General Information about Financial Advice

When is the best time to start planning for retirement?

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Planning for retirement is a bit like planting a tree, the best time to plant a tree (or start planning for retirement) was 20 years ago! The second-best time to start planting or planning is now.

When we think about retirement, from a financial perspective, we are often planning for a very long time. With an increasing life expectancy, the average Australian can expect to spend 20 to 30 years in retirement. In today’s society some people are looking to spend almost as much time in retirement as they spent working.

All too often we hear stories of people who are about to or have just retired and they visit a financial planner, often for the first time to get their retirement sorted. After all, super and the age pension is very confusing unless you have been closely involved with it for a long time.

Often when planners meet with prospective clients to discuss retirement, it becomes apparent that the retiree has insufficient savings, and particularly super, to support the type of lifestyle they have dreamed of.

What are some of the things I have learnt about planning for retirement, and would tell a “younger self”?

1. Don’t think you are too young to start planning for retirement. Time goes by very quickly and we find ourselves sitting on the threshold of retirement asking, “where did the years go?”

2. Aim to save 15% of income in a retirement savings account, from as early as possible. Employers are currently required to contribute 9.5% of a person’s salary to super. This is intended to increase to 12% over the coming years. However, by voluntarily contributing extra salary to super can mean the difference between a comfortable, and a very modest retirement. It can also be tax effective.

3. Eliminate debt as soon as possible. It is all too easy to get caught up in the trappings of everyday life and consumerism by wanting all the latest gadgets and toys. But the reality is, we often don’t need them and all we are doing is adding to our debt.

If we are to have the type of retirement we have always dreamed of, start planning as early as possible. Find a good financial planner who will work with you to help you set goals, develop smart savings strategies and invest wisely for a profitable future.

 

Peter Kelly | Centrepoint Alliance

Age Pension Update – July 2019

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On the 1st of July the age pension asset and income thresholds increased, in addition to the increase in these thresholds the levels at which the deeming rates of interest are applied also increased.

Two weeks after this date the government announced that the deeming interest rates would be reduced. The lower rate dropping from 1.75% to 1% and higher rate falling from 3.25% to 3%.  This drop in deemed interest rates will be effective from the 1st of July but will not be adjusted for age pensioners paid under the income test until the end of September. Any increase in the age pension will be back dated to the 1st of July.

The following tables provide an overview of the changes as well as upper limits from an asset’s and income perspective:

ASSETS TEST

Assets test threshold for full pension:

  For homeowner’s assets must be less than: For non-homeowner’s assets must be less than:
Single $263,250 $473,750
Couple combined $394,500 $605,000

 

Assets test upper limits:

    For homeowner’s
part pension assets must be less than:		 For non-homeowner’s
part pension assets must be less than:
Single   $572,000 $782,500
Couple combined   $860,000 $1,070,500

 

INCOME TEST


Single:

Fortnightly income up to $174 pf Full payment
Reduction in payment over $174 pf 50 cents for each dollar
Upper limit $2,026.40 pf No entitlement

Couple combined:

Fortnightly income up to $308 pf Full payment
Reduction in payment over $308 pf 50 cents for each dollar
Upper Limit $3,100.40 pf No entitlement

For those retirees receiving a part age pension, the benefits of the increase in the thresholds are seen immediately with an increase in the first age pension payment they would receive in July.

However, for the retiree who is not in receipt of an age pension it is not as simple.

The first step for this retiree is to review their current assets or income position against the new upper thresholds, if they are under the new thresholds now is the time to lodge an application for the age pension.

If they are still just above the thresholds, by only a few thousand dollars now is the time to talk to an adviser about the benefits of a gift of up to $10,000 or the purchase of a funeral bond, up to the value of $13.250.  Both strategies will reduce their assets and possibly their income under either the income or assets test.

The minimum pension that can be paid is not $1 per fortnight but $36.70 per fortnight for a single age pensioner or $55.40 per fortnight combined for a couple.

 

Source:  Mark Teale | Centrepoint Alliance

What are the things retirees fear?

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That question: ‘What do people approaching retirement, and those already retired, fear the most?’

The first thing that springs to mind is the fear of not having enough money, and perhaps the fear of the money ‘expiring’ before we expire.

What about loss of relevance?
We go from being a business owner, executive, professional, or a CEO one day, to a retiree the next. No matter who we are and what we did, adapting to retirement is going to be a challenge for many people as they re-frame their life and adapt to their new role.

What will I do with my time?
Many retirees say they simply don’t know how they ever had time to work. They are simply so busy. They are the lucky ones. But for every busy retiree, there is probably another that is bored, lonely and simply doesn’t know what to do to fill in their time. They simply ‘fiddle’ around and lead a life that lacks direction.

Becoming single?
Resulting from the loss of a life partner is perhaps one of the biggest fears that many older folks have. Perhaps they have been together for forty, fifty, or even sixty or more years and then one is gone. It is not only the loss of a spouse that can be devastating, it is also the loss of family and friends as well. Include younger people in your circle of friends.

Ageing itself?
With age comes the possibility of illness, disability, and a loss of independence.
As our minds and bodies age, the things we used to do so easily become a real chore. We simply slow down to the point where life becomes a real drag.

What the government might do?
With an ageing population, the costs associated with providing pensions, health and aged care continue to spiral and present an ever-increasing challenge for any government

 

 

Source:  Peter Kelly | Centrepoint Alliance

Is Transition to Retirement Still Viable?

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Superannuation law was amended in 2005 to allow people to access their super from preservation age, currently 55, but progressively increasing to 60, without having to retire. It became affectionately known as ‘transition to retirement’ but it actually has nothing to do with retiring.

Once a person reaches their preservation age, they are able to access their super even though they might continue to work on a part-time or even a full-time basis.

There are some restrictions that apply, including:

1. Superannuation can only be accessed as an income stream or pension. That is, the amount of super being drawn cannot be paid out as a lump sum, however the annual income may be paid as a single annual instalment. The investment product that pays the pension is often referred to as a transition to retirement pension (TTR), or transition to retirement income stream (TRIS).

2. The income that may be drawn each year is based on the TRIS account balance. The minimum income that can be drawn is 4% of the account balance, while the maximum is 10% of the account balance.

3. During the life of a TRIS, lump sums cannot be withdrawn from the account, apart from the annualised annual income payment.

In the past, one of the attractions of a TRIS was that the investment earnings achieved by the super fund on the investments supporting the TRIS were exempt from tax at the super fund level. Because the super fund did not have to pay tax, this translated to a higher investment return for the investor.

Unfortunately, this concession was withdrawn for TRISs from 1 July 2017. They are now taxed on the same basis as a superannuation accumulation account. That is, fund earnings are taxed at a rate of 15%, with a 331/3% discount available for capital gains.

Once a person reaches the age of 60, the income they personally receive from their TRIS is tax free in their hands, even though their super fund is still paying tax on the underlying investment earnings.

One of the very popular strategies adopted in the past was for people to commence drawing income from their TRIS and simply enter into a salary sacrifice arrangement with their employer. It was a highly tax advantaged strategy, particularly for high income earners when the superannuation contribution limits were much higher than they are today.

However, not all is lost.

Even though a TRIS does not offer the same tax advantages as it did in the past, they may still play an important part in personal financial planning.

Drawing income from TRIS, particularly if age over 60, may still provide some tax advantages when coupled with a salary sacrifice arrangement or making personal tax-deductible contributions. The general concept of transition to retirement is still relevant where an individual needs to supplement their existing income. This may occur when unexpected expenses arise, a job is lost, or a person chooses to reduce their working hours in order to ‘transition into retirement’ – the original intention for introducing transition to retirement.

Of course, transition to retirement has a downside, the earlier we start drawing down on our super, the greater the risk that we will outlive it.

 

Source: Peter Kelly | Centrepoint Alliance

Time for a quick check-up – Superannuation & Insurance

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Superannuation is not something we usually give a great deal of thought to, particularly if retirement is 10 years or more away. But perhaps it is worth investing a few moments to consider some recent changes, particularly if you have one or more super accounts that have become inactive.

 

When the government talks about a super account being inactive, they are generally referring to an account that has not received contributions or rollovers from another super fund in the previous 16 months. That is an important number to keep in mind.

 

If you have a close look at your super account statement, you may notice that insurance premiums are being deducted. This happens because many superannuation funds are required to provide a level of default life insurance cover.

 

In last year’s Federal Budget, the government announced changes to super that were designed to stop the erosion of super balances by fees, charges and unnecessary insurance premiums.

 

One important change that is due to take effect from 1 July 2019 relates to insurance for inactive account holders.

 

Where a member of a superannuation fund has an inactive account, that is, the account has not received contributions or rollovers from other super funds within the previous 16 months, the fund will be prevented from offering or maintaining insurance for the member.

 

This means that super fund members may lose valuable insurance protection.

 

The legislation places some onerous conditions on trustees of super funds.

 

Firstly, where insurance is already in place within a choice or MySuper product, the trustees of the fund are required to identify, as at 1 April 2019, member accounts that have been inactive for a period of more than 6 months. They must write to each member before 1 May 2019 advising the insurance will be discontinued from 1 July 2019, but that cover may be continued if the member wishes, and setting out the manner in which the member can opt-in to retain their insurance.

Secondly, trustees must inform members of their fund on an ongoing basis when an account has been inactive for nine months, then again at 12 months and 15 months.  

 

If a member wishes to maintain their insurance cover within their super fund, they will need to take proactive steps to ensure it is retained. This may be done by making a contribution, rolling over a benefit from another super fund, or simply instructing the super fund, in writing, that they wish to retain their insurance cover. This is referred to as ‘opting-in’. Insurance is vitally important for many people.

 

It is worth taking time to review the various super accounts you have with particular reference to the insurance that you may have. If you no longer need the insurance, then asking your super fund to cancel it may help prevent the erosion of your super balance. However, if you need the insurance, taking steps to ensure it is maintained.

 

Source:  Peter Kelly | Centrepoint Alliance