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Recently I was talking to a farmer about his super fund. He described how several years ago his accountant had recommended that he transfer some of his farming land into super.
“I regret doing it” he said. “See how super funds have performed. I have lost a lot of money!”
I tried to explain to him that he still owned the same piece of land, albeit in the name of his super fund rather than personally. The fact that mainstream super funds had performed poorly was hardly relevant to him.
He, like many others had got caught up in the negative sentiment at the time of the GFC. Investment markets were on the nose and super fund returns were in the spot light.
He, like many others was confused about how superannuation works.
Most super funds now have a wide range of investment choices. These can cater for conservative investors (cash or term deposit options) right through to more aggressive investors (shares and geared funds). Too often, I see people with their funds invested in the ‘default’ option, which is then never reviewed.
Peoples’ tolerance to risk generally does change as they get older. Accordingly, investments should be reviewed regularly and should move in line with their risk tolerance. You may borrow to buy an investment property when you are in your 30s, but would you do it in your 60s? Perhaps not. Super is no different. The default ‘Balanced’ option may be too conservative in your 20s and 30s but may be too risky in your 60s.
Alternatively, as my farmer client had found, a self managed super fund provided him with the opportunity to invest in assets that he was familiar with and understood, his own farm land.
When was the last time you reviewed your super investment choices?
Super retains its position as the most effective place for your retirement funds to be placed. Tax and Centrelink concessions can be significant, and can more than offset investment market fluctuations. A decision as to how superannuation can help you save for retirement should have nothing to do with investment markets.
As always, in relation to financial matters, seek professional advice. Don’t just do something because a family member or your mate at the BBQ thinks it’s a good idea!
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While the severity of recent global stockmarket events cannot be understated, it is important to retain some rationality. “Billions Wiped Off Sharemarkets”, “Stocks Plunge On Fears Of Global Turmoil” and even “Bloodbath” are among headlines seen in recent weeks. The standard photo of a Wall Street trader with his head in his hands pops on the front pages of various publications. When markets inevitably rally a few days later, I always look to see the “Billions Added to Sharemarkets” headline, but alas, I’ve never seen it. It obviously lacks the drama!
A decision to join the many shareholders who sell their shares during these panic-driven frenzies should not be made lightly. Humans are impulsive, and people’s best laid plans are in danger of being thrown out the window if they act at the first sign of sharemarket weakness.
US Recession, US Ratings Downgrade, European Debt – whatever the reason, it is important to remember that the market corrections associated with these events, like the dotcom bubble of the early 2000s, September 11 and the 1987 stockmarket crash, are likely to be only temporary and in each case, global stockmarkets recovered and achieved new highs.
With current events following on from the Global Financial Crisis, it seems that this “bear market” has lasted for longer than usual, with months (or even years) where it feels like the market has gone nowhere.
Most investors hold shares, or have shares in their super fund, as part of a long term investment strategy. These events provide distractions to this strategy, but should not fundamentally alter it. I don’t completely advocate a “do nothing, ride it out” strategy, however if you hold quality Australian Shares in companies that are continuing to grow and pay strong dividends, it may pay to consider your overall position carefully before joining the “panic sellers”.
I can help you review your shares and investments and ensure they are suitable for you. Please contact me on (08) 8333 2488.
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We are proud to announce that Wakefield Partners has been accredited as a Senior Friendly Business by Seniors Wise SA. This is a new program administered by Seniors Information Service and is an initiative of the Department of Families and Communities.
We are one of the first businesses in South Australia to be accredited (definitely the first financial planning business!). The assessment team in particularly recognised the work done by our Senior Adviser Scott Keeley in providing advice in the area of Aged Care and Nursing Home Fees.
The Seniors Wise SA website is http://www.seniors.asn.au/centric/seniors_wise_sa.jsp
Talk to us now to find out how we can assist you! Phone (08) 8333 2488.
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Many people find their way to our website by searching using keywords such as ‘maximising age pension’ or ‘increasing centrelink payments’. In my face-to-face encounters or phone calls, getting the most out of government payments is regularly discussed. I thought l’d outline some of the strategies that are considered. While there are more, these are the most common ones.
Before discussing the few remaining strategies that can be used to increase government income support, let’s have a look at two strategies that were available previously, that I still get questions about today:
Annuities – These income stream products were used regularly up until 20th September 2004. Until this time, any amount used to purchase a ‘complying annuity' (that is, one that met a range of criteria around investment terms and residual capital value) was exempt from the Assets Test. They were a regular part of many people’s retirement planning, although now with money invested fully assessable under the Assets Test and often inaccessible as a lump sum they are no longer any significant benefit for pension purposes.
Family Trusts and Private Companies – From 1st January 2002 assets held in these entities came under the governments microscope. Prior to this, people who held their assets under trust or company structures often received greater pension entitlements as these assetsmay have beenexcluded from the Assets Test. The change in legislation in 2002 now sees people who hold assets in these entities often treated exactly the same as if they held the assets themselves. That is, there may be no significant advantage to having these structures in place for maximising government benefits.
These rule changes in my view were entirely fair. Essentially people with the same amount of assets now receive the same amount of government support, regardless of how they have their assets structured.
So What’s Left?
Perhaps the simple answer is – not much. The above strategies could be implemented with many hundreds of thousands of dollars, making them very popular and very effective at improving government entitlements.
The remaining strategies can be split into 2 categories:
Strategies that everyone can consider; and
Strategies that those meeting certain criteria can consider.
The strategies that everyone can consider have negligible impact on the amount of pension payments you can receive, and as such, may not be worth the effort:
Gifting – up to $10,000 can be given away per financial year, up to a maximum of $30,000 in a 5 year period. This $10,000 no longer counts as an asset. I have discussed the concept of gifting in a previous article (“I’m Only Allowed To Give Away $10,000!”).
Funeral Planning – either up to $10,000 can be placed into a Funeral Bond or a pre-paid funeral plan can be purchased. These assets are exempt from the Assets and Income Tests. These can make sense for more reasons than just maximising pension entitlements.
There are a couple of other strategies that could be considered by people in particular situations:
Pensioners with younger spouses – Money invested in superannuation for those under Age Pension age is exempt from Centrelink/DVA assessment. Therefore, if you are of pension age, and your spouse isn’t yet, there may be benefit in transferring assets to their superannuation. Bear in mind, this will only be beneficial until the younger spouse turns Age Pension age, and probably requires planning before either of you turn Age Pension age.
Income Stream Payments – People who have higher incomes that preclude them from pension entitlements may find that income from an Account-Based Pension is treated more favourably than deemed income on the same investments. Account – Based Pension payments include a capital component that is exempt from the Income Test.
As you can see, this can be a complex area requiring financial advice. If you would like to increase your pension entitlement, or find yourself ‘just over the Asset or Income Test limits’, talk to us today for expert advice on your options.
With over 12 years working at Centrelink, and 5 years as a Financial Planner, I can assist you with all of your enquiries. Please contact me on (08) 8333 2488.
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In a recent speech made by the Reserve Bank of Australia (RBA) Deputy Governor, in June 2010, Ric Battellino raised the question “are Australian households over geared”? Following this question he states that household debt has risen significantly faster than household income since the early 1990’s.
RBA figures indicate the average personal credit card debt is approximately $3,300. With credit card interest rates heading towards 20% or more, people with a large balance are facing very high repayment amounts. If only paying the minimum payment, this could take six or more years to pay off.
If you are struggling with paying off your debt then take control of the situation today. Even if you feel completely hopeless, you do have options. Once you start taking simple baby steps you’ll feel more in control of your finances.
Try some of these helpful tips below;
Take time to analyse your income & expenses. Do a budget by visiting FIDO’s budget planner. It is so important to track your spending so you get an understanding where your money is going.
Distinguish between what you ‘want’ and what you ‘need’. Cut down or cut out altogether on what you ‘want’. Making sure you spend less than you earn should provide more money to repay your debts.
Make short term and long term goals. Short term goals will keep you motivated and help you achieve your long term goals.
You may consider selling some household items you no longer need. Have a garage sale or use Ebay to sell those unwanted items. If necessary sell down some investments to pay off high interest debt. There is no point having money in the bank earning little interest and a debt carrying a higher interest.
Research credit card deals. You can compare credit card features and interest rates visiting www.ratecity.com.au. By switching over to the right deal may lower your interest rate and therefore pay off your credit card debt faster.
Consolidate all your credit cards if you have more than one card. Try to switch to a credit card that provides balance transfers and discounted or nil interest rates for the first six months.
If you cannot consolidate debt then start paying off the card that has the highest interest rate first. Tackle one debt at a time. Once a credit card is paid off, consider closing the account.
Don’t fall into the trap of continuing to use a card with high interest rates just because it carries a reward program. Often the extra interest you pay negates any benefit from receiving the rewards.
Learn how to pay “cash” for your purchases and not the credit card. Alternatively set up a debit visa card, that way you need to have cash in the account before you are able to purchase.
To get further information contact us on (08) 8333 2488.
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