of your income. The main drawback of investing in super is the money you invest and the investment earnings are locked away until you reach your preservation age and/or meet a condition of release. If you need access to the money you’re investing in the short or medium term, then your super fund isn’t the right place for it.

What about SMSFs?

If you’re looking for more flexibility in your choice of investments than you can expect from a super fund, a Self Managed Super Fund (SMSF) could be the answer. However, there are significant costs involved in setting up and managing an SMSF so your freedom to invest super savings in property or collectibles, for example, comes at a price.

Your superannuation investment strategy

There’s no one-size fits all when it comes to investing. Whether it’s your investment strategy for retirement or another purpose, there are lots of personal circumstances and preferences to think about. Some of these include your investment timeframe, your appetite for risk and how much you already know about different types of investments. To find out more please contact us.

Source: FPA Money & Life

9 retirement thought starters for people in or nearing their 40s

By | Financial advice, Retirement | No Comments

It’s never too early to begin to think about your retirement.  Here are 9 thoughts to get you started.

1 – Do I have to retire by a certain age?

You can retire whenever you want to in Australia, but your financial situation, employment opportunities, health and wanting to coordinate with your other half could play a big part.

2 – How much money will I need and where will I get it?

Industry figures show individuals and couples around age 65, looking to retire today, would need an annual budget of $42,953 and $60,604 respectively to fund a comfortable lifestyle, or $27,425 and $39,442 respectively to live a modest lifestyle (which is considered better than living on the Age Pension).  Note, these figures also assume people own their home outright and are relatively healthy.

3 – Have I considered what it’ll cost to do the things I enjoy?

Life expectancy in Australia is increasing, so spare a thought for things outside of just your living costs and utility bills.  What kind of money might you need to do the things you enjoy, such as sport, keeping up with any hobbies you might have, any travel you’d like to do and how often you see yourself eating out?

4 – How and when can I access my super savings?

Generally, you can start to access your super when you reach your preservation age, which will be between ages 55 and 60, depending on when you were born.  As for what you do with your super (which from age 60 you can access tax free) you’ll have a few options.

You may access a portion of your super via a transition to retirement pension (TTR), which you can do while continuing to work full-time, part-time or casually if you want greater financial flexibility.  Alternatively, if you stop work altogether, you may choose to take your super as a lump sum of money, or move it into an account-based pension or annuity, if you want to receive a regular income.

There will be different tax implications for different people and remember your super doesn’t guarantee an income for life, as it will come down to how much super you’ve saved over the years.

5 – Will I be eligible for government assistance?

Along with your savings, government benefits, such as the Age Pension, could be an important part of your income in retirement, if you’re eligible, which not everyone will be.  For instance, the value of various assets you have and any income you receive (in addition to other requirements) will determine whether you’re eligible for the Age Pension and what amount of money you’ll receive in Age Pension payments.

6 – Will I still be paying off my current debts?

If you’re going to be carrying debt into retirement, you may want to think about ways to reduce it sooner rather than later.  Some things you might do:

  1. Work out your debts and what they total;
  2. Look into whether you might benefit from rolling your debts into one;
  3. Look at whether you can afford to make extra repayments;
  4. Shop around for providers with lower interest rates and no annual fees.

7 – Are there other things I should think about?

  • Insurance – You might have insurance, but what you require in retirement could be quite different to when you’re working;
  • Investments – You might consider a more conservative approach to anything you’re invested in, as when you’re young you often have more time to ride out market highs and lows;
  • Estate planning – You may want to document how you want your assets to be distributed after your gone and how you want to be looked after if you can’t make decisions.

8 – Is it a possibility I might relocate or downsize?

Your living arrangements in retirement should be based on more than just your finances.  Your health, partner, family and what activities you’re interested in will all play a part.

If you are set on moving to release money from your property, planning ahead could help you feel more in control as you can assess any out-of-pocket costs in advance.

9 – Am I in a position to make additional contributions to my super?

The more you can put into super, the more money you could have when you retire.  And, if you put some of your before-tax income into super, these amounts will generally be taxed at 15%, which is lower than the tax most people pay on their employment income.

Source: AMP News and Insights