Insurance: your soft landing

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Everyone has their own reasons for taking out life insurance. But one thing we all have in common is the need to hang onto it.

saftLanding

Do you remember what prompted you to first talk to a financial adviser about life insurance?

For many people, it’s when life stopped being about just you. Like when you got married or you gave birth to your first child.

Once you took on these responsibilities, you knew you needed to protect them. It was a smart decision then and it remains a smart decision every time you renew your policy.

Protection that stays with you for life

Life insurance comes in many shapes and sizes. It is designed so you can choose the types of cover that best suit your life stage, so you can adjust your level of cover as your circumstances change. One thing that doesn’t change is the underlying need for financial protection.

The main goal of life insurance is a simple one. If you get seriously sick or injured, it’s there to help you get the treatment you need and to help your family cope financially without your financial contribution.

Obviously protecting your income plays a key role in this. But even after you’ve finished working, life insurance can still play a vital role in ensuring your lifestyle isn’t compromised by sickness or injury.

Thinking even further ahead, life insurance can be used to create an asset that helps you distribute your estate as evenly and as generously as you would like.

Is your policy still right for you?

Over your lifetime, you might hold a life insurance policy for decades. But that doesn’t mean you should “set and forget” your life insurance strategy.

Every one to two years, you should discuss your life insurance needs with your financial adviser.

By being smart in the way you structure and manage your insurance, you can ensure your cover is always appropriate and that it’s as cost-effective as it could be.

Death and Taxes!

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Two things in life are certain: death and taxes

DeathNTaxesWhen someone passes away, although there are no official death duties, beneficiaries often inherit tax liabilities as well as assets. But there are ways to minimise these potential tax liabilities, reducing the effect of at least one of life’s certainties.

First steps

The first step in minimising any tax liabilities is to appoint a legal personal representative (LPR) for the deceased. They will need to obtain a new tax file number for the estate and then file a ‘date of death’ tax return. This will be for the period from death until the end of the financial year and every financial year after that until the administration of the estate is finalised.

Tax on inherited assets

Inherited assets which were purchased before 20 September 1985 are not subject to tax. Nevertheless, if the asset is sold in the future, the beneficiary will be taxed on the increase of value between the date of death and the date it was sold. This could be a substantial sum if the beneficiary is on a high marginal tax rate.

One way around this is to have the estate sell the asset at time of death. This means the asset will incur capital gains tax, but the tax-free threshold will apply, minimising the tax debt.

If the asset was the family home of the departed, it could be exempt from capital gains tax if it becomes the primary residence of a beneficiary or if it is sold within two years of the date of death.

Tax on superannuation death benefits

Dependants of the deceased will receive the superannuation death benefit free of tax. But adult children do not automatically qualify for this tax concession.

They need to prove to the Australian Taxation Office that their relationship with the deceased involved financial dependency.

Tax on invested income

After a person passes away, their assets will continue to earn investment income. This income will need to be declared in the tax returns the legal personal representative files each financial year until the assets are disbursed.

One way to gain tax advantages is to set up a Testamentary Trust when creating the Will. This will not only provide beneficiaries greater flexibility in distributing capital and income, but may protect the asset from legal proceedings, such as marital breakdown or bankruptcy. Income generated by the trust can be allocated among the beneficiaries in a tax-effective manner.

Getting advice

Although there is some level of inevitability in death and taxes, the taxes incurred after someone passes away can be minimised. To find out more on how to minimise tax liabilities on inherited assets, talk to your adviser.

Credit Cards-The Game has Changed!

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THE CREDIT CARD GAME HAS CHANGED

CREDITgARDgAMEStories abound of people being caught up with credit card debt that seems to be on a continuous upward spiral. Perhaps you have experienced this yourself at some point.

New reforms introduced from 1 July 2012 might make getting the credit card back under control just a little bit easier and those unsolicited invitations from our credit card provider to increase our limit might be a thing of the past.

Some of the new arrangements only apply to new credit card contracts but others apply to both new and existing contracts. So everyone is expected to benefit from the reforms.

When applying for a new credit card, issuers are now required to give you a fact sheet that sets out key information in a standardised format. This should make it easier to compare offers from different credit card providers.

Credit card contracts entered into on or after 1 July 2012 must include the following provisions, in addition to the fact sheet mentioned:

  • Customer will be asked to nominate their credit card limit, allowing you more control;
  • Fees charged on spending that exceeds the credit card limit (over-limit fees) are banned unless you specifically agree to this fee being charged when you apply for your credit card. Check the fine print carefully, or ask the issuer directly if over-limit fees apply;
  • If you exceed your card limit, your card provider must notify you within two business days, thereby giving you the opportunity to stop spending or make a repayment in order to control the increasing level of debt; and
  • Credit card providers are required to direct payments to the most expensive part of your credit card debt first. Many credit card contracts have different interest rates including one for standard purchases, another for cash advances and in some cases, an introductory rate that applies to transfers from other credit cards. Having payments directed to the most expensive items first will assist in making it easier to reduce debt.

While the foregoing conditions apply to new credit card contracts, there are some changes that will apply to both new and existing credit card customers.

If you have received a credit card statement since 1 July 2012, you may have noticed some changes. All credit card statements are now required to include a “minimum repayment warning”. This warning contains personalised information and states how long it will take to pay off your credit card if only making the minimum monthly payment and not adding any further charges.

In addition to the minimum payment warning, credit card providers will no longer be able to make offers to increase your credit card limit unless you agree and providers must clearly show how their interest free period works.

Hopefully managing your credit card might have become just a little bit easier.

DID YOU KNOW:

A credit card balance of $4,000, attracting an interest rate of 18%, will take three years and 11 months to repay based on a monthly repayment of $120. Total interest will amount to $1,586.

If the monthly repayment is increased to $200, the repayment period is slashed to two years and the interest paid is also halved.

Save or Invest? Which comes first

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WHICH COMES FIRST: SAVINGS OR INVESTING??

SaveOrInvestFinancial advisers say clients can save and invest simultaneously, irrespective of their financial situation.

Although this advice might sound like financial boot camp, the principles of this advice lay the foundations for effective cash flow management that will ultimately enable a brighter financial future.

The key is establishing and practicing the art of saving – setting funds aside beyond what is needed to pay bills, groceries, utilities, school fees and repayments.

To do this, clients need to get real about their true costs.

It’s difficult to stick to a budget but you need to be really transparent about spending.

Currently, Australians are saving more money than they ever have in the past 30 years. Since the Global Financial Crisis, there has been a dual trend of increased savings and the willingness by Australians to deleverage or to reduce debt.

This is the opposite of what was happening in the mid-1990s to the mid-2000s when Australians went into negative savings. That is, we spent more than we earned.

Financial advisers say most Australians should aim to save 10-15% of their after­tax savings.

Although this may be difficult in some stages of life, it is more important to stick to the practice of savings rather than the specifics of the amount.

Meanwhile, one of the most beneficial saving strategies continues to be salary sacrificing into superannuation. This allows investors to make more tax- effective contributions to superannuation and is subject to thresholds.

Another great saving strategy is reducing mortgage payments via an offset account. It allows you to use your savings account balance to reduce the amount you owe on your loan.

Stripping out money as soon as you get paid also reduces the likelihood of unaccountable spending.

Although the above strategies may seem quite simplistic, when utilised in a comprehensive financial plan put together by a qualified financial planner and tailored to your specific financial circumstances and goals, the results can be significant.

Source | BT

 

Making the most of your Retirement Income

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Making the most of your retirement income
retirementexitAfter you stop working, you can find yourself with time to do the things you may not have been able to do before, like travelling, volunteering or spending more time with loved ones. As you adjust to this new lifestyle, you will need to think differently about your finances. In retirement, your priority typically changes from saving in preparation for when you leave the workforce, to carefully spending those hard-earned savings. 

Age Pension

The Age Pension is an income support payment offered by the Government to older Australians who meet the relevant eligibility criteria.

With maximum payments of $21,018 p.a. for a single pensioner and $31,688 p.a. for pensioner couples (current for the period 20 March 2013 – 19 September 2013), the Age Pension probably won’t be enough to afford most people a modest post-work lifestyle of basic activities, let alone a comfortable lifestyle.

To afford even a modest lifestyle in retirement, many people will need to supplement the Age Pension with other income. This could come from an annuity, an account-based pension or other investments.

An annuity [from within or outside super]

An annuity is a simple, secure financial product that guarantees a series of payments for a fixed term or for life, in return for an upfront investment. The earnings rate is fixed at the outset and this applies for the length of the annuity, regardless of share market movements or interest rate fluctuations. Capital can be returned at the end of the agreed term or gradually during the term of the annuity as part of the regular payments.

An account-based pension [from super]

This is an investment account which gives you the ability to choose from a range of investments and can vary the level of income you wish to draw subject to the minimum annual withdrawal amounts set by the Government. These are usually market linked, meaning that the capital value is linked to the performance of the underlying investments, which can impact the level and duration of your savings and the income produced. Account-based pension providers, which may include your super fund, charge management and administration fees for these products.

Other investments

These are just some of the types of investments that can sit within your super fund or outside superannuation.

  • Term deposits: A term deposit is a fixed term, fixed interest savings account. Terms generally range from one month to five years.
  • Shares: Shares pay income in the form of dividends. You can invest in shares directly or via managed funds (or account- based pensions).
  • Property: An investment property is real estate which has been purchased with the intention of earning a return on the investment, either through rent, the future resale of the property, or both. Another type of property investment is a property trust, which is a managed fund that enables investors to pool their money to purchase an interest in a portfolio of real estate assets.

Income from various sources can be ‘layered’ to meet your income requirements. This can be set up so that more secure income, such as from the Age Pension or an annuity, can cover your essential costs of living, while your income from other sources can fund your discretionary spending.

More than one investment strategy and product may be required, so it’s important to receive professional help from a financial adviser – it can make all the difference to your financial success in retirement.