Women, Work, Family & Finances

The arrival of a new baby into the household can bring not only a change in lifestyle but also a change in family finances. These changes can impact the short-term financial situation of the household together with a long-term financial impact to the person taking time out of the workforce to go on maternity leave – usually the woman!

Women generally retire with 47%* less superannuation than men, and time out of the workforce is a major contributor to this fact. There are options and choices that can be made to lessen the impact of this statistic that include continuing to make superannuation payments a priority with maternity leave payments and if the option is available income splitting superannuation with your partner at the end of the financial year.

On the work skills front decide to ‘keep your hand in the game’ for at least a few hours a week. This can be achieved through a quick hand over at the end of the day when your partner comes home or using family support or childcare for a few hours. This time could be used to further develop your workplace skills, network or further training. A few hours spent each week undertaking a work-related task can also assist in lessening the disorientating effect of returning to work after what can be many months or even years absence. ‘Keeping in touch’ days are built into the government’s Paid Parental Leave scheme for this reason.

When planning your household budget, you may need to adjust to living on a single or reduced income. A good strategy to achieve this and save for a baby fund buffer is to commence living on your single or reduced income as soon as you are pregnant and still working, this way you can get accustomed to any adjustments you may need to make while saving the remainder of your income for a ‘baby cash fund’ to deal with cash emergencies that may arise.

Know in advance what your maternity leave entitlements will be and plan a budget accordingly. Take time to understand such variables as to whether you are eligible for Paid Employer maternity leave and/or 18 week parental leave from the government. While you may have a tight budget with a focus on essentials such as mortgage payments, insurances and utilities don’t forget to include concessional superannuation contributions.

While the above may be a lot to consider and implement, in the world of welcoming a new baby to your household planning your finances for this exciting and wonderful event might just be the easy bit…

*
https://www.moneymag.com.au/manage-money-maternity-leave

Financial Superpowers Join Forces

Compounding interest can be your very own financial superpower but when combined with the benefits of contributing earlier in life to either your investment portfolio or superannuation, together with investing a small amount but on a regular basis, the financial superpowers of these forces can be harnessed to your advantage and potentially earn you thousands of dollars.

The benefits of compounding interest and contributing earlier to superannuation and investments can be demonstrated in the following example:

Take someone who commences investing at age 30, and invests $200 per week for 10 years, contributing $104,000 versus someone who commences at age 40 and invests $200 per week over 25 years, contributing $260,000. Assuming a return of 9%, the person who contributed from 30 years of age has a significantly larger amount of capital available at 65 totalling $1,595,049, despite contributing 40% less than someone who commences contributing at age 40 and has $952,779 available at age 65.  THE EARLIER YOU START ACCESSING THE BENEFITS OF COMPOUNDING INTEREST THE BETTER THE FINANCIAL OUTCOMES WILL BE!

Investing early does not require you to have access to large lump sums, in fact by investing smaller amounts on a regular basis you are able to have access the benefits of a fluctuating share market:

The above investor purchased 274 shares for $2,000 over ten months. The average price of XYZ shares purchased is $7.29 ($2,000 divided by 274 shares). This is less than the average market price of XYZ shares, which is $7.60 (average in column B). BY MAKING SMALL REGULAR CONTRIBUTIONS THIS INVESTOR PURCHASED MORE SHARES OVERALL FOR A LOWER PRICE!

To ensure you are harnessing these financial superpowers to your advantage contact an Income Solutions Advisor at: contactus@incomesolutions.com.au.

Building a Lifestyle

The first step in planning for the lifestyle that you want to live is to build your capital base (the money and assets you own) to where it will not only fund your lifestyle in the short term but will generate enough ongoing revenue that your income will continue to build and be replaced, thus providing you with an income for many more years to come together with creating a foundation for intergenerational wealth.

In speaking to people about what is important to them many of their main priorities include.

~ Family
~ Travel
~ Home
~ Entertainment
~ Leisure

It is crucial to identify whatever it is that is important to you as this will assist you in answering the core vital questions, How Much? Where from? and When?

Whatever your answers to these questions maybe and whatever priorities you identify when answering these vital questions, remember you only get one shot at life and it is worth planning for!

For further details regarding planning for your Lifestyle click on the following video link to hear from Income Solutions Principal, David Ramsay:
https://www.youtube.com/watch?v=aRTS0u8L_w8

VITAL QUESTIONS TO A FINANCIALLY INDEPENDENT FUTURE

At Income Solutions we believe that there a three core questions that you need to answer in planning for a financially independent future.

The first of these questions is WHEN? When in your life and at what stage do you want the freedom to work because you want to and not because you must? Thus, allowing you to follow your passions and the opportunity of pursuing everyday what truly fulfils you.

The second of these questions is HOW MUCH? What is the income you will need to wake up each morning and live the life you envisage and provide you with the means to direct your focus and energy to what you care most about?

Lastly, the third of these questions is WHERE? Where is this income going to come from and how are you going to plan now for achieving this income stream into the future?

The above three questions are vital in planning your financial future, however if you are struggling to answer these questions don’t worry as over the coming eight weeks Income Solutions will be releasing a weekly series of short instructional videos to allow you to address clearly and in detail these fundamental financial questions.
Click on the following link to watch the first short video in this series titled: When?, How Much?, Where?
https://www.youtube.com/watch?v=P0TbiptGoZA

Stay tuned next week for video two titled : THE BEST INVESTMENT YOU WILL EVER MAKE

KEY CHANGES TO TAX AND SUPERANNUATION IN 2021

Given that for most of us superannuation provides a pathway to our financial future, providing us with a tax-free income stream for our retirement, it is worth noting key Tax and Superannuation legislation changes that will take place in 2021.

Superannuation Guarantee Increase:
There is a superannuation guarantee increase from 9.5% to 10% effect from 1 July 2021. This is part of a previously legislated increase to 12% by 2025. This superannuation guarantee contribution is what your employer by law is required to pay as part of their legal employment obligation. If you are an employee, there will be an increase in the amount being contributed to your superannuation account. If you are an employer, the increase will need to be factored into your 2021/22 budget.

Your Superannuation will follow you:
Your superannuation follows you from 1 July 2021, when an employee commences with an employer, the employer will pay superannuation benefits to the person’s existing fund (if they have one) or to their nominated fund. Default funds will only be used where a person has no existing super fund and does not choose a fund.
New enterprise agreements and workplace determinations will not be able to prevent employees from exercising a right to choose a superannuation fund. Restrictions in agreements and determinations entered into before 1 January will remain in force.

Minimum Pension Payment:
The 50% reduction in minimum pension payment for the 2020/21 financial year is scheduled to cease at the start of the new financial year on 1 July 2021. The SIS Regulations were amended so that the minimum payments from account based and market linked pensions were halved for the 2019/20 and 2020/21 financial years. Unless the Government decides to extend the reduction in minimums for 2021/22, the minimum payments will revert to their usual rates. Note: After the GFC, during which the minimums were reduced by 50% for three years, the minimum rates did not immediately revert to their usual levels but were set at 75% for a further two years.

The Low- and Middle-Income Tax Offset:
The Low- and Middle-Income Tax Offset (LMITO) will cease from 1 July 2021. LMITO is not included in PAYG withholding schedules. Instead, it is calculated by the ATO when the person’s tax return is submitted. This means the cashflow effect will be delayed for 12 months, such as through lower a tax refund, additional tax payable or adjustments to PAYG instalments.

The above points are just a few of the key changes to Tax and Superannuation legislation for 2021 and beyond, and for a more detailed and comprehensive analysis of recent legislative changes please contact your adviser who will be able to assist you by providing details on how these changes may affect you.

Benefits of Advice

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

In the wake of the Royal Commission into Misconduct in the Banking, Superannuating and Financial Services Industry, it is important that we continue to focus on the benefits of receiving expert Financial Advice.

SunSuper commissioned CoreData to investigate the benefits of advice in their 2017 Value of Advice report which produced some interesting results. Overwhelmingly, those surveyed who receive financial advice are more ”well” in life.  They are better equipped to deal with unexpected expenses, more prepared for retirement and have more confidence in making financial decisions (1).

80% of those currently advised believe advice has given them more confidence in making financial decisions

Financial literacy is an important benefit and outcome of an advice relationship. Whilst we don’t expect clients to follow the movements of the NASDAQ, having an understanding of investment characteristics such as income versus capital values, the importance of asset allocation and investing for the long term gives clients greater confidence when making financial decisions.  This in turn brings a greater sense of financial security and less worrying about money.  After all, our definition of wealth is an absence of financial worry.

79% of those currently advised believe advice has given them more control over their financial position

Planning for the future is so important as it gives you confidence you can achieve your immediate and future financial goals.  Whether it is setting aside funds for a rainy day, increasing your savings, or contributing to a retirement plan, having an advice relationship allows you to map out your own path to financial freedom.

77% of those currently advised believe advice has helped them feel prepared for retirement

Many of us think that retirement is so far away that it doesn’t warrant planning now – this couldn’t be further from the truth.  Einstein’s 8th wonder of the world is compounding returns, earning interest on your interest, so paying attention to your retirement nest egg early, no matter how small, is well worth while.

67% of those currently advised feel advice has made them more equipped to handle sudden, one off costs

Through accountability, information and support, receiving financial advice can help people establish contingency plans, insurance and debt management strategies to deal with unexpected events and life’s twists and turns.

80% of those currently advised believe advice has given them more peace of mind.

Financial security is important for everyone, to know we are on the right track and not borrowing from our future to live the life we are currently.  A staggering statistic from the report is 39% of those unadvised felt they had enough money to pay for recreational activities compared to 79% who were advised.

Financial stress affects people’s lives in quantifiable ways.  It can affect your health, relationships at home, and both your productivity and attendance at work.  This is why we continue to believe in the value of financial advice; knowing that it improves lifestyle outcomes and overall wellbeing.

If you are interested in your own financial health check, please don’t hesitate to contact an Financial Adviser at Income Solutions.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

How to kill a conversation – ‘lets talk about super’

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Driving home from work last night there was a conversation the radio relating to super funds and how they perform relative to each other.

Many people would reach for the dial or press the button to change channels but the nerd in me resisted.

The item was a simple one; a firm has compiled independent research into the performance of super funds every year for the last five years and rates them accordingly on an annual basis.

The cynic in me listened intently for the criteria by which they had categorised the funds, but I had a bit of a ‘Wow!’ moment when they stated that they had looked at performance net of all fees and charges and had reached the overall conclusion that funds that charge lower fees typically outperformed funds that charged higher fees!

Further, in most cases, Australians would see a better performance from their super fund if they selected a low-cost index option that tracked the broader market rather than paying performance fees to active fund managers who fell short of the bench mark over the long-term.

Now I know I can be a bit sarcastic, but that ‘Wow!’ moment was genuine.

Simple, common sense advice can sadly be lacking in the superannuation space, frankly in financial planning in general. So when I hear it from an external source it jumps out at me and I realise that maybe we are not alone in our philosophies.

I downloaded the report that the firm produced, and a couple of key comments shouted at me from the pages;

Our research shows there is a clear correlation between high fees and long-term underperformance in super (The Fat Cat Funds Report Super Fund Guide 2018 page 3)

Poor fund performance comes predominantly from active management fees as well as higher administration and operating expenses than necessary (The Fat Cat Funds Report Super Fund Guide 2018 page 3)1

The funny thing is this information probably doesn’t surprise you. It is logical; it is common sense. So why don’t more of us follow it?

Like superannuation itself, the concept at the heart of following an index approach is BORING! We don’t want to talk about so its sits at the back of our minds. Over time we might not fully remember

why we are following that strategy anyway, particularly with the drip drip effect of other people’s opinions impacting on us. The reality is, what is there to talk about anyway?

Imagine the barbeque conversation;

“Yeah so I er um yeah paid no attention to my superfund again this year but as I track the broader Aussie market I got a nice steady long-term average return and I er um received a good level of fully franked dividends and I didn’t have to manage or worry about anything to get that…”

Well, that’s not very interesting is it? Not compared to the person who runs their self-managed super fund and trades shares daily and has a no recourse loan for the residential unit development that they are building up there in wherever and they had to meet with their accountant for three hours last week because there was some problem with the audit and now it seems like they might have to take that piece of art off the wall an put it storage because it “doesn’t really meet the sole purpose test after all”…. What?

Superannuation is an investment vehicle for you to set yourself up for the retirement lifestyle that you want. Research shows that a lower cost fund with an indexing approach will typically provide better long-term result than any other investment option. The point is that the more you pay in fees through more complex investment options the more likely that the long-term returns will be lower.

Our research shows that 96% of balanced super funds underperformed a simple low-cost index strategy after fees and taxes. This is consistent with research from Finalytiq4 which found similar results in the UK, and S&P Dow Jones whose SPIVA research shows that 80% of active Australian share fund managers have underperformed the index over 15 years. (The Fat Cat Funds Report Super Fund Guide 2018 page 35)

Why does superannuation need to be an interesting conversation anyway? Why does managing money have to be at all? Far more interesting is what you do with the time you have to enjoy life rather than worrying about money and what you spend your passive income on!

So how does any of this impact you? If you have made it this far through the article, then you have already met more than half of your required quota for paying attention to superannuation this year. Well done!

From here, check in with your adviser and (subject to your risk profile) determine your level of exposure to growth assets which should come via an index approach, balance that with your need for defensive assets and then ensure that you are on a fee favourable platform.

Simple but not easy I know; but it is common sense!

 

1 The Fat Cat Funds Report Super Fund Guide 2018 is produced by by Stockspot Stockspot Pty Ltd ABN 163 214 319 is a Corporate Authorised Representative (No. 453421) of Sanlam Private Wealth (AFS License No. 337927). They are a Robbo Advice firm and have no affiliation or connection to Income Solutions. We still believe that personal relationships are at the heart of quality financial advice, and have referenced the The Fat Cat Funds Report Super Fund Guide 2018 as an opinion piece.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Changes To Superannuation From 1 July 2018

Australians buying their first home or downsizing in retirement are about to receive a helping hand thanks to new superannuation rules which come into effect on July 1. From that date, first home buyers will be able to contribute up to $30,000 into their super fund towards a home deposit while downsizers can put up to $300,000 of the proceeds of selling the family home into super.

This new measure has been devised to assist first home buyers, many of whom have struggled to save a deposit as rising prices put even entry level properties out of reach.

At the other end of the scale, the change is envisaged to help older homeowners who frequently find themselves in large houses while trying to survive on a modest super balance or the aged pension.

Here’s how the Federal Government hopes to improve the situation at both ends of the property market.

Buying a home

Under the new First Home Super Saver (FHSS) scheme, individuals can arrange for up to $30,000 to be deducted from their pre-tax income and put in their super account. They can then withdraw 85 per cent of that money ($25,500), plus any interest they’ve earned on it, to use for a home deposit. In the case of a couple, both partners can save $30,000, meaning a deposit of $51,000 (i.e. 85 per cent of $60,000) plus interest can be accumulated.

So what’s the catch?
It’s complicated.

For starters, individuals can only contribute $15,000 into their FHSS account in any one year. What’s more, the compulsory 9.5 per cent super contributions made by employers can’t be accessed; additional voluntary contributions need to be made. The annual contributions cap of $25,000 cannot be exceeded; this includes all voluntary contributions plus employer’s Super Guarantee contributions.

When the money is withdrawn, it is taxed at the individual’s marginal tax rate minus a 30 per cent tax offset. Effectively, that means most people will pay little or no tax although higher-income earners on high marginal rates will still pay some tax.

Selling a home

Under the Downsizer Super Contribution Scheme (DSC), homeowners who are 65 or older can put up to $300,000 of their home sale proceeds into their super provided it’s their place of residence and they’ve owned it for at least 10 years. In the case of a couple, both partners can deposit $300,000 (collectively $600,000) into super.

What’s the catch?

Unless you’re a wealthy retiree looking for a tax break there doesn’t appear to be one. For those who already have more than $1.3 million in super, adding a $300,000 downsizer contribution will breach the $1.6 million balance transfer cap which is the maximum balance that can be held in a tax-free super pension account. Given the current generation of Australians have been retiring with average super balances of well under $300,000, that is unlikely to be an issue for most downsizers.

What do you do now?

If you are looking to purchase your first home, you will need to check your super fund allows FHSS contributions and, more importantly, withdrawals. You’ll then need to arrange for your employer to deduct voluntary contributions of up to $15,000 a year. When you want to access your money, you will have to acquire a ‘FHSS determination’ (essentially a balance statement) from the Commissioner of Taxation before requesting your super fund to release the money.

Following approval of this request, your super fund deposits your FHHS money, minus any tax you’ve incurred, into your account. You then have 12 months to sign a contract to buy or build a home.

If you are looking to downsize your home, you will first need to check your super fund accepts downsizer contributions. If it does, you can deposit up to $300,000 within 90 days of receiving the proceeds of the sale. You’ll have to fill in and send your super fund a ‘downsizer contribution form’ before, or when transferring the money into your account.

If you’re hoping to either buy your first home or downsize, call us to discuss how the changes to super can save you money.

 

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

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