Your most important asset is your capacity to work and generate an income. If you are unable to work due to sickness or injury, how would you continue to meet your financial obligations and continue your present lifestyle?

Being unable to work due to sickness or injury is a very real and frightening circumstance. Six in ten Australians will be disabled for more than one month during their working life and one in four will be disabled for more than three months. Despite not being able to earn an income, your financial commitments will continue despite the fact you are not working. Risk needs to be managed to ensure that you can continue to support yourself and your family during the time that you are incapacitated. Personal risk insurance is one way of managing this risk – income protection provides a monthly income stream to compensate for your lost income when you are unable to work due to sickness or injury.

Income protection premiums are generally tax deductible as the premiums represent the cost of protecting your income stream. The benefit of the tax deduction is tied directly to your taxable income and can represent a substantial reduction in premium in your after tax cost.

As you approach the end of the financial year, reviewing your current income protection needs may have an added tax incentive. After discussions with your planner, you may be able to pay for the annual cost of cover in this tax year and secure a full tax deduction for the cost of cover.

Income protection premiums may be funded using your accumulated superannuation balance – meaning you do not have to fund the cost of premiums from your earnings or savings.

Income protection insurance inside superannuation offers a cash flow advantage by using the accumulated balance in your superannuation account. This strategy does not require you to pay any additional premium from your earnings or savings. Your financial planner will arrange the payment of the income protection premiums from any superannuation account whether directly in your current fund, or via a rollover to the income protection policy.

It is important to note that income protection inside superannuation is not always appropriate and needs careful consideration from your planner. Using your superannuation account balance to fund an income protection insurance premium will erode your retirement savings – the impact of such needs to be discussed to ensure you can still meet your retirement goals.

Your financial planner will talk to you about the limitations that exist when funding an income protection premium through superannuation. There may be some benefits that are important to you that cannot be offered through superannuation. In this case, you may be able to split the cost of your income protection premium using superannuation and after tax earnings. In this scenario, your superannuation account can fund up to 95 per cent of the total premium, ensuring that there are still significant cash flow benefits in this model.

Few consumers have the ability to navigate through the opaque and complex taxation and regulatory rules relating to income protection. However, it is vitally important for all income earners to consider what happens if they are incapacitated, and how to manage this risk. A discussion with your financial planner will help you to formulate a strategy that is both appropriate and cost effective.

Source: TAL.

Call (02) 4926 2300 or email us.

To discuss protecting your income and types of insurance available to you, please do not hesitate to contact the specialised risk management team at Leenane Templeton.

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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.
 

The post Five pre-retirement super traps you should avoid appeared first on Newcastle Financial Planners & Financial Advisors.