Let’s look at some options available to 62-year-old accountant, Brian. He works full time and is on an annual salary of $100,000.

Easing into retirement

First up, Brian might consider reducing his hours as he prepares for retirement. Dropping from five to three days a week will see his $100,000 annual salary reduce by $40,000 to $60,000. But as his tax bill also falls, from $26,497 to $12,147, his net income only drops by $25,650. Subject to minimum and maximum pension payment rules, and as the pension payments are exempt from tax, Brian only needs to start a TTR pension paying $25,650 each year to maintain his current life.*

One thing to be aware of

Based on Brian’s reduced hours his employer’s super contributions will decrease by $3,230 after contributions tax of 15% is taken into account. Most simply, Brian could add this amount to his pension payments, and make a non-concessional contribution to his super.

Bridging a gap

TTR pensions can also help bridge the gap if household income takes a hit. What if Brian has no plans to reduce his hours, but illness prevents his partner from working for several months? He could start a TTR to tide them over and help meet mortgage repayments or medical expenses. However, once the crisis has passed the TTR pension will need to continue, as it can’t be withdrawn as a lump sum. Alternatively, it can either be converted to a regular account based pension when Brian either turns 65 or permanently retires, or rolled back into the accumulation phase.

Boosting super savings by reducing tax

With his partner restored to health and back at work, and Brian still working full time, what can he do with the now surplus income from the TTR pension? One strategy is to make salary sacrifice contributions to super.

Brian is able to salary sacrifice up to $15,500 of his pre-tax income to superannuation (the difference between the concessional cap of $25,000 less compulsory employer contributions of $9,500). Taken as salary, $5,932 of that $15,500 would go in tax. Make a concessional contribution to super and the tax could be reduced to just $2,325, a difference of $3,607! *

If there’s still money to spare after the salary sacrifice contribution is made Brian can look at making non-concessional contributions to superannuation where earnings will only be taxed at 15%, significantly less than his marginal tax rate.

Getting it right

If you’re approaching retirement, it might be worth checking out what a TTR strategy may be able to achieve for you. It’s a complex area, so make sure you talk to your licensed financial planner before you act.  

Speak with one of our advisors about your transition to retirement or for retirement planning. Contact Us

*All figures above as for example purposes only and can vary depending upon your personal circumstances and must not be relied upon. Always seek advice for your own personal circumstances.

Also read:

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Not necessarily.

Sure, investment planning is an important part of financial planning, but underpinning the whole process of creating wealth in the first place is having a good financial strategy.

For many people that strategy is taking each day as it comes and letting the future look after itself; but in a complex and ever-changing world, isn’t a more active approach a good idea?

Each of us has specific needs and desires, of course, but there are a number of common challenges that we need to think about when developing our financial strategies.

Stage of life

Baby boomers (born 1946-1964) are moving into retirement in droves so Gen X (1965-1976) is taking on the mantle of being the great wealth accumulators. For the most part, this generation has their strategies in place: pay down the mortgage, contribute to super, maybe buy an investment property, and wait for the kids to leave home.

Generationally, it’s millennials (1977-1995) who face the greatest challenges in developing a financial strategy. Younger millennials are just embarking on careers and the focus is, understandably, on having a good time. Many feel priced out of the housing market, and while the ‘gig’ economy promises greater work flexibility, this comes with reduced job security and often no employer superannuation contributions. Then there’s the challenge of balancing starting a family with establishing a career. All up there’s a lot to plan for.

Gender

The path to income equality is a slow and frustrating one. In general, over their working lives, women continue to earn significantly less than men. This is largely due to time out of the workforce to look after children.

However, progress is being made, and an increasing number of women are earning more than their partners. Having Dad take time off to look after the kids then becomes a viable financial strategy. On top of that, the gig economy, and technology in general, is opening up more opportunities for stay-at-home parents to earn a decent income.

Relationship breakdown

Sadly, many long-term relationships and marriages end, and the emotional and financial costs can be high.

This isn’t an issue that anyone wants to think about, but is obviously a trigger for developing a new financial strategy. This is particularly important when children are involved, and expert help will likely be needed.

Inheritance

More wealth is being transferred from older to younger generations than ever before, and thanks to superannuation, this trend can only grow.

Receiving an inheritance is often the event that leads many people to seek financial advice. While the focus may be on creating an investment plan, this is an ideal time to look at the broader financial strategy to make the most of any inheritance.

Never too soon to start

The upshot is that pretty much everyone can benefit from having a financial plan. It doesn’t need to be complicated and you can get the ball rolling yourself. A simple savings plan or paying off credit card debt can be good places start.

But to make the most of your situation it’s a good idea to talk to a financial adviser.

A qualified adviser can help you understand our complex financial environment and what you need to know to work out the likely outcomes of different strategies.

Ready to take control of your finances? Give us a call and let’s chat.

Read More Articles:

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Forewarned is forearmed, so if you’re entering or already amidst this decade of life, here are a few classic mistakes you don’t want to make.

1. Not paying attention to superannuation

Retirement is decades away, so why pay attention to super at this time of life? Because putting that time to use can generate big rewards.

Take Jo. On turning 40 she decides to contribute an additional $5,000 per year, after tax, to her super fund. There it earns 7% per annum after fees and tax. By the time she turns 50, Jo’s super balance will potentially be $69,000 higher than if she hadn’t made the additional contributions. By age 65, the extra contributions made during her 40s could potentially add $316,000 more to Jo’s super fund!

Depending on individual circumstances, strategies involving salary sacrifice, spouse contributions and government co-contributions could further boost your super.

2. Buying the biggest house in the best street

It may seem sensible to buy an expensive home if it is going to appreciate in value. However, the bigger the mortgage the greater the risk of experiencing financial stress and of reaching retirement with a substantial home loan still hanging over your head.

Life is more enjoyable (and isn’t that what it’s really all about?) if your budget makes room for some good times now rather than saddling yourself with major debt that requires gratification to be constantly delayed.

3. Spending money you don’t have on a car you don’t need to impress people you don’t like

Much as you may love that new-car leather-seat smell, borrowing money to buy an expensive new car is a classic way of eroding wealth. New cars shed value faster than a moulting moggie sheds hair, leaving you paying interest on a loan that can quickly exceed the value of the car. And expensive cars usually come with higher running costs.

An enduring piece of wealth creation advice is to drive the cheapest car your ego will allow. Prudent car buying can add hundreds of thousands of dollars to your future wealth.

4. The wrong insurance mix

If you’re like most Australians your personal and property insurance coverage is probably inadequate.

Yes, insurance premiums can be expensive, but the consequences of inadequate insurance can be financially (and emotionally) devastating. While it may be a straightforward exercise to work out how much insurance you need on your home, contents and car, your needs for personal insurances (life and disability cover) differ. Expert advice will help you decide on the most appropriate cover.

Also, check you’re not paying for ‘junk’ insurance. Accident cover is a common example. It might be cheap, but only because it provides very limited protection.

5. Feeling immortal

Okay, the likelihood that you will die or become severely disabled during your 40s may be fairly small, but accidents can and do happen.

Do you have a Will and have you given someone your power of attorney (PoA)? Are both current? Your Will and PoA are important documents, and should be reviewed regularly.

Make the most of your 40s

All these mistakes can be avoided with some planning and expert advice, so talk to your financial adviser about how to make the most of your 40s. Avoiding just some of these pitfalls could really boost your future fortune.

To discuss your financial planning please contact our financial advisors on (02) 4926 2300 or go to our contact us page.

Insurance Questions? Discover More

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Sharing the costs

Australian aged care policy is based on the view that those who are financially able to should contribute to the cost of their care. While people with little money will have their accommodation costs paid by the Australian government, a means test sees wealthier individuals paying for part or all of their aged care.

In Jan’s case, once the proceeds from the sale of the family home were added to her savings she had total assets of $1.2 million. This left her facing the following fees:

• A basic daily fee of $50.66 . This is the same for everyone.
• Accommodation fees. These are set by the aged care facility and can be paid as a daily fee, by a refundable accommodation deposit (RAD), or a combination of the two. Jan opted to pay a RAD of $600,000. This sounds enormous, but the RAD is effectively an interest-free loan to the aged care facility. The interest the facility earns on this deposit covers the cost of accommodation, and following Jan’s death the RAD, less any deductions initially agreed with the care provider, will be repaid to her estate.
• A means-tested care fee of $50.30 per day.
• Fees for additional, optional services such as physiotherapy, hairdresser and internet access.

Jan’s fees therefore added up to $100.96 per day or $36,850.40 per year. That proved a bit of a shock for both David and Jan, but there is something they are forgetting.

The cost of independent living

When presented with an annual aged care amount in one hit, it’s easy to overlook the costs of independent living. In her own home, Jan’s living expenses were spaced out over weeks and months, and she really wasn’t aware of what they added up to.

In care, the fees cover most living costs. There would be no more council rates, insurance premiums, energy bills, food and related expenses to pay. Jan will still need to pay for personal items such as clothing, gifts and private health insurance, but the cost of her accommodation and care was not much more than what she was spending living at home.

A grim reality

Naturally, mother and son are concerned about how long Jan‘s remaining liquid funds will last, but the grim reality is that people who require high level aged care are frail. Only 20% of residents will survive more than five years, and one quarter will pass away within six months.

However, this may not be the case for Jan with both of her parents having lived to their early 90s. In other words, longevity will most likely be the biggest determinant of Jan’s total aged care costs.

This was a difficult conversation to have with Jan and David, but after a few weeks Jan was happy making friends at her new residence and David could relax knowing that his Mum was in good hands.

Supportive advice

The myagedcare.gov.au website provides a wealth of information. However, a move into aged care is one of life’s most stressful events and many financial and non-financial decisions need to be made, either by the person making the move or their family. A financial adviser with experience in aged care matters can provide both good advice and valuable support at this emotional time.

Speak with one of our Senior Financial Planners about retirement and aged care. Contact Us

Read More about Aged Care

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In brief, this means inquiring into a borrower’s financial situation and requirements, verifying the information supplied, and making an assessment as to whether or not the credit contract is suitable for the borrower. Ideally, the lender should also consider the ability of the borrower to maintain loan payments if there is an increase in interest rates. This is a common pathway into mortgage stress – the situation where loan repayments take up too large a fraction of household income.

The Inquisition

In the past, lenders often relied on loose assumptions of household expenditure when estimating a borrower’s financial commitments. That’s no longer the case, so if you’re looking for a new loan or to refinance an existing one, be prepared to provide the following information and documents:

• The amount and source of your income, and duration and type of employment. This will need to be documented via payslips or through bank statements and tax returns if you are self-employed.
• Your fixed expenses such as rent, other loans, credit cards, child support, insurance premiums and school fees.
• Your variable expenditure, including food, holidays and entertainment.
• Your age and number of dependants.
• Details of your assets with a focus on financial assets.
• Information on any foreseeable changes such as retirement.

You can also expect your prospective lender to delve into your credit history.

If you are using the loan to buy an investment property make sure you disclose this. You will likely face a higher interest rate, but don’t be tempted to deceive the lender. They are adept at detecting so-called ‘occupancy fraud’. You may also need to come up with a bigger deposit on an investment property purchase. This will decrease the sum you can borrow, limiting the price range in which you can buy.

Age needn’t be a barrier to taking out a home loan. However, anyone borrowing with a likelihood of retiring before the loan is paid off needs to have an exit strategy. This could be paying off the loan with superannuation, downshifting to a cheaper home, or even taking out a reverse mortgage.

Tighter adherence to responsible lending practices could likely lead to a reduction in the amount that people can borrow. However, this reduction in the amount of money flowing into the housing market should dampen down growth in house prices. Overall, more responsible lending may not have a major impact on housing affordability, but preferably see a reduction in the number of households experiencing mortgage stress.

Prepare ahead

Having answers to all the questions and the right documentation will come in handy when it’s time to apply for a loan. If a new loan or refinancing an existing one is on your radar, ask your financial adviser to help you prepare ahead of time.

The post What is responsible lending and why does it matter? appeared first on Newcastle Financial Planners & Financial Advisors.

Plan A

Donna and Simon are a typical example. They decide to put $50,000 into a term deposit to help pay the school fees of their granddaughter Ellie when she starts secondary school in 10 years’ time. With an interest rate of 2.6% per annum (pa) and interest paid annually, their initial deposit will grow to $64,631 – a nice boost to Ellie’s future education.

But is there a better way to use that $50,000?

While it’s nice to have a specific account with its special status and easy to see growth, the important thing is the overall pool of money available to the family when the time comes to stump up the school fees.

Plan B

Ellie’s parents, Sara and Shane, are five years into paying off their mortgage. Their interest rate is 5% pa, the remaining balance is $530,000, and their monthly repayments are $3,500. If interest rates and payments remain steady, in 10 years’ time their mortgage balance will be down to around $329,427.

What if, instead of setting up the term deposit, Donna and Simon gift the $50,000 to Sara and Shane who then deposit it in their mortgage account? This sees them effectively servicing a smaller loan. Maintaining their usual monthly repayments will now reduce the amount they owe on their mortgage in 10 years to approximately $247,077, giving them more equity in their home to draw on for school fees.

Difference

Plan A turned $50,000 into $64,631, a net benefit of $14,631. But plan B more than doubled that benefit to $32,350!

Of course, Donna and Simon will need to feel confident that they can trust Sara and Shane to use the gift in the way they intend, and not to redraw it for holidays or other purposes. And if they are receiving any age pension, or intending to apply for one in the next five years, Donna and Simon will also need to be aware of the gifting rules and how this gift could impact their pension payments.

Get advice first

This is just one example of how intergenerational planning can significantly grow the wealth of the extended family unit.

If you’re seeking the most effective way to assist your children and grandchildren financially, talk to your financial planner first. You can call our team at Leenane Templeton on (02) 4926 2300 or contact us here.

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To find out, the Financial Planning Association of Australia (FPA) commissioned a survey of more than 2,600 people from around the country. The resulting Live the Dream report provides an insight into the extent to which we are collectively living our dream life and, more importantly, reveals key habits and characteristics of those who are already doing so.

What’s the dream?

Of course, everyone has a different concept of a dream life. However, across all age groups, three definitions topped the list:

• having the lifestyle of my choice;
• having financial freedom and independence;
• having safety and security.

More specific aspects ranged across travel, family time, career and hobbies.

Are we living it?

Overall, just on a quarter of those surveyed are ‘definitely’ or ‘mostly’ living their dream. That may in part be due to the fact that most Australians are in the workforce and haven’t yet reached a point of true financial independence. Nonetheless, it reveals that there is a sizeable gap between the lifestyle that most of us are actually living and the one we want.

There’s no prize for guessing that a low bank balance is the number one barrier to having a permanent Nirvana lifestyle. Debt and a lack of time were the other major blockers.

Pursuing the dream

The good news is that there are some simple, key characteristics more commonly associated with those who are living their dream life. These people are more likely to plan – and to stick to those plans. They are more likely to seek advice from a financial planner. Interestingly, they are also more likely to meditate. Age is a poor indicator of the extent to which we live our dream. Instead, the strongest influence revealed by the study was personality type.

Leading the race are the go-getters, with their big goals, clear idea of what they want in life, and a willingness to seek advice.

Bringing up the rear are the cruisers. They’re not great ones for forward planning but they are out there enjoying life now.

In between are the daydreamers and builders.

The number one solution

This doesn’t mean that the only solution for those not living the dream is to have a personality transplant! Personality is a fundamental part of who we are and most people display attributes from all of the personality types. Even the most dedicated cruiser will have a little of the go-getter lurking within. It’s simply a matter of nurturing the desire to go after your dream – and you don’t even have to do all the hard work.

According to Live the Dream the three most challenging aspects of planning are:

1. not knowing what you want;
2. finding the resources to help create a plan; and
3. finding the time to plan.

Even before a plan is made, almost a quarter of those surveyed know they wouldn’t stick to it anyway.

If those seem like insurmountable barriers, then talk to someone who lives to plan – a qualified financial planner. Contact our team to arrange a meeting today
He or she can help you define your particular dream, identify the steps to achieve it, and save you time. And stay close by to keep you committed.

Once in place, your financial planner can nurture your inner go-getter, helping you step-by-step so that soon you won’t just be planning the dream, but living it.

Also consider the following articles:

• Retirement Plans
• Balancing Life, Work & Money

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As her pregnancy advanced Margaret gave up work and Graham, a warehouse fork-lift driver, took a second job to make up the shortfall in their income. He was a hard worker and fast learner which prompted his boss to promote Graham to Warehouse Manager a few months later.

In the years after their first son was born, two more babies arrived – another boy and a girl. Once the children were settled at school, Margaret returned to part-time work.

Soon after they’d married, Graham engaged David a financial planner to structure an insurance and savings strategy. With David’s ongoing guidance, the young couple was able to afford annual holidays, private school fees and put aside cash for unexpected events.

Years passed and the children grew up and left home. Graham was now a partner in the warehousing business and earning a good income. So when Margaret turned 50, she decided to take early retirement.

They were living comfortably on Graham’s salary when he suffered a heart-attack. He was rushed to hospital but died shortly after.

Margaret knew that Graham had insurance policies and that there were investments and superannuation, but other than relying on their bank account balance to pay household bills, she’d had little other involvement; happily leaving that to Graham and David.

Over the years, their financial planner had become a family friend, and it was to David that Margaret now turned.

David took care of the insurance claims and organised for Graham’s superannuation to be paid out. He recommended Margaret pay off the remainder of the mortgage.

After considering insurances, superannuation and the investment portfolio, Margaret discovered that she’d been well provided for but she had no idea what to do with her money. She didn’t know what the tax implications would be and was worried about having a regular income.

David’s next task was to define Margaret’s needs and level of risk tolerance. He addressed Margaret’s tax situation and structured a portfolio to provide an income stream for her to live off.

When Margaret turned 55, David advised that her own superannuation was accessible. He reviewed her investments to maximise Margaret’s income potential and minimise her tax liability.

Margaret and Graham had dreamed of retiring at the beach so she sold the family home and bought a comfortable beachside apartment. Downsizing freed additional cash so Margaret, now 65 and financially secure, asked David to open investment accounts for each of her four grandchildren.

To celebrate Margaret’s 70^th birthday, she decided to take a cruise with a dear friend. David arranged a partial redemption from the most appropriate of her investments so she was able to holiday in style.

Although Margaret had been widowed unexpectedly, early planning and good advice enabled her to maintain an enjoyable lifestyle in retirement. Graham would definitely be resting in peace.

For a full financial plan feel free to call our team to discuss your needs and the steps we take to help achieve the right plan for you.   Contact Leenane Templeton today.

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It’s unlikely that anyone would vow on their wedding day “I will love and honour you, keep only one credit card and pay it off every month”, but seriously, couples need to develop their own financial vows. It’s not very romantic however this five-step guide could save a lot of heartache.

Step 1 – Prioritise

Agree on what is most important to you both. You could spend big on lifestyle. Or save to afford a house, children, or some other goal such as further education. Once you’ve agreed on your goals, give your plan a name (get creative!), put it on paper (an App is too easy to forget about) and post it on the fridge where you see it every day to keep you focused.

Step 2 – Know where your money goes

If you can’t measure it, you can’t manage it. As boring as it may seem, you need to look at your spending and decide if it is consistent with your priorities. This can be done by checking your bank and card statements every month. Most online banking programs offer this reporting feature making this step very easy.

Step 3 – Don’t eat your money

Most spending goes on food, so if you ever wondered where your money goes, you probably ate it! Reduce impulsive food buying by eating before you shop so you’re not hungry and shopping only once per week. One weekly trip to the supermarket will also cut petrol costs.

Step 4 – Shop wisely

When you are spending on larger items, think before you buy. Do you need the big brand name? Maybe yes on electrical goods but maybe not on new clothing. Comparison-shopping does make a difference and there are many websites to help you find the best deals (be aware that a lot of comparison sites only show those providers who have paid for a listing so the reviews can be skewed).

Step 5 – Keep talking

Having a plan is no good unless you review it regularly. This is a time to leave the boxing gloves off because you will both make mistakes and maybe even cheat on your agreements. Your priorities will change over time and your Money Plan will change too. It’s important to agree on your goals, maintain good communication and, above all, keep your sense of humour.

Whilst these steps were written for newlyweds, they are just as appropriate for any couple, families, empty nesters and retirees… it’s never too late to start.

For help with your financial planning please call our financial advisors for an appointment.  Call (02) 4926 2300 or email our team

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