Tag Archives: Retirement Planning

Downsizer contributions: what are the rules?

By visual /May 13,2020/

In the first year since older Australians have been allowed to make downsizer contributions, 4,246 people have contributed a total of $1 billion in downsizer contributions to their super funds (1 July 2018 – 1 July 2019).

This not only allows retired people to have access to more money to fund their retirement, it’s also likely to have freed up new property for sale for first home buyers and young investors.

Although this is good news for people who have benefited from this scheme, some people have reportedly missed out because they didn’t understand the eligibility criteria.

Here’s a summary of the rules around making downsizer contributions:

• You need to be 65 or over at the time of making the contribution.
• You or your spouse need to have owned your home for more than 10 years prior to the sale.
• You don’t need to be working.
• Both you and your spouse can make a concessional downsizer contribution of $300,000 each if you both lived in the property at some point in time and the proceeds of the sale are exempt or partially exempt from capital gains tax (CGT) under the main residence exemption or because you bought the property before 20 September 1985. If only you lived in the property at some point in time then only you, not your spouse, can make a downsizer contribution (as long as you meet all other conditions).An investment property that you haven’t lived in is not eligible.
• Houseboats, caravans or mobile homes are not eligible.
• The total super balance test of $1.6 million and the $100,000 non-concessional contributions cap restrictions don’t apply.
• You need to make all downsizer contributions within 90 days of receiving the proceeds of sale, usually the date of settlement.
• You can only downsize once.
• You don’t need to buy another property to use the scheme.

If you sell your home and put some of the proceeds into super, you need to consider how this will affect your Centrelink benefits. Your super balance is counted towards the means test so you could potentially lose some, or all, of your Centrelink benefit if your super balance goes up.

Source: IOOF

Withdrawing Super: what to consider

By Robert Wright /May 08,2020/

The federal government has been releasing details of financial support available to Australians who have lost income due the economic impact of the COVID-19 pandemic.

A huge number of us have been affected in some way and many have been left feeling stressed and confused about what to do to keep afloat.

Although concern about money isn’t the only problem we’re grappling with, financial stress is likely to be on the rise, even among those of us who are generally pretty good at staying on top of our finances.

A sudden and unexpected loss of income can send anyone into a panic and many will be looking for ways to replace that income to stop them from racking up debts or running out of savings in a matter of weeks.

Who can withdraw super and how much can I get?

One option Australians in need may be looking at is applying for early access to their super savings.

Here’s a quick summary of some of the more important details of this temporary measure to ease financial hardship:

• Eligible Australians will be able to access up to $20,000 from their super fund or funds.
• If you meet the financial hardship criteria, you can apply for $10,000 before 30 June 2020 and a further $10,000 after 1 July 2020.
• Early withdrawal is available to people who are unemployed, have had their working hours/business income reduced by 20% since 1 January 2020, or are receiving Centrelink payments.

Playing catch-up

A payment of $10,000 or even $20,000 is a very welcome injection of cash at a time when you may be struggling to cover basic costs like your rent, groceries and utility bills. However, it’s really important to remember that these super savings have the potential to make a significant difference to your level of income in retirement.

If you dip into your super now, you could find yourself lagging behind in having the savings you need to live comfortably when you’ve stopped work for good.

“The ramifications of accessing super early could be really significant,” says Ben Marshan, Head of Policy and Standards at the Financial Planning Association of Australia (FPA).

“Conservatively, every $1000 that you have in super at age 30 will be worth about $4500 at age 60. If you take $1000 out now, you have to put in $4500 over the next 30 years to get back to the same position. Financially, for a lot of people that can be a massive struggle and they’ll never actually catch up.”

Multiply that $1,000 by 10 or 20 and you can start to see what you could be sacrificing from your retirement nest egg by making a substantial withdrawal now. And this is why it’s so important to get expert advice before making a decision, as well as exploring other options.

“Consider getting professional financial help to understand the implications for yourself, Marshan advises. “Accessing your super early should only ever be a last resort.”

What are my other options?

If you already have a financial planner, it’s definitely worth reaching out to them at this time to talk about whether you should be using your super as a temporary income boost.

Seeking advice is particularly important if you are told by any service provider that you have no other option but to access your super.

The financial services regulator ASIC has recently taken steps to caution landlords and property agents against suggesting that tenants should be accessing super to keep paying their rent.

Making such a suggestion could be seen as giving financial advice, and real estate agents are neither qualified or licensed to provide such advice.

 

Source: Money & Life

The value of sound financial advice in these challenging times

By Robert Wright /April 29,2020/

In addition to the terrible health consequences, the coronavirus is having a massive impact on global economies and the way we live, work, and interact with each other.

Loss of income and uncertainty about the future can place a great strain on households, relationships and finances. For those affected, it can be overwhelming.

For those approaching or already in retirement, sharp falls in share markets can lead to sleepless nights about their retirement plans and whether they will have enough income to live comfortably.

In times like these, seeking professional financial advice is essential. We can help you to:

• Assess your current financial situation, review your income and expenses, and develop strategies to manage your cash flow more effectively.
• Make the most of any severance pay or redundancy payment.
• Identify any government support payments you may be entitled to receive and assist you with the application process.
• Assist you with practical strategies to consolidate and eliminate debt.
• Review your circumstances and assess whether early access to your superannuation savings or early retirement may be a suitable option for you.
• Review your retirement strategy to determine whether it continues to meet your near and longer term needs and objectives.
• Develop and implement a detailed financial strategy for your future personal and financial wellbeing.

Avoid making emotional or impulse decisions

It’s natural to feel anxious in turbulent times, however it’s important to make carefully considered decisions when it comes to your finances and investments. An emotional or impulse decision in the short term will rarely benefit your financial wellbeing over the longer term.

Sound financial advice can be life changing

Sound financial advice really can make all the difference. As qualified professionals, we understand the complexities of financial planning, the world of investments and the various support packages available from the government.

We are available to help you, or someone you care for to make the most of a difficult situation and to navigate a path forward.

Now isn’t the time to go it alone.

How investors can respond to stock market shocks

By Robert Wright /April 14,2020/

If the threat of a large-scale outbreak of an infectious disease isn’t enough to worry about, the financial implications of coronavirus is also making investors nervous.

You may have read about how the shutdown of industry across China, effectively the world’s manufacturing hub, risks hurting the global economy. You may also have heard about large falls in global stock markets, in addition to the price of commodities such as oil. It feels like there’s been no shortage of alarming twists.

Despite this, a market correction can even be a good thing in the long run. In this article, we share how coronavirus may impact investments and how investors can respond to market shocks.

Why does coronavirus affect stock markets?
There are a few reasons. The first is because it is impacting the ability of companies to produce goods. For example, Apple has already said that factory shutdowns in China will prevent it from getting hold of some of the parts it needs to make iPhones.

The second is in how it affects demand. For example, consumers and companies are cutting back on unnecessary travel, hurting the travel and tourism sectors. Many other sectors are also experiencing a fall in demand, such as the hospitality industry, as more organisations are encouraging staff to work from home.

The third is the impact on investors’ willingness to take risk. Before the coronavirus crisis, the stock market had been performing very well and many investors were sitting on considerable profits. This was despite economic growth having been relatively weak for years.

Many investors had been uncomfortable with how far stocks had risen against this backdrop. Coronavirus has given them the reason they were looking for to bank some of those profits and reduce their exposure to the stock market.

What is the silver lining for investors?
Those with a longer investment horizon can worry less as investing is a long-term game. That is not to say someone with investments should just ignore current volatility though. There are some sensible steps to take, and there might even be opportunities for the brave.
While negative headlines about the stock market can be off-putting, investors should be grateful for them. Every dollar invested today could buy considerably more shares than it would have done at the start of the year.

Five sensible steps to protect your investments

1. Don’t panic – think long-term
It’s important to make considered decisions when adjusting your investment portfolio. An emotional response will very rarely benefit your savings. By staying invested now you could benefit when the market picks up again.

2. Reassess your attitude to risk
What these episodes can usefully do is prompt a re-evaluation of how much risk we are willing to take. It’s all very well charging into the stock market when it’s been going up for years: these corrections remind us there can suddenly be a downside. Many of us will take some risk in the hunt for higher returns, and there are ways to moderate that risk.

3. Reassess your portfolio
Are you happy with the mix of risk? Check you are happy with the proportion of your savings that are in the stock market as opposed to cash or government bonds, and diversify if you are concerned. Some funds offer ready-made diversification by spreading across asset classes. Do your research. You could de-risk yourself by simply holding more cash in savings accounts but be aware of the effect of inflation versus interest rates.

4. Diversify your exposure to the stock market
Even within the portion of your portfolio that is invested in the stock market, be sure that it is diversified in itself. Some people have pet regions or sectors and over-reliance on them can be a set-up for big losses if things go wrong. Either diversify yourself or choose managed funds that are themselves diversified.

5. Drip-feed
By investing a regular amount each month you take away a lot of risk – it is the opposite of trying to time the market. In times of stock market falls the amount you invest will be picking up more units. This means you will ride out much of any market volatility.

Source: Schroders, March 2020