Make your money last in retirement

Posted on 17 October 2019
Make your money last in retirement

MoneySmart
(ASIC)

There are ways to stretch your retirement income to make your money last as long as possible.

Consider getting financial advice

Depending on your circumstances, you may want to seek financial advice to maximise your retirement income. For instance, if you have a substantial amount of super and want to invest some of it, a finance expert can help with investment options and tax advice.

Diversify your investments

With many retirees living beyond the age of 90, it's a good idea to invest at least some of your money in assets that will grow over time, like shares and property. This will help ensure your capital will grow in value to keep pace with inflation and your income needs. Spread your investments to avoid financial heartache in the future.

Manage your spending

A simple way to make your money last longer is to watch your spending. Use the budget planner to see how you currently spend your money and see where you can cut back to save for special items.

Take advantage of your entitlements

Even if you don't get the Age Pension, you may be eligible for other benefits, such as travel concessions, cheaper medicines and reduced council and water rates. The Seniors Card will also give you discounts on travel and some retail services. See our webpage on Over 55s your money.

Also see the Department of Human Service's Commonwealth Seniors Health Card webpage for more information.

Work part-time

Part-time work is a good option to ease into semi-retirement before fully retiring, or a way to keep extra income coming in. Here are some benefits of working part-time:

  • Conserve your super balance -  as you will be earning an income, you won't need to draw as much from your super and can continue to contribute to the balance.
  • Earn an income before the Age Pension -  if you are not yet eligible for the Age Pension, working part-time allows you to semi-retire but still have some income.
  • Tax incentives - if you are aged 55 or over you may be able to take advantage of a transition to retirement strategy, which allows you to supplement your pay by drawing down from your super after you have reached preservation age. You pay no tax on your super income from age 60 and your employer will continue to top up your super.
  • Government incentives -  earning extra income will potentially reduce your Age Pension; however, the Government has incentives to encourage people to work past the pension age. See Centrelink's work bonus scheme for more information.
Posted in: News  

What is an ETF?

Posted on 30 September 2019
What is an ETF?

Money and Life
(Financial Planning Association of Australia)

Like the idea of effortlessly investing in a lot of listed companies at low cost, with a minimum investment outlay, and the potential to achieve good returns? If this sounds like you, then it could be worth exploring the benefits of buying what are called ETFs (Exchange Trade Funds).

While ETFs are by nature complex investment products, think of them as simply a basket of securities such as listed companies (aka stocks). In very simple terms, when you buy an ETF, you're actually buying a microscopic version of a particular market index.

Let's explain how that works. If you invest $500 in an ETF that's linked to a certain stock market index, let's say for example, the S&P ASX 200, that means your $500 is split up to closely reflect the largest 200 companies on the ASX.

How much of your $500 is invested in each stock depends on its actual weighting on the S&P ASX 200 Index.

For example, if the big miner BHP Billiton accounts for 10 percent of the S&P ASX 200 Index by market capitalisation (ie how much its listed stock are worth), then 10 percent of your $500 will be invested in this stock, and so on according to the weighting of the other 199 stocks on this index.

What are the benefits and risks of investing in ETFs?

For starters, there's a lot of variety to choose from when investing in an ETF. You can buy an ETF that tracks a basket of stocks on either a local or overseas stock market. Alternatively, you can even buy an ETF that instead of tracking the performance of a stock market index, tracks either currency exchange rates or the price of a single commodity, like gold or silver.

Secondly, by tracking a market index, your investment is exposed to much greater diversification than buying just one stock. ETFs typically cost you less in fees because their operating expenses are usually considerably lower than other investment products.

The other beauty of buying ETFs is that the (stock) price changes throughout the day (aka in real-time) and you can decide to buy and/or sell your ETFs at any time without entry or exit fees (while the stock market is open).

Another benefit of buying ETFs is you can do so with a minimum up-front investment. As an investor in ETFs, you'll also receive valuable tax breaks under the capital gains tax (CGT) discount rules. Then there are indirect advantages including franking credits that flow through to you directly via regular distributions.

Despite the benefits of buying ETFs, it's important to remember that they are designed to track a stock market index (or asset class), and if that stock market index falls in value, the price of your ETF would fall by the same amount.

Similarly, if you decide to buy an ETF that tracks an international stock market index, you need to find out how the entity operating the ETF manages their exposure to overseas currencies, and how your investment is protected if those currencies weaken against the Australian dollar.

How can you invest in ETFs?

ETFs are listed entities, and as such can be bought or sold just like any other listed company anytime during the stock exchange's trading hours. You can buy as many or as few ETFs as you want. But remember, broker fees will apply and the smaller the parcel of ETFs, the higher the proportion of overall costs the fee will be.

You can buy ETFs by contacting your stockbroker or financial planner, or by trading through an online broker.

Posted in: News  

Tax cuts buoy confidence, but risks remain

Posted on 19 September 2019
Tax cuts buoy confidence, but risks remain

Angus Livingston, AAP National Economics Writer
(Australian Associated Press)

Tax refunds are flushing through the economy and consumer spending intentions are rising but Josh Frydenberg warns global tensions pose real risks.

The treasurer warned businesses on Tuesday evening about the impact of the United States and China's trade war, and the conflict with Iran, on Australia's economy.

"Now in times of global economic and political uncertainty, it is more critical than ever to provide stability and certainty in our economic settings and not get drawn into overreacting," Mr Frydenberg said in a speech to a business lobby event on Tuesday.

The Reserve Bank of Australia also revealed in its board meeting minutes it kept the official cash rate at one per cent because of concerns about low wage growth and international tensions.

The RBA said the decision was based in part on the unemployment rate, which has stayed at 5.2 per cent for several months.

"At the same time, wages growth had remained low and there were few indications that wage pressures were building," the RBA said.

"Members judged that it was reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment."

The Australian Bureau of Statistics revealed residential property prices fell 0.7 per cent in the June quarter, taking the total value of Australia's 10.3 million residential dwellings down $17.6 billion to $6.6 trillion.

"The falls in Melbourne were driven by detached dwellings, while attached dwellings drove the fall in Sydney," ABS chief economist Bruce Hockman said.

There was some positive news from the Commonwealth Bank Household Spending Intentions research, which showed a significant lift in consumer positivity is under way.

"Spending intentions are improving in Australia, with a combination of income tax refunds and a stronger housing market leading the charge," CBA chief economist Michael Blythe said.

"Significantly, the home-buying spending intentions series has moved back into positive territory and this should help drive a further improvement in retail spending intentions in the months ahead."

But the ANZ-Roy Morgan weekly Australian Consumer Confidence index paints a different picture.

It recorded a 4.8 per cent slide in people's expectations for their finances over the next 12 months.

"While households feel okay about their current financial situation, they are clearly quite worried about the outlook, for both their own finances and the economy," ANZ economist Felicity Emmett said.

Mr Blythe said the tax refunds flowing into CBA accounts were about 40 per cent above "normal" levels.

"The boost to household spending power is larger and coming through sooner than originally expected," Mr Blythe said.

"The better news is that this tax refund money seems set to flow through to consumer spending."

Posted in: News  

What is salary sacrifice?

Posted on 9 August 2019
What is salary sacrifice?

Money and Life
(Financial Planning Association of Australia)

As well as super guarantee payments from your employer, there are all sorts of ways to save more into super and boost retirement savings. Find out more in our comprehensive super contributions guide.

Super Guarantee contributions

If you work for an income, your employer is required by law to pay your superannuation guarantee (SG) contributions at least once a quarter. Whether you're full or part-time, salaried or casual, if you receive more than $450 per month in wages or salary, you're legally entitled to these SG payments.

Concessional contributions

Super guarantee contributions are treated as concessional contributions, which means they're pre-tax contributions. When you choose to make extra voluntary contributions into super from your pre-tax salary, these are also treated as concessional contributions. This can be done through a salary sacrifice arrangement with your employer and you may benefit from tax concessions on these extra super payments, depending on your marginal tax rate.

There is a maximum amount of concessional contributions you can pay into super in each financial year. This is called the concessional contributions cap and the total amount at the time of writing is $25,000, this includes both SG contributions from your employer and voluntary before-tax contributions.

You can check the ATO website for the latest information about the concessional contributions cap for super.

From July 2018, if you don't contribute up to the maximum concessional contributions cap, you can carry forward unused amounts to the next financial year, for up to five years.  This only applies if your total superannuation balance is less than $500,000.

The ATO website provides more information on this new 'carry-forward' arrangement.

Non-concessional contributions

$25,000 may be the annual limit on concessional contributions, but that doesn't mean you can't contribute more into super as an after-tax payment. If you're approaching retirement, it may be in your interests to make super contributions from your net income, so you can maximise retirement savings before you stop work. A Certified Financial Planner® professional can help you review your goals and finances for retirement and help you decide whether to top-up your super.

These payments from your after-tax income are called non-concessional contributions. If your super balance is less than $1.6 million, you can pay up to $100,000 into your super as non-concessional contributions in the current financial year.

Check the ATO website for the latest information about the non-concessional contributions cap for super.

Government contributions for low-income earners

If you're on a low income, the government offers two ways to boost your super savings if you've made contributions, either as SG or voluntary payments into super.

By making non-concessional contributions, you could be entitled to an annual government co-contribution of up to $500 directly into your super fund. Eligibility for this payment depends on your taxable income and the amount you contribute into super as an after-tax payment.

Visit the ATO website to find out more about the government co-contribution scheme for low-income earners and determine whether you're eligible.

Tax offset for low-income earners

If you're on a low income and make concessional contributions into super and this includes payments made by your employer under the SG you could be entitled to a tax offset at the end of the financial year. This is called the Low Income Superannuation Tax Offset (LISTO). Eligibility for this tax offset depends on your taxable income and the amount you or your employer contribute into super as a before-tax payment. If you are entitled to the LISTO, the amount will be paid into your super fund after you lodge your tax return.

Visit the ATO website to find out more about LISTO and determine whether you're eligible.

Spouse contributions and tax offsets

Many super funds allow you to split your contributions including compulsory payments from your employer under the SG with your spouse (married or de facto). It's important to be aware that these contributions will still count towards your concessional and non-concessional contributions caps.

If your spouse isn't working or is earning a low income, you may also be entitled to a tax offset for these contributions into their eligible super fund.

Visit the ATO website to find out more about the tax offset for contributions made to super on behalf of your spouse and determine whether you're eligible.

Looking to learn more about the ins and outs of super? Read our simple guide to super and get the low down on how saving for retirement works for Australians.

Posted in: News  

How to budget for a baby

Posted on 8 August 2019
How to budget for a baby

Money and Life
(Financial Planning Association of Australia)

With a little bit of planning you should be able to successfully avoid having the joy of starting a family compromised by the financial burden of doing so.

Based on research by the National Centre for Social and Economic Modelling (NATSEM) it costs over $406,000 to raise one child from birth until they finish their education.

In light of these costs, here are some initial considerations that might be helpful.

Before baby arrives

This is an ideal time to assess your financial situation, and how it will be impacted by a new baby. For starters, consider the requirements before and immediately after the birth.

If you're planning to 'go private', you have to decide whether the cost of prenatal care, can be covered by existing private health cover. Some private health funds have waiting periods before you can claim on pregnancy and birth-related costs, so it pays to check.

Income protection and health insurance

During pregnancy, it's not just your family's health insurance you should be thinking about. It's equally important to consider what type of life insurance cover, including income protection, disability insurance and/or death cover, might be appropriate.

Having sufficient cover in place means you'll have a contingency plan for your family's lifestyle if you're temporarily unable to work through injury/illness. The good news is by organising this cover via your superannuation, you don't have to eat into the household budget.

Once baby is home

The next step is to realistically assess the upfront costs of caring for your baby over the first 12 months. If budgets are being pushed, focus on what you absolutely need to spend money on now like baby-proofing your home, extra furniture like a crib, change-table, baby bath, car seat, stroller, bedding and clothes and what can wait.

Try to work out what your weekly outgoings will be on things like nappies, milk formula, and baby food. Being willing to accept hand-me-downs or buy second hand can save you a lot of money.

Family entitlements

If you're planning time off after baby arrives, remember to tell your employer well in advance. It's equally important to ensure you receive all the benefits you're entitled to from paid parental leave through to any baby bonuses, and family tax benefits.

Child-care and education

If you're planning on your child receiving a private education which at the secondary level typically costs an average $20,000 a year it's never too early to put money away. One way to do this is to open a high-interest saving account. There are also tax benefits for opening education-specific managed investment funds.

There are also onerous costs even before your child gets to school. For example, based on data by Stockspot, parents will on average spend $26,000 on childcare between the ages of three and five.

In light of these costs, it pays to honestly assess, what assistance you can expect to receive from immediate family. Equally important, assess how easy it will be to juggle time off, and how receptive your employer is to flexible workplace arrangements.

Ongoing costs of child raising

The cost of raising children has jumped sharply over the past two decades. Based on Stockspot numbers, parents on average spend $82,000 on a child between ages six and 12, and close to $131,300 during the following six years, with the bulk of this cost going on education.

Clothes swapping for school uniforms and buying home-brand or generic items in supermarkets, are practical measures to help managing finances. However, seeking help with budgeting can also drive your money further.

Posted in: News  
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