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 However, once the crisis has passed the TTR pension will need to continue, as it can’t be withdrawn as a lump sum.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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There are many reasons you might purchase a home later in life: perhaps you’re starting fresh post-divorce, or you own a home and have decided to buy a second property to help out your kidults.

Regardless, it comes down to the same thing: knowing what you’re getting into and being ready.

Buying later presents opportunities that younger house-hunters overlook as proximity to schools and playgrounds isn’t so important.

On the flipside, if later-life home-ownership figures in your future, you should be working with your financial adviser now – and here’s why.

Time

Our population is living and working longer. We can save more towards a home with longer to pay it off. But really, do you want to be stuck with mortgage repayments chewing through your income – after retirement?

What if you purchase just before retirement? Servicing a loan is relatively easy while gainfully employed, particularly with record low interest rates. Bad news is they won’t stay low forever. Rising interest combined with reducing income can quickly turn the dream into a financial nightmare.

Job security

According to the Australian Institute of Health and Welfare (AIHW), in the period 1984 – 2014, labour force participation of Australians aged 55 – 64 grew from 41% to 64%. Good news. The Australian Bureau of Statistics (ABS) for the period 2002 – 2010, reports “declining levels of full-time employment” among the same age group indicating greater numbers of older Australians working fewer hours.

Not so good. With fewer full-time job opportunities for those aged over 55, if you’re still considering a pre-retirement mortgage, be aware of:

Compromises

If your retirement goals include travel, hobbies or even a weekly round of golf, servicing a mortgage may overburden your budget, forcing you to cut back your spending and lifestyle.

Regardless of home ownership, the Australian Centre for Financial Studies (ACFI) reports that 20% of retirees’ average household expenditure exceeded income, leaving no alternative but to draw on savings or liquidate assets just to live.

Now, throw a mortgage into the mix …

Ongoing maintenance

Be realistic about your budget and your shopping list. Consider what mod-cons you genuinely need. And size does count! If, down the track, you can’t physically maintain your home, could you afford gardeners, cleaners, etc, while repaying a mortgage?

Superannuation

Ah, that warm glow lighting our path to retirement. You could use your super to buy a house but what will you live on? The age pension? Will that fund your desired lifestyle?

To quote the ABS, “… key factors will be people’s plans as they get older, including when and how they intend to retire and what factors will influence their decisions.”

We don’t always agree with government reports, but in this it’s spot-on.

Our longer life expectancy means retirement planning is more important than ever. Talking with your financial adviser as early as possible will help you set up a strategy for living – to retirement and beyond!

For more information about purchasing a property or retirement strategy, please call Leenane Templeton on (02) 4926 2300 or email success@leenanetempleton.com.au

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You have taken a long and varied pathway to get where you are, but you have finally reached that point in your life where you are confident about who you are and what you want. Whether it’s the satisfaction of a successful career or the joy of parenthood, likely you have much to be proud of, and while you’re not over the hill yet, the time to start planning for a comfortable retirement is now.

HSBC’s recent Future of Retirement study1 reveals that while Australians expect to spend 23 years in retirement (that’s more than half the time many spend in the workforce), many will run out of money after only 10 years, leaving them reliant on the age pension.

While you may know what type of lifestyle you want in retirement, can you be certain you will have enough money to achieve this lifestyle or how long your money will last?

Maximising your retirement savings and protecting your income during your last few years in the workforce should be a fundamental financial priority. But there are challenges. You may not be as healthy as you once were and have limited sick leave and annual leave to fall back on. You may have transition to retirement arrangements that rely on regular super contributions. If you live in the pricey cities of Sydney or Melbourne, for example, you may still have a mortgage on your own home, or perhaps on an investment property or holiday home.

You’ve got a lot at stake and you’ve come too far to not protect it, which is why insurance still plays an important role. So what type of protections might be important for you?

This is a question without a simple answer, although it’s likely that your income is central to your plans – so protecting it should be a priority.

Once you hit 50, the chances of suffering serious illnesses like cancer or heart attack increase. Trauma like this can leave a big dent in your savings, and trauma cover is designed to help you meet all those out of pocket costs that come with such conditions, so you can concentrate on recovering. The downside is that in your fifties, this type of cover can become expensive, so you really need specialist help to determine the best way to protect yourself in these circumstances.

Income protection and life cover can both be funded through superannuation, which can obviously help with cash flow but will draw down on your superannuation balance.

When it comes to funding cover, longer term certainty versus shorter term affordability is also often a major decision criteria and unsurprisingly, many life insurance customers (usually buying cover at a time that coincides with their peak indebtedness) find the short term cost savings of stepped over level premiums too tempting. This is especially true when the point at which level premiums put you ahead can be 10 years or more in the future. Paradoxically of course, if you are taking out cover at this stage in life (the time at which cover becomes harder to afford) is the time when you’re more likely to claim than ever before.

With current term deposit rates around the 2 – 2.5 per cent mark, the decision about how to make your money work harder becomes more complex, and there may be some people for whom level premiums may become more appropriate (even when that first year differential can be as much as 100 per cent or more.)

Whilst it is a given that some sort of protection is still important at this stage of life, the best mechanisms to achieve this protection will vary depending on your personal circumstances, which is why you should discuss your options with your Leenane Templeton Financial Planner.

Source: Zurich
1 HSBC, The Future of Retirement Life After Work?,
2013, www.hsbc.ae/1/PA_ES_Content_Mgmt/
content/uae_pws/pdf/en/future-of-retirement.pdf.

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What is a franking credit?

When an Australian-listed company posts a profit, it is standard practice to redistribute those profits to its shareholders in the form of a dividend. As the profits have already been subject to Australian company tax of 30 per cent the shareholder is entitled to a rebate (partial to full) from the ATO for tax already paid if their marginal tax rate is less than 30 per cent.

On the dividend statement, the company tax paid is referred to as a ‘franking credit’.

In the case of retirees that pay zero tax, franking credits are 100 per cent refundable, which means they can significantly boost the returns for pension phase investors.

The importance of franking credits for retirees

The graph below compares the after tax return of a $1 dividend franked vs unfranked for pension phase investors, super funds and individual investors on the top tax rate of 49 per cent. As you can see per dollar of dividend the zero tax rate applied to pension phase investors allows them to benefit most from a fully franked dividend, leaving them approximately 22 cents and 70 cents better off than super and top tax rate investors respectively.

The after-tax value from a $1 dividend franked vs unfranked for differentAustralian investors.

What difference does franking make?

The table below, compares the performance of the standard S&P/ASX Accumulation Index with that of a new ‘tax aware index’ (the S&P/ASX 200 Total Return Tax-Exempt Index) which fully values franking from the perspective of tax exempt investors such as charities or pension phase investors. The additional returns from franking credits are close to the current cash rate and, when accumulated over three years add an extra 7.2 per cent to returns.

Performance of Australian shares before and after franking for the three years to 31 December 2014

As you can see, over time franking credits can have a significant impact on your returns, particularly if you are in pension phase or are a tax-exempt investor. Therefore, if you are a retiree or nearing retirement, you need to understand the benefits of franking and how you can structure your investment portfolios effectively.

Source: Plato Investment Management

To find out more, speak to your Leenane Templeton financial planner today on 02 4926 2300.

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When you retire, there are different financial factors to consider because you are no longer receiving income from employment.

Adverse market movements can have a greater impact on your savings in retirement because you’re not replenishing your savings with a regular pay cheque. Additionally, when you’re employed your income generally increases to keep pace with inflation. However, in retirement, inflation can erode the purchasing power of your savings.

At the same time, thanks to medical advancements and healthier lifestyles, you could enjoy a retirement period upwards of 30 years. This is a long time to make your savings last. Therefore, the decisions you make about investing your retirement funds are critical for making sure those funds last as long as you do.

Fortunately, there is a way to guarantee a level of secure, regular income throughout your retirement. An annuity pays you a guaranteed secure income that can keep pace with inflation, if you choose. The income is generally tax free if you’re over 60 and investing your superannuation money. Some annuities may also help you access or increase your seniors benefits like the age pension and the Commonwealth Seniors Health Card.

An annuity is a secure investment that provides you with a series of regular payments, either for a chosen term or for your lifetime, in return for a lump-sum investment. It can be used with other retirement investments, like account-based pensions, to set you up with a dependable income that can last throughout your retirement.

Term annuities have fixed start and end dates that are typically chosen by you. The minimum term is one year and maximum term is 50 years. Annuity payments are for the duration of the term and stop at the end of the term.

Lifetime annuities provide regular payments for the rest of your life. If you choose, the payments may continue for the lifetime of a second person after you pass away. Lifetime annuities can help alleviate the worry that you will outlive your retirement savings.

An annuity works like a pay cheque in retirement. You invest some of your savings with a financial institution who then holds your money while paying you guaranteed regular payments. This income is generally tax free if you are over 60 years of age and are investing your superannuation money. The payments can be made monthly, quarterly, half yearly or yearly.

It is important to note that annuities are designed to be held to term. If you would like to withdraw your annuity, in most cases you will receive a return of your investment but you may receive back less than you invested originally and less than you would have received had you held the annuity for its agreed term.

To find out more about how an annuity can help you in retirement, speak to your Leenane Templeton financial planner on 02 4926 2300

Source: Challenger

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As we approach retirement some people start to panic a little wondering if they are truly looking forward to the time of their life when they no longer have to work. All of a sudden something they have been dreaming of starts to seem real! Instead of worrying, have a read of the following tips and if necessary, act now. After all, it’s your future – and it could be here sooner than you think.

1: What do you want and how will you get it?

What are your goals and objectives for your retirement? Write out a plan that sees you enjoying the fruits of your labours. Then make sure your finances can achieve your goals. If not, do something about it now while you still have time. Be realistic and set achievable timeframes.

2: It’s not just about returns; remember the risks

Every investment has some degree of risk. Cash is considered the safest as there’s a good chance your money will still be in the bank when you need it. The downside is that it pays the lowest return; it isn’t tax effective; and doesn’t tend to keep pace with inflation. To achieve higher returns and make your money work harder, you need to take appropriate risk. Understand the differences between cash, fixed interest, shares and property and make your decisions wisely.

3: Share it around

To help reduce risk, share your investments across several asset classes and within those asset classes as well. The right balance will depend on your financial objectives, the amount of time you have available to invest, and your risk tolerance.

4: Don’t forget super…

Superannuation will be your bank account when you are no longer working so you should be considering ways to boost your superannuation balance prior to retirement. But be aware the tax benefits are not always equal so make sure you have a balance of inside-super and outside-super investments. 

5: …or tax

Tax is the trickiest area of all. Always make sure you get good advice on investing tax-effectively. A simple restructure of an underlying asset, investment vehicle or ownership structure could help you to minimise the amount of tax you pay and maximise your after-tax return.

6: Retirement can last another lifetime

With medical technology and improved lifestyles we are living much longer than our previous generations. The older you get, the longer you’re likely to live. If you’ve managed to survive early risks, such as accidents or illnesses, your life expectancy actually increases. Be prepared for a longer retirement than your parents. This means that your money must last longer, so don’t be too conservative with your investments, speak with one of Leenane Templetons financial advisers to discuss your investments and risk.

7: Stay cool

You are in this for the long term so when markets fluctuate and investments unexpectedly fall in value, don’t panic and sell. Sit down with your adviser, review your portfolio and stay focused on your long-term goals and objectives. 

8: Keep learning

You are never too old to learn. Financial advisers have an important role in giving you tailored guidance, but you still need to make your own informed decisions about your financial plan. Make sure you understand your plan and if not, ask questions or do some research.

To discuss your retirement
Call (02) 4926 2300 or email us. 

Our team of award winning financial planners are available to discuss your retirement needs. 

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Life in your 50's is great. You don’t have a huge mortgage, the kids have grown up and are not as dependent on you, your career has progressed… So what is next financially?

When you are in your 50s, you can see retirement on the horizon. Sure it might be 10-20 years off, but it is becoming more tangible. So if you haven’t already, you need to start some serious planning.

Decide on your lifestyle

Up until now you may have been reactionary in your lifestyle, with mortgage payments and work pressures being the biggest worries. But you need to start thinking about how and where you want to live for the next 30 or more years. Do you want to stay where you are? Downsize? Always wanted to move to the beach or bush?

Figure out how much you need

Once you have decided how and where you want to live, you will need to set up plans to achieve it. There are a couple of things you can look at to ensure you are on the right track:

Superannuation – Is your super invested appropriately? Do you need to contribute more now so that you have enough for the future?

Investments – If you have managed funds, shares or property, are they invested strategically to help accommodate your changing lifestyle?

Insurance – Do you have the right level of life and income insurance? Are you and your family covered if anything happens?

Daily finances – Are you spending money on things you don’t use? If the kids have moved out, are there ways you can scale back?

Start catching up now

You might find that you are further behind than you thought for your ideal retirement lifestyle. This happens to a lot of people but it is never too late to make a change. You could be at the peak of your earning potential, so that means you have a chance to save more and make up for lost time.

Get help

Everyone’s financial needs and goals are different and it’s worthwhile seeking professional advice before you make important financial decisions. Your financial planner can provide you with strategies to help make your ideal retirement lifestyle a reality.

Source: IOOF

Our expert financial planners are here to help with any financial questions you may have about your 50's. 
Call (02) 4926 2300 or email us. 

To discuss getting ahead in your 50's please give the team at Leenane Templeton a call. 

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You’ve saved hard to build your retirement nest egg. You should be able to spend the money on a well-earned relaxing lifestyle. But all this could be put at risk if your adult children don’t have their own financial affairs well managed, particularly adequate insurance protection. 

It’s human nature to assume that bad things only happen to others. Unfortunately this approach means that many people are unprepared financially for their future if sickness, accident or injury strikes. This often results in other family members having to bear the costs of supporting them.

For those close to or in retirement who are placed in this position, the financial impact can be devastating. 

Could this happen to you?

Let’s consider the example of Gary and Roslyn, both 61, who have one child, a 30-year-old daughter Janet. Gary and Roslyn are retired with an investment portfolio valued at $700,000, paying them an annual income of around $48,000. They also own their home, valued at $650,000.

Gary and Roslyn were enjoying trips away and spending time with their extended family members overseas until their lives dramatically changed when Janet was badly injured in a car accident. Janet was in hospital for almost three months, requiring another nine months of rehabilitation before she was able to return to work. 

Janet’s sick leave ran out after the first fortnight, and as she had no insurance cover in place, she had no income to pay the mortgage on her apartment ($2,500 a month) or other essential costs, including her mounting medical expenses.

As they didn’t want Janet to have to sell her apartment, Gary and Roslyn needed to draw on investment capital from their portfolio to pay Janet’s mortgage and meet her expenses for the year she was off work. This ultimately reduced Gary and Roslyn’s investment portfolio by almost $70,000 (or 10%). 

While Janet fortunately made a full recovery, the cost to Gary and Roslyn of supporting their daughter in her time of need meant a dramatic change in their long-term retirement prospects; ultimately their income was reduced by $7,000 per year for the rest of their lives (a 15% reduction), plus their travel plans were significantly affected. 

What can you do?

Believing that unfortunate events only happen to other people isn’t a responsible solution and is a terrible way to jeopardise your retirement. As part of looking after your own financial future, make sure that others who could affect your plans, such as family members, have also taken the right steps for their own lives. 

Talk openly to your adult children about their insurance cover and if they are putting themselves or you at risk, recommend they talk to a licensed adviser.

Call (02) 4926 2300 or email us to spreak with one of our specialist risk management advisors about protecting your entire family 

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Is your retirement just around the corner? Then it’s time to make your super work harder by avoiding these common pre-retirement super traps and start planning.

1. Outdated investment strategies

As you approach retirement, you should revisit your investment strategy. But that doesn’t necessarily mean putting all your money into defensive assets like cash. Diversification is the key to smoothing out the inevitable bumps when economies, sectors and assets rise and fall. A well-diversified portfolio includes a good mix of asset classes — such as cash, fixed interest, property and shares.

2. Over-insurance

Just as your investment needs change, so will your insurance requirements. For instance, if you’ve eliminated or significantly reduced your debts, you may not need as much life insurance or income cover as you once did. And, if you’re an empty nester, you’re insurance needs are likely to be very different to those of a young family’s sole breadwinner.

Your lifestyle might have also changed over the years — for example, you may no longer engage in high-risk work activities or leisure pursuits like skiing. So make sure your cover matches your needs.

3. Missing out on tax benefits

Before the end of your career, it may be worth considering a transition to retirement (TTR) strategy. This involves drawing a pension from your super savings while you’re still working, which you can start doing once you’ve reached your preservation age (currently age 55). This pension income is likely to be taxed at a reduced rate or be tax-free. At the same time, you can boost your super contributions through salary sacrificing, with any contributions of up to $35,000 taxed at just 15 per cent.

This can give a valuable boost to your nest egg during the crucial pre-retirement years. That’s why it’s worth consulting a financial planner to find out the best TTR strategy for your situation.

4. Inadequate estate planning

Although it’s probably not something you like to think about, it’s important to consider what will happen to your estate when you pass away. When it comes to super and insurance, this means nominating who you want to receive your super savings and any payable insurance benefits. The tax implications for your beneficiaries can vary depending on their age, their relationship to you and whether the payments are classified as a lump sum or as an income stream. When you’re getting your affairs in order, it’s a good idea to seek professional estate planning advice.

5. Going it alone

Everyone’s circumstances are different, so your super strategies should be too. Talking to a financial planner is the first step in getting the most out of your super.

Source: MLC, October 2014

To find out more, contact our team of financial planners today.
Call (02) 4926 2300 or email us.

To discuss pre-retirement super traps and what you should be avoiding, please contact the award winning team at Leenane Templeton.
 

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Add to this the reality that many of us are going to outlive our savings, and the age we qualify for the Government pension is rising, then it’s no surprise that aged care and estate planning are hot topics for government, financial advisers, and families alike.

So what are some important things to consider when looking to plan your life, or that of a loved one, after retirement?

Five core issues

1. The costs.

Establish entry fees and bonds and ongoing costs of nursing homes and hostels. For residential care make sure you understand the costs are for things like daily care fees, and income-tested fees.

2. The family home.

Consider if someone will continue to live there, or should it be sold or rented out? You might consider options such as a reverse mortgage.

3. Social security.

Find out how to maximise your age pension entitlement by structuring your assets in the most effective way.

4. Tax.

Look at what special tax offsets may be available when living in residential aged care.

5. Estate planning.

Have you or your loved ones sorted out a power of attorney or enduring guardianship?

Government help

In July 2014, the Australian Government launched the Let’s talk about changes to aged care campaign (myagedcare.com.au). The changes included:

• greater support to stay independent and in your own home and community with more home care packages to meet your needs
• older people being asked to contribute to the costs of care, if they could afford to do so
• increased flexibility in ways to pay for accommodation in an aged care home
• Centrelink providing income testing for people receiving home care, and both income and asset testing for people receiving residential care.

Estate planning

A huge part of aged care planning is estate planning. At its most basic, estate planning is about working through what you want to do with your assets when you die. It’s much more than just a Will. Effective estate planning is about protecting your assets and empowering you with the information and knowledge you need to make informed, conscious choices so that your family is not left stranded or your assets eroded or exposed to systems, processes and challenges that you may not be aware of or have even considered.

Financial planning

Whatever your preferred choices are for aged care there is a need for preparation and sound financial planning.

Source: BT Financial, October 2014

Call Leenane Templeton on (02) 4926 2300 or email us.

Our team of expert financial planners are at hand to assist with your financial position ahead of retirement. Living Long – Living Well.

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