Tag Archives: Lifestyle

How to protect your loved ones after you’re gone

By Robert Wright /February 19,2019/

As the old saying goes, there are only two things certain in life: death and taxes. Unfortunately, most of us spend too much time worrying over the latter and not enough discussing the former, uncomfortable though it may be.

But while no one enjoys contemplating the end of their life, planning for your death is just as important as managing your finances, if not more so.

It’s difficult enough for families to cope with the loss of a loved one, but the added burden of dealing with the remaining estate can make an emotional time even more traumatic – which is why drawing up a will is essential, regardless of your age and the state of your finances. Here’s what you need to know.

What happens if you don’t have a will?

If you pass away without a will, the law will determine who can be appointed to administer your estate and how it will be distributed once debts are paid out.  Administrators have the right to make allowances for persons who might have been left out, which could result in a smaller share being provided to those you love the most. Similarly, others may receive more than you would have otherwise wanted.

If you do have a will

Where is it?

It’s important that your original documents are stored somewhere that’s both safe and accessible. Most solicitors will store your will for you and provide you with a certified copy, which should ideally be safely filed both digitally and in hard copy.

Executors and Powers of Attorney

An executor is the person appointed to administer the estate according to your wishes, and is an essential part of making a will. An executor may be required to sell assets, invest money, complete tax returns and pay debts. Your executor should be someone responsible and capable of undertaking such an important role, especially in complicated cases where the appointment could be long term.

A Power of Attorney is not essential and is appointed in a separate document to your will, as this person’s duties are only relevant during your living years. A Power of Attorney is authorised to act on your behalf in financial or health matters, if you are otherwise unable to do so.

What happens after a death?

Your executor will need to apply for a Grant of Probate in order to begin administering your estate in accordance with the will. An executor is entitled to obtain legal and accounting advice to assist them throughout the application process and dealing with any tax implications for the estate.

Accessing the will

It is crucial that your executor knows where and how to access your will. It’s a good idea to provide your executor with a copy of your will which will include the contact details of the solicitor storing it.

What about super?

Superannuation is usually not included in the distribution under a will, but rather the superannuation legislation and requirements of individual funds dictate how it will be distributed. Special clauses can be included if you wish to bring superannuation into the will but it’s a good idea to seek financial advice first to ensure there are no tax implications.

Disagreements

If there is a disagreement over the will which can’t be sorted out between the parties, then legal representation will be required. The best way to reduce the chances of a disagreement is to ensure your will is carefully drafted and regularly reviewed and updated to reflect your current circumstances.

Whether you’re young and single or have children to consider, creating a will not only ensures your estate is distributed according to your wishes, it drastically reduces the stress and trauma for the family you leave behind.

Without a will, there’s no guarantee your loved ones – and your affairs – will be taken care of in the manner of your own choosing.

 

Source: Macquarie Group Limited

Getting personal insurance right

By Robert Wright /November 16,2018/

With recent media coverage about insurance sales tactics, many Aussies might be concerned they’re being sold personal insurance policies – life, total and permanent disablement (TPD) and income protection – they don’t really need.

The fact that some Australians with multiple super accounts are likely to have duplicate personal insurance policies, is also putting the question of adequate insurance into the spotlight. After all, no-one wants to be paying for something they won’t benefit from.

Are Australians over or underinsured?

By focussing on problems with how insurance is sold or the issue of multiple policies through super, we’re overlooking the possibility that many Australians simply don’t have any one policy that will enable them to meet their financial obligations and maintain their lifestyle if the worst were to happen.

As a nation of people we’ve become more and more indebted in recent years. The latest Australian Bureau of Statistics data shows the average Australian household is servicing a high level of debt, thanks to both personal borrowing and home loans.

Average household debt has grown by 79% in real terms from 2003/4 to 2015/16 and this is largely because of borrowing to buy property. However, more households are burdened by credit card debt (55%) than a mortgage (34%).

According to a February 2018 report from Rice Warner, 94% of working Australians are likely to have some sort of life insurance policy in place, with an average estimated cover amount of $344,500. So it seems the majority of people will have something to fall back on in the event of their death. The report attributes this high incidence of cover to the introduction of compulsory default life cover by superannuation funds.

But it’s not only premature death that families need to worry about. With 81% holding a TPD policy and only one third of working individuals currently insured for income protection (IP), should people be taking out these policies to make sure they have all bases covered?

As the Rice Warner report highlights, insurance needs vary according to how many dependents you have and your age. They provide the following estimate of insurance needs for 30-year old parents with children:

• 8 times family income for life insurance on income replaced basis,
• 4 times family income for TPD insurance, and
• 85% of family income for IP insurance.

While these figures could be appropriate to one family’s situation, they may be way over the top or completely inadequate for another family.

At the end of the day, it’s really up to you how you budget for insurance cover – as a standalone policy or through your super fund. But what is worth doing is working out how much cover you need, and then comparing this with your current policy – whether it’s standalone or through super.

As the Rice Warner report points out, super fund trustees are having to make decisions about default insurance options based on their assumptions about general insurance needs. But those assumptions might not apply to you and your finances.

 

Source: FPA Money and Life

Retire on your own terms

By Robert Wright /August 28,2018/

As the novelist C. S. Lewis once observed, “You are never too old to set another goal or to dream a new dream.”

Retirement should be the start of a new chapter in your life – perhaps the most exciting of all. The big question, of course, is how you pay for it without a regular pay cheque. A simple way to think about retirement income is by splitting your needs into two parts:

Regular income – the money you will need each month to pay regular living expenses, like your housing, food and health care costs.

Discretionary income – your pocket money to spend on the good things in life, like travel, restaurants and trips to the theatre. These funds also cover life’s nasty surprises, like car repairs, blocked pipes and leaking roofs (hopefully not at the same time).

Let’s use this framework to look at the retirement income options you have.

Regular income requirements

These are the sorts of expenses you are already paying every month – unfortunately most of them will continue when you retire. Council rates, utility bills, groceries, health care and phone bills all fit into this category. When you’re working you cover these sorts of expenses with your employment income, but what happens when you retire? The answer lies in generating a regular retirement income stream. Here are some options to consider:

Account-based Pensions

Once eligible, you can transfer all or part of your super to an account-based pension and choose how much you receive as regular income payments. There are compelling tax benefits because investment earnings on your assets supporting this income stay within the super system. This means they are tax free, and for most people aged 60 or above, the income payments you receive are also free of tax.

Annuities

An annuity is a product you can buy from an insurance company using your super or other savings. Annuities give you a set income for a defined period or for the rest of your life, depending on the product you choose. If you use your super to buy an annuity, income payments receive the same tax treatment as an account-based pension. Another advantage is reliability – you receive a guaranteed payment regardless of market performance or interest rate changes. On the downside, you have less control because you cannot choose where your money is invested, and you don’t have the flexibility to withdraw if you need extra cash.

Part-time work

Many of our clients love their work and choose to reduce their hours, or work part-time, in the early stages of retirement. Continuing work helps you to stay active mentally and continue to socialise with colleagues – but there are also financial advantages. You will receive income payments every month – money you can rely on for regular expenses. When you are still earning a salary you can continue to contribute to your super, rather than having to draw down on the balance. This could make a big difference to the value of your nest egg when you eventually retire.

The pocket money you deserve

So you’ve taken care of life’s essential expenses with a retirement (or semi-retirement) income stream. What about extra money to treat yourself to the finer things in life?  The secret to retirement pocket money is quick access to cash. The financial term for this is liquidity – cash is the most liquid asset while investments like real estate are considered illiquid, as it is very hard to sell just one room of a house.

Term deposits

With a term deposit, your money is invested for a fixed period and you receive an agreed rate of interest for the term of your investment. It’s a popular way to earn money for life’s pleasures – and emergencies – because the cash you receive is easy to access, it’s liquid. Another benefit is the safety of a term deposit because your original investment is returned at the end of the term.

Dividend investing

When you buy shares in a company you are entitled to a share in the company’s profits or earnings. Companies pay a dividend to shareholders as a way of sharing profits – usually twice a year. You can use these cash dividends as pocket money for discretionary spending in retirement. By holding the shares for a length of time, the value of your underlying investment is also likely to grow.

The potential for better returns through share investing comes with additional risk. It is important to spread risk by diversifying your investments – across industries and also beyond our borders to global markets.

Bringing it all together

There is no shortage of options for your retirement income – the secret is in combining the best of them in a tax effective way based on your individual circumstances. We strongly recommend you start thinking about your retirement income now and seek financial advice early. You’ve spent your life building your nest egg – don’t let it fall from the tree.

 

Source: Perpetual

New rules to benefit those downsizing for retirement

By Robert Wright /August 28,2018/

Australians aged 65 and over who are downsizing for retirement can now contribute the proceeds from the sale of their main residence (up to $300,000) into super.

We take a look at what this could mean for you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Super benefits for downsizers

Usually, people aged 65 to 74 need to satisfy a work test to make voluntary super contributions, while people aged 75 and over are generally unable to contribute to their super.

However, that changed on 1 July 2018, with those aged 65 and over now able to make a non-concessional contribution to their super of up to $300,000 using the proceeds from the sale of their main residence – regardless of their work status, superannuation balance, or contribution history.

For couples, both spouses are able to take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super.

How does it work?

Proceeds from the sale of your main residence that are contributed into super as part of this initiative can be made in addition to any other before-tax or after-tax contributions you’re eligible to make. The government says the aim is to encourage older Australians, where appropriate, to free up homes that no longer meet their needs and make room for younger growing families.

To qualify:

• The contracts for sale must be exchanged on or after 1 July 2018
• The property that’s sold needs to have been your (or your spouse’s) main place of residence at some point in time
• You need to have owned the home for at least 10 years
• The property that’s sold must be in Australia and excludes caravans, mobile homes and houseboats.

‘Downsizing’ contributions are not tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions.

Things to note

No special Centrelink means test exemptions apply to the downsizing contribution. Due to this, there may be means testing implications as a result of downsizing, which need to be considered.

Meanwhile, additional rules may apply to your situation, so make sure you do your research before making any decisions.

 

Source: AMP