Financial Advice General Info – Page 9 – Adelaide Financial Advice

How expensive is retirement?

September 27, 2018/in Financial Advice General Info /by Shellie Fisher

When talking about the costs of living in retirement, we refer to the figures published by the Association of Superannuation Funds of Australia, known as the ASFA Retirement Standard. The latest figures for the June 2018 quarter have just been released. They show a small increase in the overall costs of living in both the ‘modest’ and ‘comfortable’ lifestyles for retirees.

The budgets published assume that a retiree owns their own home and is otherwise free of all debts, including car loans, credit, and store card debts.

The figures provided by ASFA are a guide.

How do the latest figures stack up? I have included the full rate of age pension for a comparison.

The figures shown are for a full year.

Notwithstanding health and aged care costs, as people age, their living costs tend to reduce. ASFA estimates that for a single person, or couples, their living costs will reduce by around $2,000 per year, or $4,000 for a couple living a comfortable lifestyle, from around the age of 85.

For those of us approaching retirement, the big question is: ‘how much money do I need to support my preferred lifestyle?’

ASFA has estimated the amount of money that you will need to have available to fund the retirement lifestyles.

For those living a modest lifestyle, and assuming they don’t have significant investments and other assets, will generally qualify for the full rate of age pension. That being the case, both a single person and a couple will only need around $70,000 of investable funds to make up the shortfall over the age pension.

Anyone aspiring to live a comfortable lifestyle is going to need more.

Whether savings are held in superannuation, or invested outside super, a much larger sum will be required to support the lifestyle. As savings increase, the rate of age pension reduces due to the impact of the assets test.

A single person will need around $545,000 of investable funds, and a couple will need $640,000 between them if seeking a comfortable retirement lifestyle. If a couple has $640,000 in super and their other assessable assets were relatively modest, they would still receive around $12,750 of age pension between them. They would, therefore, be drawing down approximately $47,850 from their super each year to support a comfortable lifestyle.

However, a single pensioner with $545,000 in super will not qualify for any age pension. Therefore, they will be relying on their own resources to provide for their retirement income.

Living in retirement is all about choices.

These choices will often be influenced by the decisions we make during our working life. Whether we choose to save and put more money in super or spend everything we earn on our journey towards retirement, will dictate what our retirement will look like. Sadly, many people find that once they retire, there simply isn’t enough money to allow them to live the lifestyle they have always dreamed of.

Source: Peter Kelly | Centrepoint Alliance

Time to review your Account Based Pension?

September 13, 2018/in Financial Advice General Info /by Shellie Fisher

On the 1st of January 2015, the age pension assessment of account-based pensions changed. Assessment of account-based pensions was brought in line with other “financial Investments”.

What does this mean?

The balance of the account-based pension, regardless of the income being drawn down, was assessed in the same way as money invested in bank accounts, shares, and managed investments. Income was calculated by deeming an interest rate of either 1.75% or 3.25% – the rate depends on the balance of your other financial assets.

For retirees in receipt of age pension at the time, this new method of assessing account-based pension income could have resulted in a reduction in their age pension. To ensure retirees were not disadvantaged the previous method of assessing account-based pension income was “grandfathered”.

This “grandfathered” assessment was based on the following;

The amount of capital used to commence the pension is divided by the life expectancy of the pension recipient (or the longer of the two pension recipient’s life expectancies, where a reversionary pensioner is nominated). The result amount is referred to as the “deductible amount”. This amount remains constant for the life of the account-based pension unless a lump sum withdrawal is made from the pension account, at which time the deductible amount is recalculated.
The amount of the account-based pension income currently assessed under the “grandfathered” income test is the actual income drawn from the account-based pension, minus the deductible amount. Providing a person did not roll their account-based pension to a new provider the old assessment was retained. However, like all good investments and strategies in retirement – regardless of legislative change – they should never be viewed as a set and forget

All investments and strategies should be reviewed on a regular basis and account-based pensions are no exception. The first point to consider when you are reviewing your account-based pension – as a pensioner ages the amount of income that is required under legislation to be drawn from your ABP increases, meaning that a person rather than being disadvantaged by the new rules could, in fact, be better off being assessed under the new legislation.

The second point concerning the income being drawn from an account-based pension occurs when a pensioner enters aged care and they need to draw more income from the account-based pension to cover their fees.

The following example may make it a little easier to understand;

At the age of 65, a single man invested $300,000 into an account-based pension and was drawing an amount of $15,000 as income on an annual basis. At the time of this investment, his life expectancy was 15.41 years, meaning $19,467 ($300,000 divided by 15.41) was assessed as his “deductible amount”. So, providing he did not draw a yearly pension in excess of this “deductible amount” his age pension was not affected by the application of the income test.

This gentleman is now 85 years of age and has entered residential aged care. To assist in paying his aged care fees he is now drawing $30,000 per annum from his account-based pension which means an amount of $10,533 per annum ($30,000 – $19,467) is being assessed as income for the purpose of calculating his age pension and his aged care fees.

If this gentleman were to roll his account-based pension which is now only $250,000 to a new provider, the pension would now be assessed under the new legislation in other words deemed at the interest rates mentioned earlier in the article and only $7,357 per annum would be assessed as income. This would mean his age pension would increase slightly, and his aged care fees would reduce by a small amount.

This does sound very complicated, but the very point of this blog and the examples shown demonstrate that as your circumstances change you do need to review your position to ensure you are not being disadvantaged. The best person to speak to is a financial planning expert who understands legislation and has the necessary experience to point you in the right direction.

Source: Mark Teale | Centrepoint Alliance

Compound Interest – the most powerful force in the universe!

August 30, 2018/in Financial Advice General Info /by Shellie Fisher

When saving for a long-term goal, such as retirement, is it better to save small amounts for a long time, perhaps saving when we cannot afford to, or waiting until later in life and putting larger amounts aside when it is more affordable?

We look at both sides of the debate and put some simple figures together.

Let’s put some ground rules in place:

The savings are non-concessional (i.e. after-tax) contributions made to a superannuation fund.
The rate of return earned is a net return (i.e. after the deduction of all fees, taxes, and charges).
All projections are expressed in 2018 dollars. However, there will be inflation. This can be managed by increasing the amounts saved in line with inflation.

Option 1 – Saving $100 per week for 40 years, earning 5% per annum.

We will start saving $100 per week, from age 25 through to age 65. We earn a conservative 5% per annum on our savings.

According to the ASIC’s Moneysmart Calculator, we would accumulate a total of $661,275 over a 40-year period.

The actual savings contributed, amounts to $208,000 and the earnings component is more than double at $453,275.

Option 2 – Saving $200 per week for 20 years, at 5% per annum.

In this option, we save $200 per week, but don’t start until age 45, also saving through to age 65, and earning 5% per annum.

The amount saved will also be $208,000, however by starting later, the earnings are only $148,229, making a total of $356,229 after 20 years.

To achieve the same outcome as Option 1, we would need to save $371 per week from age 45 for 20 years.

Option 3 – Saving $100 per week for 40 years, earning 10% per annum.

The total amount saved is still $208,000, however, the total amount saved has jumped to a massive $2,740,434.

Option 4 – Saving $200 per week for 20 years, at 10% per annum.

Sadly, the accumulated savings after 20 years, even at 10% per annum, is a rather paltry $658,120.

So, the jury is in……

Saving a smaller amount for a longer period certainly seems to win out.

Source: Peter Kelly | Centrepoint Alliance

Superannuation Death Benefits – where will yours go?

August 16, 2018/in Financial Advice General Info /by Shellie Fisher

This is a very sensitive topic and one that we don’t like to think about or plan for. It is estimated that around 50% of Australian’s die without having made a will.

A common mistake is that most of us believe any money we have saved in superannuation is part of our estate and will be dealt with under our will. Superannuation benefits do not automatically form part of a person’s estate.

Many superannuation funds allow their members to make a death benefit nomination. That is, the member may stipulate who they would like to receive their super on their passing.

Superannuation laws set out the classes of people who may receive a superannuation death benefit. These include:

A spouse of the deceased, including de-facto and same-sex partners,
Children of the deceased, including adult children,
Anyone who had an interdependency relationship with the deceased, and
The deceased’s legal personal representative.

The test of dependency occurs immediately before the death of the super fund member.

The majority of superannuation funds allow their members to nominate who they would like their superannuation to be paid to on their passing. Subject to certain conditions being satisfied, a death benefit nomination will be binding on the superannuation fund and they must pay the benefit in accordance with the nomination.

The common types of death benefit nominations that may be offered by superannuation funds include:

Binding death benefit nomination – generally valid for three years
Non-lapsing death benefit nomination – similar to a binding death benefit nomination, however, it does not expire after three years.
Non-binding nomination – this is an expression of a wish. It is not binding on the super fund and therefore does not offer the certainty of the previous types of nomination.
Reversionary nomination – where a member is receiving a pension from their super fund, they may nominate a dependant to continue to receive the pension on the member’s death. There are restrictions on super funds paying reversionary pensions to adult children of the deceased.

Importantly, not all super funds offer all these options.

Where a valid binding death benefit nomination is made, the superannuation benefits will pass directly to the nominated beneficiary and will not form part of the deceased member’s estate. This can be a very useful tool to provide certainty where there is the risk an estate may be contested.

However, a binding or non-lapsing death benefit nomination made in favour of the deceased’s legal personal representative means the benefit will form part of the estate and be dealt with under the terms of the will (or intestacy laws in the event of no will having been made).

If a nomination is found to be defective, or if no nomination has been made, the trustees of the super fund will determine to whom the death benefit will be paid. They may choose to pay the benefit to one or more dependants, or pay the benefit to the legal personal representative.

As super funds may offer a different combination of death benefit options, and may have set processes in place to deal with the payment of death benefits where a nomination has either not been made or is invalid, super fund members and their advisers need to be familiar with the options available and ensure that any death benefit nomination is correctly made and maintained.

Source: Peter Kelly | Centrepoint Alliance

Lost Super – Do you have any?

August 2, 2018/in Financial Advice General Info /by Shellie Fisher

Did you know that thousands of Australians have indirectly ‘given’ billions of dollars of their super to the Australian Taxation Office (ATO)?

When we start a new job, our employer will ask us to provide a heap of information like our address, tax file number, who to contact in the event of an emergency, bank account details and details of our super fund.

Unfortunately, our super fund and account number is not information we have readily available and sometimes we wouldn’t know where to find it. So, rather than trying to find the details, we simply allow our new employer to send their superannuation guarantee contributions off to the ‘default fund’.

We continue to work for a couple of years and then, in the interests of bettering ourselves, we change jobs. When we start the new job, we enter the same cycle with our super and end up with yet another superannuation fund. Around 40% of Australians have more than one super fund.

When superannuation becomes lost or when benefits are not claimed by members when entitled to do so and super funds are unable to contact their members, the super funds are required by law to send the accumulated savings of their ‘lost’ members to the ATO. At the end of June 2017, the ATO was holding around $16bn of lost and unclaimed super.

So, how do you go about finding your lost super?

There are a couple of ways you can do this:

1. Log on to your myGov account (if you have one) and go to the ATO section. Click on the ‘super’ tab and it will display all the super details the ATO has for you. If you don’t have a myGov account, it is easy to create one.

2. You can fill in a form and send it to the ATO to complete your search for you. This form can be found on the ATO website

3. Many superannuation funds will conduct a search for lost super for their fund members.

4. Many financial planners will also help their clients search for their lost super.

Source: Peter Kelly | Centrepoint Alliance