Tag Archives: Financial Planning

How to budget for your social life in retirement

By Robert Wright /August 28,2020/

If you’re in or approaching retirement, you may be prioritising things such as living costs, utility bills, health care and even potentially helping the kids out with their future financial goals.

With many Australians looking at a retirement (which in reality, could span a few decades), another thing to give some thought to is keeping some money aside for your own recreation and social life.

What activities are on your to-do list?

Think about what you enjoy doing, what you’re likely to want to do more of, or even get into with more time on your hands.

• Eating out – restaurants, beach barbecues, picnics, food fairs
• Travel – interstate breaks, overseas holidays, road trips, caravanning
• Entertainment – cinemas, concerts, events, stage shows
• Sport – golf, tennis, cycling, yoga, pilates
• Hobbies – fishing, sailing, photography, drawing, woodwork
• Volunteering – hospitals, soup kitchens, animal shelters
• Club associations – Rotary, Leagues, Surf Life Saving
• Tournaments – trivia, bridge, chess.

How can you budget for the things you enjoy?

If you need a guide, the Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget needed to fund a comfortable and modest standard of living in retirement, with figures based on an assumption people own their home outright and are relatively healthy.

According to June 2020 figures, individuals and couples around age 65, looking to retire today, would need an annual budget of $43,687 and $61,909 respectively to fund a comfortable lifestyle, or $27,902 and $40,380 respectively to live a modest lifestyle.

According to ASFA, a comfortable retirement lifestyle would enable an older, healthy retiree to be involved in a broad range of leisure and recreational activities, whereas a modest retirement lifestyle would enable an older healthy retiree to afford more basic activities.

How much are you likely to spend on recreation anyway?

According to research, singles and couples (aged 65 to 85) living a comfortable lifestyle in retirement would spend about $184 and $277 of their weekly budget respectively on leisure and recreation.

This takes into account a broad range of recreational activities, including:

• Lunches and dinners out
• Domestic and international holidays
• Movies, plays, sports and day trips
• Things like streaming services
• Club memberships.

Making your money go further for the fun stuff

• Make use of your Senior’s Card for transport concessions and other discounts
• If going overseas isn’t in your budget, you could consider a road trip interstate
• Pack a rug, food basket and esky, and head to the park or beach for a picnic
• Swap a visit to the day spa with a DIY manicure and candle-lit bubble bath
• Have the troops over for a poker night or take turns hosting dinner parties
• Find cheap accommodation on Airbnb or consider listing your own place to earn money while you’re away.

Source: AMP Insights

Investing during a recession

By Robert Wright /August 17,2020/

In times of uncertainty, when share markets and interest rates are falling, along with declines in consumer and business confidence, investors often question if their money is safe and if it’s still going to meet their long-term investment goals.

But whether it’s a period of sustained volatility due to a global financial crisis, a medical pandemic, or a recession, the basic rules of investing hold true.

• Set long-term investment goals
• Keep investing (if you can)
• Don’t try and time the market
• Spread your risk through diversification
• Don’t panic

Keep a level head

It’s almost thirty years since Australia last experienced a recession, so for many investors where to put money during a recession isn’t something they’ve had to think about before.

We understand you’re probably concerned about your investments and wondering what to invest in if Australia does enter a recession. Volatility isn’t something investors enjoy.  The pain of losing is significantly more powerful than the pleasure of gaining, which makes us more likely to overreact during market downturns than when the market is booming.

To help your investments continue to work hard for you, we’ve outlined four simple strategies you could consider.

1. Invest for the long term

If you’re a long-term investor (with a time horizon of 10+ years), don’t let emotion get in the way of sensible decision making. Selling out of your investments and moving to cash may seem like a safe option, but you’ll potentially be crystallising your losses and missing out on any opportunities that could arise when the market rebounds.

We recommend you seek good advice at the start, so you have a plan to realise your investment dreams, leaving you to get on with enjoying your life. You’re not a professional investor, it’s not what you do for a living, so there’s no need to fear every daily movement in the share market.

2. Try to invest regularly

Volatility doesn’t necessarily result in poor investment outcomes. It can present opportunities. The principle of investing regularly, regardless of whether the market is rising or falling, allows you to buy more of an asset when prices are low and buy less when prices are high.

Known as “dollar cost averaging”, not only will this average out over the long term, resulting in a better average price for the assets, but you’ll also potentially hold more of an asset, which will be beneficial when prices rise again.

3. Be sensible and leave the decisions to the professionals

Market timing is an investment strategy used to try and ‘beat’ the share market by predicting its movements and buying and selling accordingly. It’s the exact opposite of the long term ‘buy-and-hold’ strategy, where an investor buys shares or assets and holds them for a long time, designed to ride out periods of market volatility.

According to Morningstar, investors would need to be correct 70% of the time to get any benefit from an active market timing strategy. This is almost impossible to achieve, even for market professionals. You’re more likely to miss some of the best days of the market rather than picking them correctly.

4. Allow diversification to spread your risk

Not only is it difficult to time the market correctly, but it’s also hard to predict which asset class will perform best in any given year. Last year’s best performing asset class can easily become next year’s worst, or vice versa.

Many investors choose to manage this by diversifying their investments across different asset classes (shares, bonds, cash etc.) and create a portfolio that’s based on their risk tolerance, time horizon and investment goals.

However, it’s important to understand that diversification doesn’t mean you’ll avoid market volatility completely. Even with a well-diversified portfolio, your investments could still potentially experience periods of what you’d probably deem underperformance.

Staying positive during market downturns

The most important thing you can do during market downturns is not panic.

Stay emotionally strong and ensure your investments remain aligned to your investment goals.

Source: BT

Make Your Super Last

By Robert Wright /August 17,2020/

Australians enjoy one of the highest life expectancies in the world, which means you can look forward to a long and comfortable retirement.

While that’s fantastic news, it also makes saving for retirement more important than ever. Indeed, the majority of Australians over age 40 who are yet to retire are concerned about not having enough money to live on, with many recognising they need professional assistance to reach their retirement goals.

But by getting good advice and planning ahead now, you can take control and enjoy the peace of mind that comes from knowing your future may be secure.

The first step is to figure out how much income you want to receive each year in retirement, and how much you may need to save in order to get there. It’s also important to think about how your spending patterns may change during your retirement, and to plan ahead accordingly.

For example, in the early stages when you’re at your most active, you’re likely to need more funds for travel, sports and recreation. Then, as you enter a more relaxed phase of retirement, you’re likely to need to be ready for possible health issues, so you can afford the care you need as medical treatments are becoming more sophisticated and more expensive every year.

You may also want to keep your options open for the later years when you may need more intensive health support, including specialised accommodation.

Also don’t forget to factor in lump sum spending on big ticket items, such as home renovations or a new car. Because, as retirements grow longer, our cars and appliances are increasingly likely to fade away before we do.

Boost your super

When you crunch the numbers, you may find you’re facing a super gap. An effective way to boost your super savings while potentially paying less tax may be via salary sacrifice.

Even a small contribution can make a big difference over time, as you earn concessionally taxed returns on your contributions. When you invest pre-tax income through salary sacrifice, you may also benefit from the 15 per cent concessional tax rate on super contributions (rather than your marginal income tax rate), putting you even further ahead.

As of 1 July 2017, you can contribute up to $25,000 in concessional super contributions before additional tax applies. Concessional contributions include compulsory super guarantee from your employer, other employer contributions such as salary sacrifice, and personal tax-deductible contributions.

Finally, if there is a large sum you would like to contribute to super, for example, if you plan to sell a non-super asset, such as an investment property, you can do this by making a non-concessional personal contributions of up to $100,000 a year from your after-tax income.

You may also utilise the bring-forward rule which allows for members aged 64 or less to bring forward three years’ worth of non-concessional contributions and contribute up to $300,000 at any time over a three year period.

As of 1 July 2017, your total super balance (across all funds) may further limit your non-concessional cap – your cap is Nil if your total super balance is $1.6 million or more, while the amount of bring forward cap you can use is reduced once your total super balance is $1.4 million or more.

Review your investment options

Our super is one of our most valuable assets, so it’s not surprising many of us seek to protect it by investing in a low risk option.

But it’s also important to remember that trying too hard to avoid risk today could expose you to a greater risk — running out of money tomorrow, when your savings don’t produce the returns you need for a comfortable retirement.

So it’s important to choose the right investment option for your goals and investment time-frame. That’s where personalised advice from a professional financial adviser can make a difference.  Source: Colonial First State

Are young people putting themselves at risk without life insurance?

By Robert Wright /August 17,2020/

Today, young people are often called the “the smashed avocado generation,” supposedly frittering away money on ‘luxury’ items rather than working hard to save for their first home or retirement nest egg.

However, despite their spendthrift reputation, most millennials are quite prudent when it comes to managing their financial affairs. Research by Afterpay found that millennials are saving more than their parents and are 30 per cent more likely to save regularly. They are also careful money managers, with more than 80 per cent of millennials having a budget, compared to two-thirds of older generations.

In today’s uncertain world, it’s little wonder that millennials are adopting a cautious approach to managing their money. They’re often trying to save for their first home, or may have a mortgage, or planning to have a family, and simply don’t have much in the way of surplus cash.

We often say that an individual’s ability to earn an income is their greatest asset, yet many people – millennials included – overlook the importance of this principle when it comes to planning their finances.

This means that future goals of home ownership and financial security for a young family could be at risk without ensuring they have appropriate insurance protection in place today.

Ask yourself; “if I lost my source of income tomorrow, how would I pay the rent (or mortgage) and feed the family?” 

While some households may ‘get by’ for a month or two, few would have the savings to survive financially for a few months or possibly longer. And it’s not just about money. Financial pressure can place a great strain on relationships during what is already a difficult and stressful time.

This is why we believe that insurance is the cornerstone of a sound financial plan, regardless of your age and what your goals may be. For millennials, this means protecting your income, your health, and any other factors that may be required to protect your interests and those who you care for.

Source: Capstone – How Millennials Manage Money report, AfterPay Touch Group