What are "returns"?

Posted on 13 December 2018
What are "returns"?

Money and Life
(Financial Planning Association of Australia)

You've heard people brag about the great "returns" they may be earning, but there is more than meets the eye when it comes to talking about returns.

Just as the word suggests, returns are what comes back to you from your investments or savings.

So if you've put money in the bank, your returns will include the interest you've earned over and above the money you invested.

Total returns

If you have successfully invested in property or shares, you will get back two types of returns, which together make up your total return.

First, there's the capital growth. That is, the increase in value of the asset over time. For a property, it will be the difference between the price you can get for your property in the market at present, less the price you originally paid for it, your real estate agent's commission, stamp duties and any large renovation costs.

For shares, it will be the value you can sell your shares for on the stock exchange, less your original purchase price.

Second is the income you generate from your investments, less expenses.

For property, that income may include the rent received, less any expenses such as mortgage payments, rental agent's commissions and any small repairs you've made.

For shares, it includes the dividends the listed company pays out less brokerage costs. Dividends depend on the earnings of the company and the proportion of those earnings the company decides to distribute to its shareholders.

But that's not the end of the story.

The ATO awaits

As we know, nothing is certain in life, but death and taxes, and the Australian Taxation Office (ATO) certainly expects to receive a slice from your returns in two ways.


Firstly, depending on your marginal tax rate, you could pay tax on your investment income, including on any interest earned, rent, dividends from your shares and distributions from managed investment funds. Super, pensions and trusts also have different tax rates.

Remember, some dividends have an imputation or franking credit attached to them. This represents the amount of tax the company has already paid. If your top tax rate is less than the company's tax rate, the ATO will refund you the difference.

Capital gains tax (CGT)

This is a tax on your capital growth. You need to report any capital gains and losses in your income tax return and are likely to pay tax on your capital gains. Although it's referred to as CGT, this is actually part of your income tax, not a separate tax.

So don't forget taxes when talking about your returns. The taxes you pay on them reduce your final returns.

Real returns

What interest rate is your bank paying you at the moment on your savings? 1.8%, 2%, 2.2%, 3%?

That might sound great, but did you know that the inflation rate or Consumer Price Index (CPI) rose by just 1.9% through the year to June quarter 2017, according to the Australian Bureau of Statistics.

That means a big chunk of what you may have earned in interest has been eaten away by inflation, leaving the true value of your assets almost where you started from. If you are then taxed on your interest earnings, the returns from your savings may have even gone backwards.

It's the same story with your gains from other investments such as property, shares or managed investments.

The savings example shows how important your real rate of return is that is, your rate of returns after inflation. Without assessing this, you may be earning less than you think on your investments or even getting poorer over time.

Why not talk to a CERTIFIED FINANCIAL PLANNER® professional to ensure you are earning the best returns possible in your circumstances and that the word "returns" don't mean you are moving backwards?

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Watch out for holiday season scams

Posted on 11 December 2018
Watch out for holiday season scams

Scamwatch is warning people to be careful about being caught out by holiday season scams.

"Scammers will take advantage of special days or major events like Christmas to fleece people of their money or personal information," ACCC Deputy Chair Delia Rickard said.

Here are three common holiday season scams people should look out for:

  • Online shopping scams: scammers will set up fake online stores or post goods for sale in buy swap-sell groups or online classified sites to trick people into buying items that don't exist. This scam has cost Australians nearly $3 million in 2018, with more than 8,700 reports.
  • Travel scams: scammers trick people into believing they've won a holiday or scored a really good deal on a travel package, like a cruise. Unfortunately the prize or the cheap accommodation are phony. In 2018, nearly $135,000 has been lost to this scam.
  • Parcel delivery scams: scammers may ask you to print off a label, do a survey, claim a prize, or view the status of your delivery by clicking on a link or downloading an attachment. Some scammers may even call or text with claims about an unsuccessful delivery. These scams are aimed at getting people to download malware onto their computer, or give up their personal information. People have lost about $31,000 to these scams in 2018.

"Scamwatch has also seen a massive influx of reports and money lost to tax scams. In November we received 7,500 reports of these scams and $400,000 was reported lost," Ms Rickard said.

"This isn't a usual holiday season scam, however a lot of people are getting calls from scammers pretending to be from the tax office or the police and threatening them with arrest over unpaid tax debts."

"This is a scam. If you ever get a call or email containing threats like this, hang up the phone or delete the email," Ms Rickard said.

Ms Rickard added that the key to avoiding a scammer's con these holidays is a healthy dose of scepticism and research.

"We love snagging a great deal online for a loved one's Christmas present and the idea of a bargain holiday is perfect for many after a long year. But don't fall for it," Ms Rickard said.

"Be sceptical about an online store you haven't used before. Do some research to see if they're legitimate and don't be fooled by big discounts. With travel deals, call the accommodation provider directly, for example the cruise line or hotel, to check if the deal is legitimate."

"If you see a seemingly great deal on an accommodation rental website like Airbnb, make sure you only communicate and pay through the official site to avoid getting stung by a fake listing," Ms Rickard said.

"We're all expecting parcels this time of year but be careful about online links and never download attachments. If you're wondering if a delivery notice is legitimate, check the tracking number at the Australia Post or other delivery company website, or call them directly using a number you find from an online search or the phone book."

"While with friends and family over the holidays, consider taking the opportunity to spread the warnings about these scams particularly to those loved ones who may be vulnerable." Ms Rickard said.

Further information about holiday season scams is available at www.scamwatch.gov.au.

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Early retirement - is it right for you?

Posted on 6 December 2018
Early retirement - is it right for you?

Money and Life
(Financial Planning Association of Australia)

International research shows leaving work early may not be so good for your life expectancy. We bring you a checklist of things to consider before you leave work and ride off into the sunset for your happily ever after.

Retire early for a longer life?

If you've already squirreled away enough super for an early retirement, it's probably pretty high on your list of priorities. But money isn't the only thing that's going to help you enjoy retirement for longer. What if you knew that retiring early could actually mean dying sooner?

New research from Maria Fitzpatrick of Cornell University and Timothy Moore of the University of Melbourne shows an alarming leap in mortality rates for US citizens who retire and start claiming their social security payments as soon as they're eligible from the age of 62. The study concluded that retiring at this stage in their lives "may have an immediate, negative impact" on their health. This is particularly the case for men, who can expect a 20% increase in their mortality risk1. The flaw in these figures, as acknowledged by Fitzpatrick and Moore, is that existing health problems may be a trigger for many people to hurry up and retire. This could go some way to explaining why an earlier death is more likely for this retirement cohort.

Another study from the US classifies the health status of research subjects to make sure this doesn't skew their results. Of 2956 retirees taking part in the Healthy Retirement Study, about two thirds considered themselves healthy and their decision to retire wasn't motivated by poor health. During the 18-year period after retirement, 12% of the healthy group and 25.6% of the unhealthy group died. Compared with outcomes for a group who retired a year later after turning 65, mortality risk was 11% lower for healthy retirees and 9% lower for the unhealthy group2.

Embrace a lifestyle change

If you're determined to retire early but want to safeguard your health, what's the answer? According to Chenkai Wu, lead author of the Healthy Retirement Study, replacing the 9-5 with new commitments could be the answer. "Keeping active and getting involved in voluntary work definitely brings retirees a lot of benefits that would have been brought about by keeping on working," says Wu3.

Research from closer to home seems to confirm this tip for a longer life in retirement. A University of Sydney research study shows that, in many cases, retirement generally leads to healthier lifestyle habits. The data gathered by Dr. Ding, Senior Research Fellow at the University's School of Public Health, and her team shows that retirees were doing 93 more minutes of physical activity per week compared with their peers still in employment. They also sleep for 11 minutes longer. Perhaps the best outcome is that 50% of female smokers quit after retiring. "A major life change like retirement creates a great window of opportunity to make positive lifestyle changes," says Dr. Ding. "It's a chance to get rid of bad routines and engineer new, healthier behaviours."4

Early retirement checklist

So the trade-off between an early exit from work and shortening your life seems to be making a commitment to keeping active. Here are some other things to think about when you're planning for your best and healthiest life in retirement:

  • Sharing retirement - if your partner continues to work when you retire will you be happy and keeping busy on your own? If friends are continuing to work too, it's important to have a plan for making some new ones. Aim to start your retirement with a strong social network so you can continue to have a sense of connection to the world around you.
  • Volunteering/part-time work - volunteering in your local community or working in a part-time role are both good ways to give your new lifestyle some structure, help you meet new people and feel valued. Doing something you're passionate about like coaching, supporting a charity or turning a hobby into a business can be a very rewarding way to spend time in retirement.
  • Making a move - when you're no longer tied to a location by work, the world is your oyster! Downsizing your home or relocating could be an important part of your retirement plan. Before making the move, do some research to check that a sea change will bring you into contact with the social groups and activities you're looking forward to enjoying in retirement.
  • Looking after family - if you have family living locally who rely on you for care and support, you'll probably be staying put. Caring for grandchildren can be very rewarding of course, but be mindful of having time to look after your own needs and enjoy your own interests, particularly if you're in the sandwich generation and looking after elderly parents too.

Looking forward to an early retirement? Get tips from a financial planner on how to prepare yourself for the changes to your finances and lifestyle.

1 Bloomberg, Retiring Early Just Might Kill You, Says New Research, Christopher Condon, 19 December 2017 https://www.bloomberg.com/news/articles/2017-12-19/retiring-early-just-might-kill-you-says-new-research-eco-pulse

2 The Guardian, Does early retirement mean an early death?, Luisa Dillner, 2 May 2016 https://www.theguardian.com/lifeandstyle/2016/may/02/early-earlier-retirement-retire-death-risk-data-research-jobs

3 The Guardian, Does early retirement mean an early death?, Luisa Dillner, 2 May 2016 https://www.theguardian.com/lifeandstyle/2016/may/02/early-earlier-retirement-retire-death-risk-data-research-jobs

4 University of Sydney, Retirement is good for your health, 14 March 2016 https://sydney.edu.au/news-opinion/news/2016/03/14/retirement-is-good-for-your-health.html


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Navigating financial changes when children finish school

Posted on 5 December 2018
Navigating financial changes when children finish school

Hank Jongen
(General Manager, Department of Human Services)

When school finally wraps up for students, your clients might face some big changes - especially if their child is finishing Year 12.

For clients with children who have just finished Year 12, they'll need to help them make important decisions about their future. The Department of Human Services has support available, no matter what pathway they choose to take. With a little homework, your clients can understand the financial support available for their children.

They may not be ready to put the books away and choose to do further study at university or TAFE. Maybe they're interested in study, training and earning an income at the same time through an Australian Apprenticeship. Whichever pathway they choose, your client's child may be eligible for a payment to help with study costs.

Youth Allowance for students and apprentices is financial help for people aged 24 or younger who are:

  • studying full-time;
  • doing a full-time Australian Apprenticeship;
  • independent and needing to live away from home to study; or
  • temporarily unable to study.

If your client has a child who is over 25 and studying, they can apply for Austudy instead. They also need to be studying full-time or doing a full-time Australian Apprenticeship.

Aboriginal and Torres Strait Islander students may be eligible for ABSTUDY to help with study costs. There are extra ABSTUDY allowances available that can help with the costs of living and travel between home and the place of study.

However, other Year 12 students might be ready to put the books down and embark on their next adventure instead. If your client's child is interested in joining the workforce, we have support for them, too.

Youth Allowance for job seekers is financial help for people 21 or younger who are:

  • looking for work; or
  • temporarily unable to work.

To help your clients find out what their children might be eligible for, go to humanservices.gov.au/paymentfinder. Our Payment and Service Finder will find, estimate and compare payments for your clients.

Family Tax Benefit payments

While finishing Year 12 is a big change for students, it can also mean changes to their parents' Family Tax Benefit payments.

Your clients need to know Family Tax Benefit will stop when their child completes Year 12. If the child completes Year 12 before November, your client's payments will stop 28 days later. If the child completes Year 12 in November or December, your client's payments will continue until 31 December.

For more information and tips on planning for finishing school, go to humanservices.gov.au/leavingschool.

Tags in this article: Education

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Not just about the money

Posted on 3 December 2018
Not just about the money

Money and Life
(Financial Planning Association of Australia)

Thinking of a new job in the new year? With wage growth staying low, better benefits and work-life balance could be something to look for in your next role. Find out about the latest workplace trends for supporting employees with their health, finances and work-life balance.

The salary ceiling

While the wage growth rate in Australia for 2018 may be up on last year, it's still very low with second quarter figures putting the wage price index at 2.1%. What this means is we're seeing salaries rising only a fraction faster than inflation, with just 0.3% growth in real wages. If you're in the market for a new job, this doesn't bode well for pay negotiations with potential employers.

That doesn't necessarily mean a new job has no new rewards to offer. Perhaps you're looking for the challenges and opportunities to learn that a different role could bring. And at a time when companies are under more pressure to innovate and grow, it's becoming more common for employees to look at new ways to attract top talent and keep their workforce engaged.

Flexibility is key

When it comes to choosing a place to work, flexibility is something many people value. Whether it's the option to choose their hours, work remotely or more variety in the type of work they do, employees are often on the look out for an arrangement that suits their lifestyle better than working nine to five in the same office every day. According to the Mercer 2018 Global Talent Trends report, 51% of employees would like their company to offer more flexible work options and 71% of people who are thriving at work say their employer provides flexibility at work[1].

It's good news for Aussies that the flexible working trend seems to be catching on. In their latest report summarising five years of data collection, the Workplace Gender Equality Agency found more employers are making a commitment to flexible working arrangements.

Almost a quarter of employers (70.7%) now have a policy or strategy for flexible working, compared with just over half (57.5%) in 2013-14.

By the time a job offer is on the table, the topic of flexible working arrangement may something you've already discussed. But if it hasn't and it's something you're looking for, be sure to bring it up, particularly with your future boss. The Mercer report also found that while flexible working may be more common these days, it often happens in an ad hoc way and at the discretion of a manager[2].

Support for wellbeing

Flexible working is one of many ways employers can support health and wellbeing in the workplace. By allowing people more freedom to balance work and their other commitments, it's thought that flexible working can reduce stress, boost productivity and improve health outcomes for employees[3]. And it's definitely in the best interests of any business to invest in the wellbeing of their workforce. The 2017 Willis Towers Watson Global Benefits Attitudes survey reports that employees in poor health take more than twice as much time off work, and their rate of presenteeism is 25% higher too[4].

It's not just physical health problems that lead to this significant drop in productivity. The same report reveals almost a third of employees have suffered from severe stress, anxiety or depression in the last two years. So it's not surprising to learn that half of companies surveyed have introduced workplace programs to reduce stress or are planning to do so[5].

Financial stress is on the rise

Research from the report also shows financial stress is becoming one of the biggest factors in employee health and productivity. With almost a quarter (23%) of Australian workers being unable to raise $2,000 at short notice[6], financial insecurity seems to be a significant threat to health and wellbeing. Employees with money problems are twice as likely to be in poor health and also report higher levels of stress, absence and presenteeism.

So what can employers be doing to support their workforce towards a more stable financial position, less stress and better health? When surveyed by Willis Towers Watson on preferred financial support services from their employer[7], spending tools were the number one choice for workers. These would provide ways for workers to track spending, review their finances and set goals, giving them some practical solutions for addressing the immediate causes of financial insecurity and stress.

The second most popular choice of service is access to a financial adviser. While budgeting for their current situation and lifestyle may be more important, advice from a professional to secure their financial future is a big priority for employees worldwide.

Looking to reduce your financial stress levels? Get tips from CERTIFIED FINANCIAL PLANNER® professionals on how to plan ahead with your finances so you can worry less, here and now. 

[1] Mercer 2018 Global Talent Trends Study, page 16

[2] Mercer 2018 Global Talent Trends Study, page 20 "Most companies have pockets of flexibility based on individual arrangements with a manager, but only 3% consider themselves industry leaders when it comes to flexibility"

[3] Workplace Gender Equality Agency, Workplace Flexibility Strategy, page 4, "Flexibility is not only a beneft to businesses, it also benefts employees who can experience reduced stress, improved job satisfaction and better health outcomes through access to flexible working arrangements."https://www.wgea.gov.au/sites/default/files/Building_a_flexibility_strategy.pdf

[4] 2017 Willis Towers Watson Global Benefits Attitudes survey, page 11, "Employees who are in the poorest health report more than double the number of absences and more than 25% higher presenteeism than other colleagues."

[5] 2017 Willis Towers Watson Global Benefits Attitudes survey, page 6, "Mental health issues are widespread around the world, with around three in 10 employees reporting they have suffered from severe stress, anxiety or depression in the last two years. Around half of employers have either introduced initiatives to reduce stress or are planning to do so."

[6] 2017 Willis Towers Watson Global Benefits Attitudes survey, page 8, "Comparable percentages of workers in Australia (23%), Canada (29%) and the U.S. (37%) could not quickly raise $2,000 (local currency)"

[7] 2017 Willis Towers Watson Global Benefits Attitudes survey, page 26, "If your employer were to offer the following to help you manage your finances, which would you mostly prefer?"

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