VISIS

October 2023

adrianadelmonaco@gmail.com — Wed, 04 Oct 2023 23:36:51 +0000

Insights

October 2023

In this issue

When enough is never enough
A positive property outlook for some
Yours, mine & ours – estate and succession planning for modern families

The warmer weather and spring rains are a welcome break from the colder months. And, while outside activities become more tempting, don’t forget to find a moment or two to review your finances to make sure you’re up-to-date and on-track.

Household wealth has increased for the third quarter in a row. It rose by 2.6% in the June quarter, pushed up by rising house prices and increases in superannuation balances. Meanwhile demand for credit was the lowest since 2005. But consumers are not spending and consumer confidence is down. Retail sales growth was the slowest since the pandemic lockdown.

While the number of job vacancies have fallen by about 18% since their peak in May this year, they are still around 72 per cent higher than just before the pandemic – that’s an extra 160,000 positions that employers are looking to fill. Unemployment was unchanged at 3.7%.

The Australian dollar rebounded a little to finish the month where it began but it’s ended the quarter about 3% thanks to surging oil prices, interest rate uncertainty and the US markets.

Brent crude has continued its relentless climb since June, ending the month just over 30% higher than three months ago. That’s pushed petrol prices ever higher – about 17% over the same period – with the national average price for unleaded at $2.11 a litre compared to $1.80 in June. Oil prices are expected to continue to increase because of depleted US inventories and cuts to production in Saudia Arabia and Russia. Increasing petrol prices helped fuel a jump in inflation last month.

When enough is never enough

How much is enough? It’s a good question. Our relationship with our finances can be a tricky one. Everyone has a different idea of how much it takes to be comfortable or even well off.

Given it is something that has such a strong influence on how we live our lives it’s unsurprising that money, or the pursuit of it, can develop into somewhat of an addiction.

The million-dollar question is how do you know if you are developing an unhealthy relationship with money and what can you do if you, or someone you know, is heading down that path?

The love of the dollar

When John D. Rockefeller, who has been widely considered the wealthiest American in modern history, was asked how much money is enough, he famously stated: “Just a little bit more.”

It’s a common approach to money – that it’s not possible to have too much of a good thing. However, we can become addicted to the act of growing our net wealth to the detriment of our daily lives. If you’re only interested in seeing your account balance go up, you might miss opportunities to put your money to work in other ways and enjoying what life has to offer.

If you can relate to the words of Rockefeller, it might be time to do some self-examination and see whether your relationship with your finances could be healthier.

Common feelings about acquiring money

Competitive

“Keeping up with the Joneses” is embedded in our culture. As a society, we’re constantly comparing ourselves to those who earn more or are wealthier than ourselves. The danger is there will always be someone better off than you (unless you are Rockefeller!). Gratitude can serve as an antidote to competition, so try shifting your focus to what you have rather than what others possess.

Of course, for many the focus is not outward but inward. The competition can be an internal struggle to meet and exceed continually shifting self-imposed financial objectives. If this is moving beyond a healthy drive for success, it might be time to celebrate your successes and focus more on enjoying your wealth.

You are what you possess

Compulsive saving can be a need to find self-worth, defining yourself by what you possess and accruing the trappings of wealth to feel whole. Recognising your self-worth goes beyond possessions and how much money you have in the bank is a key step in breaking the hold money may have over you.

Fear of loss

Being afraid of losses can keep you from making smart decisions with your money that could improve your financial situation. For example, you might be so fixated on accruing wealth and so afraid of losing money that you never invest. Having an appreciation of the relationship between risk and reward can help you make healthier decisions.

Scarcity mindset

An extreme focus on your financials can be driven by a fear of not having enough. The underlying cause of anxiety around money might be traced back to a time when you struggled. The key is to review your financial situation and let go the past to manage your finances in a way that is appropriate to your present circumstances.

Breaking money habits

That sounds easy but it can be difficult in practice. Whatever the driver of your approach to money, if you’ve been operating in a certain way for a long time, habits can be hard to break.

If you’ve been saving furiously for a home deposit it can be hard to step out of the frugal behaviour, take a breather and feel Ok about spending money again. Alternatively, if you’ve spent a lifetime building your wealth to have a wonderful retirement it can be difficult to flick the switch from saving to spending – especially if you suddenly have no wages coming in.

Recognise that old habits can be hard to break but that it is possible to change.

One thing that can help is having a financial plan, so you know how you are tracking to meet your financial goals. That’s where talking to a third party who is not so emotionally involved can be of benefit.

We are here to assist if you need assistance with any aspect of your financial life.

A positive property outlook for some

Residential property investors have been on a wild ride in recent years as prices slumped during the pandemic then quickly skyrocketed before losing ground again.

Now, with prices levelling out or slowly increasing, there is good news around the corner, according to some analysts.ⁱ

A combination of positive indicators for housing could help to fuel further price rises.

With a widespread view that the Reserve Bank’s interest rate increases are beginning to work to ease spending, some believe we may see the first rate cuts as early as next March. Add to that the increase in migration and the fall in new house construction, and residential property gains may follow. CBA Chief Economist Stephen Halmarick is forecasting a 7 per cent rise in house prices this year and another 5 per cent in 2024 claiming that, by this time next year, prices will return to “all-time record highs”.

The sustained levels of high demand clashing with historically low levels of for-sale listings are also pushing prices up, according to the Property Investment Professionals of Australia (PIPA).ⁱⁱ

In the meantime, some investors are doing it tough with rising interest rates and the end of fixed interest rate mortgages sometimes a contributing factor. The number of short-term property resales made at a loss has jumped, according to property analysts CoreLogic, from 2.7 per cent a year ago to 9.7 per cent in the June quarter this year.ⁱⁱⁱ The median loss was $30,000, for houses sold within two years, compared to a median profit of $75,000.

PIPA’s annual survey to gauge property investor sentiment found just over 12 per cent of investors sold at least one investment property in the past year.^iv Less than a quarter of those houses sold went to other investors, continuing a trend that has been happening for several years.

Almost half of those who sold said they were concerned about governments increasing or threatening to increase taxes, duties and levies.

Where are rents headed?

Will rents continue to rise or stabilise? Experts’ views are mixed about the short-term outlook for the rental market.

The Reserve Bank says the continuing shortage of rental housing is likely to support ongoing increases in rents.

The rents paid by new tenants provide a good indication of price movements in rental housing. Actual rents paid by new tenants increased by 14 per cent over the year to February 2023. Since the onset of the pandemic in 2020, rents paid by new tenants have increased by 24 per cent.^vi

But CoreLogic predicts a slowing in rental price growth next year, saying rents rose for the 35th month in a row in July but monthly growth has eased over the past four months. It says the expected drop in interest rates next year combined with softer income growth and stretched rental affordability will contribute to a slowing in rents.

Build-to-rent growth

Australia’s growing build-to-rent (BTR) market is getting a boost with tax concessions from governments eager to increase housing stock.

BTR projects, common in Europe and North American, see landlords build a large-scale residential development intending to hold it for the long-term while renting the apartments for as long as three years with rent increases locked in. Rents are often slightly higher than market averages in return for better communal amenities such as roof gardens and gyms.

Institutional investors, such as super funds, are also getting onboard with the projects, favouring the steady income stream.

While Australia’s BTR market is mostly being driven by large developers and global players, smaller private investors are also getting in on the act. On the plus side, BTR offers regular income, often better returns and the chance to minimise expenses, not to mention the government tax concessions.

On the downside, there is the possibility the concept might not take off in Australia and that vacancy rates may be higher. Meanwhile, the locked-in rental increases may not keep pace with rapid market changes.

i https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release
ii, iv https://www.pipa.asn.au/wp-content/uploads/PIPA_Investor-Survey-Report_2023_Final.pdf
iii https://www.corelogic.com.au/news-research/news/2023/short-term-loss-making-resales-on-the-rise
v, vi https://www.rba.gov.au/publications/bulletin/2023/jun/new-insights-into-the-rental-market.html

Yours, mine & ours – estate and succession planning for modern families

Navigating complex family relationships and blended families can be challenging at times and particularly when a family member dies.

A good estate plan can help to make sure your wishes are carried out when you die. An estate plan, of which a will is the first and most important part, can ensure your estate is distributed in the way you want. It can also help if you become incapacitated, particularly when it includes an enduring power of attorney and a medical power of attorney that indicate who should be in charge of your affairs and any relevant instructions.

Professional advice is vital in estate planning to make sure that you have considered all the issues, including tax matters, and that your loved ones are protected. It is also important to clearly communicate your wishes, particularly when there are complex issues involved, so that your wishes are clearly understood.

Here are some of the issues to think about.

Superannuation

A binding death benefit nomination should be at the top of your list when you are considering the distribution of your superannuation funds.

This makes certain that your super death benefit is paid to those you choose because without one, the trustee of your super fund will make their own decision.

The nomination is usually valid for three years before it lapses and must be renewed.

Blended families

If you have been married more than once and/or have children with more than one partner, your will helps to effectively provide for those you choose.

You may wish, for example, to ensure that your children receive the proceeds of your estate rather than your spouse or ex-spouse. Alternatively, you may need to ensure your will protects your current spouse from the claims of previous spouses.

When it comes to the family home, the type of home ownership is important. If you have purchased as ‘joint tenants’, the entire asset will pass to the surviving spouse. On the other hand, if you have purchased as ‘tenants in common’, each spouse can distribute their share of the house to others.

You may also wish to include a ‘life interest’ in the home so that your current spouse can continue to live in the home until their death before it ultimately passes to your other beneficiaries.

Trusts

Any existing family trusts should be reviewed with a blended family in mind. Check that the trust deed provides clear instructions for succession, if you want to ensure your children from past relationships are catered for.

Your will can also establish new trusts, known as testamentary trusts, to provide for any dependents with disability, when you are worried that a child may waste or misuse your assets, or to allow for young children.

A testamentary trust can also help to protect your adult child’s interests if they were to divorce a partner or are facing bankruptcy. Any inheritance they receive from you would become part of their property and can be considered in a divorce settlement or called on by creditors.

Handing on a business

If you are in business with partners, or would like to hand on the family business to one child but not others, a life insurance policy may be a useful strategy – sometimes known as estate equalisation – to even the distributions from your estate.

In the case of a business partnership, you would name your partner or partners as beneficiaries of the life insurance policy, to effectively ‘buy you out’ of the business. Where it’s a family business due to be handed on to one child, your life insurance would go to your other children to match the value of the business.

Note that it is crucial to continually review the value of the business and the value of the life insurance to ensure they remain current.

Estate planning can be tricky and emotional, particularly when your circumstances are a little more complex. So, get in touch with us to ensure your estate plan meets your wishes and takes account of all the issues.

The post October 2023 appeared first on VISIS.

September 2023

adrianadelmonaco@gmail.com — Sun, 10 Sep 2023 20:08:02 +0000

Insights

September 2023

In this issue

Destinations to fire up your passions
How the Aussie dollar moves your investments
Should I buy insurance through my super?

September is upon us, and spring is in the air. It’s time to shake off the winter cobwebs, get out into the garden or the great outdoors. Meanwhile, AFL and NRL fans will be hoping the sun shines on their team this finals season.

After endless gloomy forecasts, there was a glimmer of hope last month that the cost of living might be easing. Inflation fell in July to 4.9% from 5.4% in June, despite predictions by economists of a rise.

While housing prices are still rising, up by 7.3 per cent for the 12 months, and total dwelling approvals recorded a sharp decline in July, the next Reserve Bank Governor Michele Bullock believes prices in some areas will fall by five per cent or more by 2050 because of climate change.

Consumer confidence is continuing to slowly improve. The ANZ-Roy Morgan Consumer Confidence has now increased for a record 26 weeks in a row. Unemployment was up slightly by 0.2% to 3.7%, meaning an extra 36,000 people are now looking for jobs.

China looms large as a threat to Australia’s economy. As our largest two-way trading partner, China’s worsening economic conditions are concerning for Australian investors although stronger demand from steel producers led to a small increase in iron ore prices. The ASX200 ended the month down, gains in financial stocks were offset by losses in mining and energy shares because of their dependency on China. The Australian dollar rebounded slightly based on improved confidence in the US.

Destinations to fire up your passions

The world is an amazing place, with so much to see and do. In fact, sometimes it can feel as though there is so much to experience it can be quite a challenge selecting a destination, but if you follow your heart and explore your passions when planning a trip you can’t go wrong.

Considering the plethora of amazing places and experiences our world has to offer, it’s a shame that many people, overwhelmed by choice, stick to going back to places they have visited before. In fact, a poll conducted in the US confirmed that three out of four people always go back to the same places.ⁱ

If you are keen to avoid the ‘same old, same old’ but short on ideas, it can help to think not of where you want to go, but what you want to do. One travel trend that’s not going away any time soon is the desire for genuine experiences. Just look at Airbnb – in addition to being an accommodation platform it now offers a massive range of around 41,000 ‘experiences’ across 93 countries and more than 2000 cities.ⁱⁱ

So, what do you look for when there is a big wide world out there with so much to see and do? Think about what you and your travelling companions love.

If you have a ‘need for speed’

The Tour de France is known as the greatest race on Earth. The endurance needed to ride over 100kms a day for three weeks across some of the world’s most physically challenging terrain, is incredible. Every year spectators line the routes to be part of the atmosphere and it’s even possible to hop on a bike and experience some of the stages for yourself.

If you prefer the roar of engines and the smell of burning rubber and high-octane fuel, maybe the Monaco Grand Prix is for you. With a course that is the most difficult on the F1 circuit winding through the streets of the city, it’s certainly a race like no other.

Closer to home, another race like no other is the Alice Springs Camel Cup. The antics of the notoriously unpredictable dromedaries and their riders makes for a hilarious day out.

If you want to marvel at our natural world

The famous Bandhavgarh National Park in central India is a stunning wildlife destination where you have the best chance out of anywhere in the world to spot a wild Bengal Tiger.

If you’re an adrenaline junkie

Get your pulse racing with white river rafting on the Colorado River, passing through the iconic Grand Canyon or fly down the fastest zip line in the world in Wales at an eye-watering 200 km/h.

Or for an amazing local experience, walk along the harbour bridge in Sydney on one of the world’s longest bridge climbs and gaze out on an unparalleled view of the iconic harbour.

If you like to sample fine wine

For the wine buffs – not for nothing is Bordeaux France, is considered by many to be the world’s foremost region for wine. If you need to narrow the field a little further, the vineyards of Saint Emilion were the first to be listed as a UNESCO World Heritage Site.

And Australia is no slouch in the wine stakes either, with the Baross Valley in SA widely considered Australia’s preeminent wine region, famous for its Shiraz.

If you were born to shop

In terms of sheer variety and abundance of styles and shops, New York City is the shopping Mecca that dreams are made of. Or fossick for exotic treasure in Istanbul’s Grand Bazaar, the world’s oldest and largest undercover market.

On a smaller scale, but closer to home, Salamanca Market in Tasmania is a vibrant streetscape of the state’s finest artisan products.

With so many amazing experiences to be had, think about how you like to spend your time to come up with an itinerary that will tick all your boxes whether you want to race, explore, sip, or shop.

i https://nypost.com/2022/09/20/americans-say-they-vacation-in-the-same-places-poll/
ii https://tourpreneur.com/few-airbnb-experiences-generate-significant-revenue-according-to-the-latest-arival-research/

How the Aussie dollar moves your investments

It has been a wild ride for the Australian dollar since the Covid-19 pandemic struck and that could mean good news or bad news for your investment portfolio.

In March 2020 the Aussie dipped below US58 cents for the first time in a decade. Since then, a high of just over US77 cents in 2021 has been followed by a rollercoaster ride, mostly downhill.

In October 2022 the dollar plummeted to US61.9 cents, bounced its way back up to US71.3 cents in February this year but by mid-August it had slipped to a nine-month low at under US64 cents.ⁱ

Many analysts agree that further falls are on the cards with some even predicting the dollar could fall to as low as US40 cents within five years.ⁱⁱ

What’s driving the dollar?

Given any currency’s susceptibility to changing economic conditions both at home and overseas, the Aussie has had quite a bit to deal with lately.

Rising interest rates can boost the Australian dollar by making us more attractive for foreign investors, providing our rates are rising ahead of the US and others.

If foreign investors buy more Australian assets because they can get a bigger return on their investment, more money flows into Australia which increases demand for Australian dollars. And if investors hold more Australian assets than overseas ones, less money leaves the country, decreasing supply. So, increased demand and decreased supply see the Australian dollar rise.

While the Reserve Bank of Australia (RBA) has increased rates by 4 per cent in Australia since May last year as it battles to get inflation under control, rates have also been rising in the US.

The US Federal Reserve has undertaken its most aggressive rate-rising cycle in 40 years with rates now at a 22-year high and signs of further increases likely. This has put pressure on the Australian dollar, narrowing the difference between the US and Australian rates, meaning foreign investors will look for better returns elsewhere.

Changing economic conditions

The value of the Australian dollar is also affected by changes in economic conditions as well as rises and falls in other financial markets. For example, in August news that the unemployment rate had increased slightly and an easing in wage price growth led to speculation that the RBA would put a hold on rates, putting a dampener on the Aussie.

Also affecting the dollar was a decline in US share markets in August, confirming the typical pattern of the Australian dollar falling when prices in equity markets drop.

Meanwhile, the performance of China’s economy plays a significant part in Australian dollar movements. China is currently battling soaring unemployment, particularly among young people, falling land prices and a housing crisis, among other ills.

As Australia’s largest trading partner, both in terms of imports and exports, any slowdown in China means lower sales of our commodities and other goods and services and less investment in property and business.ⁱⁱⁱ

How the dollar affects us

There are advantages and disadvantages of a falling Australian dollar. On the plus side, our exports will be more competitive because our customers will pay less for our goods and services compared with those produced overseas. Conversely, imported goods will be relatively more expensive.

There could also be an increase in tourism – the cost of travel in Australia will be cheaper for those coming from overseas. Unfortunately, those planning an overseas trip will need to find a significantly greater pile of Australian dollars to pay for airfares, accommodation and shopping.

For investors, it is a useful exercise to review the currency’s effect on your portfolio.

For example, if you’re invested in Australian companies that rely on overseas earnings, look at how they handle their exposure to the currency risk. A lower dollar is good news for those with overseas operations and those that export goods. On the other hand, those that need to buy in components or products from overseas may suffer.

In any case, have a chat to us to look at the best way forward in these uncertain times.

i https://tradingeconomics.com/australia/currency
ii https://www.news.com.au/finance/markets/australian-dollar/aussie-dollar-in-free-fall-amid-bloodbath/news-story/929165d65db4dc7d8a97bc7b27b5ab0d
iii https://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/

Should I buy insurance through my super?

While we all hope for good health, the reality is that some of us may struggle at times with sickness or injury. And that may affect your family’s financial wellbeing.

Different types of life insurance or personal insurance can provide an income when you’re unable earn, or a lump sum to protect your loved ones if the worst happens.

Insurance products such as life insurance and total and permanent disability (TPD) cover are available through your superannuation fund or directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, and critical illness or trauma cover.

Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.ⁱ

Check what your fund offers

Super funds usually provide three types of personal insurance. These include:

Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it’s essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ⁱⁱ Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you’re a new super fund member aged under 25.

Should you insure through super?

Using your super fund to buy personal insurance has advantages and disadvantages so it’s a good idea to review how they might affect you.

On the plus side

Cost-effective: Insurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow.
Automatic inclusion: Many super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
Tax benefits: Some contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

Limited flexibility: Super funds can only offer a standard set of insurance options, which may not fully align with your needs.
Reduced retirement savings: Paying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
Coverage gaps: Depending solely on your super fund’s insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
Possible tax issues: Be aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Don’t forget the life admin

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage and to make sure you are not paying unnecessary premiums if you have more than one super fund.

Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps to make the most of this benefit. If you would like to discuss your insurance options, give us a call.i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd
ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)

The post September 2023 appeared first on VISIS.

June 2023

adrianadelmonaco@gmail.com — Wed, 07 Jun 2023 19:57:15 +0000

Insights

June 2023

Content

Sowing the seeds for a happy retirement
Who needs a testamentary trust?
Setting yourself up for success in the new financial year

Welcome to our June newsletter and, as the winter sets in and the end of the financial year approaches, it’s a good chance to spend some time tidying up and reviewing your finances.

Concerns about the Reserve Bank lifting interest rates, along with the drama over the US debt ceiling and the worry that the US Treasury may run out of cash, affected local markets and the Australian dollar throughout May.

The dollar is at its lowest level in six months, at just under US65 cents, while the ASX200 ended the month nearly 3% down thanks also to weaker commodity prices. Energy and mining stocks led the falls. Brent Crude was down 7.5% for the month while iron ore prices hit a six-month low.

Inflation rose 6.8% in the 12 months to April, up from 6.3% in March and the number of housing approvals nosedived in April, down 8.1% after a 1.0% fall in March.

The rising prices have continued to dent consumer confidence. The ANZ-Roy Morgan Consumer Confidence survey has now spent 13 straight weeks at its lowest mark since the 1990-1991 recession. The survey reveals that only 7% of Australians expect good times ahead for the Australian economy in the next 12 months. With less money to go around, retail trade has plateaued over the past six months.

The latest unemployment figures show a slight increase to 3.7% in April and a slight decrease in the participation rate.

Sowing the seeds for a happy retirement

The thought of retirement is an enticing one for many of us. Imagine throwing off the shackles of the workforce and being able to do whatever you want, whenever you want. But why wait until you are retired to do the things you love?

Retirement is a time where we finally have the space to do what we want to do with our lives, whether that’s travel, developing and learning new skills, taking up hobbies or just enjoying the company of those we care about.

The problem with waiting until we are retired is we are postponing engaging in things that could be making us happy right now. Exploring what gives us joy now and developing those skills will make for a much easier transition as you wave goodbye to your working years.

Something to retire to

Retirement represents a big shift in the way we live our lives and it’s not uncommon for that adjustment to be a little challenging. For many, our jobs give us a profound sense of identity and define how we perceive ourselves, so our sense of self can suffer when we leave the workforce. There is also often a gap in our lives where work used to be.

That’s why rather than looking forward to retiring from something, ‘have something to retire to’ is a common piece of advice to encourage people to think about what they want their life to look like when they leave the workforce.

Think about what defines you now and satisfies you outside of work, and putting in place a plan of how that may play out in retirement can be a good idea.

Start today to do the things you love

While it can be hard to carve out time while you are still in the workforce, it’s possible to take small steps and set aside dedicated time each week or commit to activities that won’t take a lot of your time.

If you are keen to travel when you retire, consider signing up for a short course in the language of the country you are keen on visiting to get prepared for the trip of your dreams.

Or if you want to finally write that novel you’ve been mulling over for years, set aside a little time now to draft a framework and get a head start. Who knows by the time you retire you may be on your second novel!

Keen to do more exercise? Join a gym now and get into a routine – even if you only manage to get there a couple of times a week it’s a good start.

It takes a while to develop new habits and skills so starting to pick up the things you want to explore in retirement now sets you up for a smoother transition when you have more time to devote to these activities. Starting now also gives you a chance to try things out and see if they are something you want to commit time and energy to.

Fostering connections with those you care about

While spending time doing things you love makes for a happy and satisfying retirement, another important factor is being around people you enjoy being with.

Think about the people you enjoy spending time with and foster those friendships right now. Not only will it make for an easier transition when you retire, it will also bring you joy and the benefits of those relationships right now. There is always room in your life for making new friends too!

The best laid plans can change

It’s important to be open minded in your plan of how you see your retirement unfolding. Remember that not everyone retires on their own terms. Some need to retire sooner than expected or in a different manner than expected due to ill health, caring for a family member or because of a decision or situation in the workplace.

On that basis it’s important to live well now – enjoy your present life and embrace the things that make you happy as you’ll also be setting yourself up to enjoy retirement – whether it’s just around the corner or still a way off.

Who needs a testamentary trust?

The rising cost of living is grabbing all the attention right now as people struggle to pay the increasing prices. But in the meantime, our collective wealth has been growing steadily and is being transferred to the next generation at increasing rates.

In fact, the value of inheritances as well as gifts to family and friends has doubled over the past two decades.ⁱ

A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.

So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.

One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.

It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.

A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.

Choosing a trustee

If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.

The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.

Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.

As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.

The pros and cons

Whether or not you should set up a testamentary trust in your will depends on your own circumstances.

The positives include:

The ability to control the distribution of income
The possibility of some tax advantages for your beneficiaries
A level of protection for your assets from lawsuits, family breakdowns and business difficulties
A way of keep a family’s wealth intact into the future
Support for vulnerable beneficiaries such as those with special needs or lacking financial experience and minors
Can be used by anyone with assets to distribute, whatever the size of their estate

On the other hand, there are a number of considerations to be aware of such as:

The complex paperwork and reporting required
The cost to establish the trust and keep it running
The possibility of disputes among beneficiaries or with the trustee over the future of the trust, distributions, and its administration

Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.

Call us if you would like to know more about establishing a testamentary trust and to see whether it is suitable for you.i https://apo.org.au/node/315436

Setting yourself up for success in the new financial year

The start of a new financial year is the perfect time to get your financial affairs in order. Whether it’s tidying up your paperwork, assessing your portfolio or dealing with outstanding issues, there are plenty of practical actions you can take.

Here are some strategies for starting the new financial year on the right foot.

Tidy up your paperwork

Dealing with the paperwork is the task most of us love to hate. But taking a day to trawl through the ‘To Do’ pile and the growing mountain of filing could be a good investment in yourself. What’s more, you might identify some savings.

Set your budget

A lot can happen in a year, so it makes sense to review your budget to ensure it still works towards your goals in the new year. This will help you track your changing expenses and ensure you’re not overspending. And if you haven’t got a working budget, now’s a great time to start. There are plenty of budgeting apps and tools available online that can help you get started.

Assess your portfolio

Another important step to take as you start the new financial year is to assess your investment portfolio.

Some important questions include:

Why did you start investing and have your circumstances changed? For example, you may have started investing to receive a better return than your term deposits but now that term deposits rates have increased and share markets are challenged, should you revisit that goal?
What is the investment performance? Is it in line with your expectation and the benchmark?
Should you consider diversifying into different asset classes?
Is dividend reinvestment the best option for you or should you take the dividend income into cash?
Is your risk appetite still the same, or should you be aggressive or more conservative?

Check your insurance

Now is a good time to examine your insurances closely and to consider whether they match your needs and risks. It is also a good reminder to take note of policy renewal dates so that you can shop around to make sure you get the best price.

Understand Federal Budget changes

Keeping up to date with the commentary about Federal Budget initiatives may be useful.

The measures aimed at easing the cost of living will provide a boost to some. They include energy bill relief for concession card holders and energy saving incentives. Meanwhile those with chronic health conditions will benefit from a number of changes announced in the budget.

The Budget also included support for families with cheaper childcare and a more flexible Paid Parental Leave scheme, and incentives for some types of new home building projects.

Review your superannuation

A review – at least annually – of your super account is vital to make sure that:

Your investments and risk strategy are still right for you
The fees are reasonable
Any insurance policies held in your super account are appropriate
Your employer contributions are being made
Your death benefit nomination is relevant
You don’t have multiple accounts incurring unnecessary fees

You might also consider a salary sacrifice strategy, where you ask your employer to make extra super contributions from your pre-tax salary. These additional contributions are taxed at 15 per cent within the super fund, plus an additional 15% if Division 293 tax applies to you (income over $250,000).

Meanwhile, it is not too late to top up your super balance for this financial year using either concessional contributions (from your pre-tax income) or non-concessional contributions (after-tax income). Don’t forget the caps on payments, which are $27,500 for concessional contributions and $110,000 for non-concessional.

It is a good idea to get some expert advice regarding your super contributions, we can assist with the best ways to manage your contributions.

So, set yourself up for a fresh start to the year with some simple strategies to help you achieve your financial goals.

The post June 2023 appeared first on VISIS.

May 2023

adrianadelmonaco@gmail.com — Tue, 02 May 2023 04:21:04 +0000

Insights

May 2023

Content

Why an emergency fund delivers peace of mind
Getting your bounce back

As the days get shorter and temperatures begin to fall, Federal Treasurer Jim Chalmers is working to complete his second Budget, due to be delivered on Tuesday 9 May.

All eyes will be on the Reserve Bank board next week as it meets prior to the Federal Budget to decide whether or not to increase the cash rate. The board decided last month to pause its relentless increase of rates designed to reduce inflation to 2-3%.

The good news is that there are signs inflation is slowing. The latest figures show the annual rate at 7%. The March quarter saw prices rise just 1.4%, the lowest increase in two years, although consumers are still feeling the pressure of rising prices in a number of areas. The most significant contributors to inflation remain fuel and utility prices, medical and hospital expenses, tertiary education and domestic travel costs.

The welcome inflation easing and a rally on Wall Street buoyed local markets a little with the ASX200 ending the month slightly higher.

The ANZ-Roy Morgan consumer confidence index increased slightly in January to finish at 86.8 points but it’s still 15 points behind the same time last year. The NAB business conditions survey recorded a third successive fall in December although business confidence improved slightly and remains well above average.

The unemployment rate remains at a near 50-year low of 3.5%. With consecutive months of strong growth in female employment (up 81,000 over the past two months), the female participation rate increased to a record high of 62.5%.

The Australian dollar held on at just over US66 cents against the US dollar.

Meanwhile iron ore prices have been tumbling as China’s property market falters and there are fears the falls could continue.

Why an emergency fund delivers peace of mind

When life tosses up an unexpected event – such as retrenchment, a medical emergency or even just a big bill to fix the car – it can be nerve-wracking worrying about how to deal with the crisis. And, if funds are short, that just adds to the stress.

But imagine that you have a secret cash stash – an emergency fund – that will cover the costs, giving you the mental space to deal with the problem.

In fact, an emergency fund is the basis for a strong financial strategy and provides a crucial safety net. It makes sense regardless of your age or income because the unexpected can happen to anyone.

Without a cash reserve, you may have to rely on credit cards or loans, which can put a further strain on your financial situation and your mental health.

An emergency fund gives you the peace of mind to be able to weather the storms that come your way without racking up unwanted debt and interest payments.

How much is enough?

Of course, it can be tough to save when inflation is eating away at your income. Rising interest rates, rents and the cost of groceries is putting a big strain on households. The Australian Bureau of Statistics reports that household savings have been declining for more than a year as people contend with increased mortgage payments among the other rising costs.ⁱ

Nonetheless, by putting aside even a small but regular payment into a separate fund you will slowly accumulate enough to cover emergencies.

The size of your emergency fund depends on your own circumstances but an often quoted target is enough to cover between three and six months of living expenses.

It may differ if say, you are planning on starting a family and need funds in reserve to cover the difference between parental leave payments and a salary; you have children in school and want to be able to cover school fees for a year or more, no matter what happens; you need to take time off work to care for a family member; or you need to make an unplanned trip.

On the other hand, if you have retired, it can be helpful to have a buffer against market volatility. If there is a downturn in the markets and your superannuation is not providing your desired level of income, a year’s worth of living expenses in an emergency fund can make all the difference to your lifestyle.

The main thing to remember is that if you need to raid your emergency fund, start work on rebuilding it as quickly as possible.

Putting together a budget can help you to analyse how much you can afford to put away every week, fortnight or month. Then, consistently saving until you reach your goal is the key, no matter how small the amount.

It is best to keep your emergency fund separate from your everyday transaction account to reduce the chance of you using your saved funds for regular expenses. One option is to pay yourself first by setting up a direct debit, so your emergency fund grows automatically with no extra action needed from you, and to avoid the temptation to withdraw your savings.

The type of account you choose for your emergency fund is important. It should be readily available so, while shares and term deposits may offer higher returns, they are not quickly accessible when required. Shop around for a bank account that offers the highest interest to get the most out of your hard-earned income.

Building an emergency fund is an essential component of a strong financial plan, providing a safety net should something unexpected arise. If you are unsure of the best way to set up an emergency fund, we encourage you to reach out to us. We can provide guidance on the best options for your unique financial situation and help you take steps towards

i https://www.abs.gov.au/media-centre/media-releases/economic-activity-increased-05-cent-december-quarter

Getting your bounce back

Life is pretty frantic, and it is common to feel like it’s a struggle to keep up the pace. In fact, feeling exhausted is so common that it has its own acronym, TATT, which stands for “tired all the time”.

While it’s somewhat comforting to know you’re not alone, it’s certainly not a nice feeling, so let’s look at some of the best ways to get some bounce back into your step.

Watch what you take on

One of the first and most obvious things is to look at your busy lifestyle and see if something has to give.

Don’t be afraid to decline invitations if you are feeling overcommitted, in particular say no to the things that are a drain on you physically or emotionally. No one can be busy 100% of the time and it’s important to ensure you have a little downtime to just do sweet nothing – even if you need to schedule it into your calendar!

As you manage your time think about what is most important to you and prioritise things that make you happy and give you energy.

Catching some zzzz’s

Of course, the most powerful downtime, is getting a good night’s sleep. If you are not a great sleeper making some small tweaks to your evening routine can help. Anything you can do to wind down, be it having a hot bath or reading a book, is great for getting in the right zone for a restful night’s sleep.

Avoiding screen time for an hour or two before bed is beneficial as the blue light from laptops and phones is known to trick your brain into thinking it’s still daytime. This reduces hormones like melatonin, which help you relax and get deep sleep.

And while caffeine may be your friend if you are feeling a little lacklustre, it’s not ideal to have caffeine after 3-4pm if you want to have a good night’s sleep.

Stress less to recharge your batteries

Winding down can be easier said than done, however – often we don’t even realise how stressed we are until it gets to a point where it creates a problem for us.

Being in a constantly anxious state is draining. Our body is sending messages to put us on high alert – the fight or flight response – which is fine for short periods of time, but when it’s constant our batteries get drained pretty quickly.

Simple practices like deep breathing and progressive muscle relaxation can be very effective in reducing stress and improving energy and don’t have to take a lot of time or effort.

The right fuel for sustained energy

No amount of relaxation or rest is going to help, if we are not giving our bodies the best fuel for energy. We can’t expect to perform at our peak if we are running on fumes, which is where a balanced diet and hydration are key. Sugar in particular, is a culprit in giving you a burst of energy and then a crash, so instead of reaching for that chocolate bar mid-afternoon, try a handful of nuts or a banana for an energy boost.

Another easy tweak is to make sure you are drinking enough water. Just putting a jug in easy reach on your desk can be enough to have you humming along through the day.

Get your body moving for an energy boost

The last thing you probably feel like doing if you feel exhausted is to pop on your running shoes or go out for a brisk walk, but getting your blood pumping and your heart beating fast is a great way to shake off the cobwebs and boost your energy. It’s important to listen to your body and pace yourself but expanding energy is a great way to create more energy!

Life is to be lived and making some tweaks to your lifestyle and routine might just help you get that boost you need to enjoy life to the fullest.

Note: It’s important to also consider that chronic tiredness can have a medical cause, so be sure and see your doctor if you have any concerns about your overall health.

The post May 2023 appeared first on VISIS.

February 2023

adrianadelmonaco@gmail.com — Wed, 01 Feb 2023 11:56:00 +0000

Insights

February 2023

Content

Stepped vs level premiums: which is best?
8 retirement mistakes and how to avoid them
Raising resilient kids

February marks the end of summer holidays for many of us and getting down to business for 2023. It can be a good time to reflect on plans and goals for the months ahead.

China’s plans to kickstart its economy after the pandemic shutdown have been dominating the news this month and will have worldwide implications, not the least for Australia. As our largest trading partner, an increase in demand is likely to bring improvements in our commodity prices, exports and share prices (particularly of companies exposed to China).

Australian shares were up nearly 8% in January while US stocks climbed by about 5% but the markets are nervously waiting for expected increases in interest rates by major central banks this month to help curb inflation.

Australia’s inflation rate jumped by 1.9% in the December quarter to 7.8% for the year. It was the biggest increase since 1990 and more than twice the rate of wage growth, despite the Reserve Bank’s moves to increase the cash rate during 2022.

The Aussie dollar fell slightly from near eight-month highs, easing towards US70c ahead of the expected rate rises by major central banks overseas.

Stepped vs level premiums: which is best?

These days, most people hold some form of life insurance in their super account. While this is a welcome safety net, the level of cover held this way is often inadequate.

A Rice Warner study back in 2020 found that life cover within superannuation only met about 65-70 per cent of actual need.ⁱ

With the impact of Covid since that time, that figure is growing.ⁱⁱ

Holding the appropriate level of life insurance, whether inside or outside super, and reviewing it regularly as your circumstances change has never been more important. After all, how would your family cope if the unexpected happened? How would the mortgage be paid? What about the school fees?

While life insurance should be considered a non-negotiable part of your financial plan, there is flexibility and potential cost savings in the way you pay for it.

Stepped vs level premiums

The regular and ongoing payments you make for life insurance cover are known as premiums.

You can choose either a stepped premium, or a level premium, or a combination of the two.

A stepped premium is where the amount you pay each year increases while a level premium generally stays the same each year.

While stepped premiums are always cheaper at the outset, over time the total cost of the stepped premium will outstrip that of the level premium. Ironically, the time when you consider cancelling the policy because it is becoming too expensive is likely to be just when you need life insurance cover the most. That is, when the demands on your income from your mortgage, childcare and private school fees are at their highest and the loss of your income would hurt the most.

Level premiums meanwhile start at a higher level but are less likely to change over time. That does not mean they won’t increase but this would only be in circumstances where the policy is indexed to inflation or if you decide to increase your cover.

The earlier, the better

The younger you are when you take out a life insurance policy, the lower the premiums. This is the case whether you opt for stepped or level payments.

Say you are a male non-smoker seeking $1 million of life insurance cover. When comparing stepped and level premiums, it is estimated that if you are aged 30 when you start the policy, a level premium is about 60 per cent more expensive than a stepped policy at the outset. This jumps to 120 per cent more if you are aged 40 when starting the policy and 170 per cent higher if you are 50.ⁱⁱⁱ

But at some stage there will be a breakeven point where you start to make substantial savings with a level premium. This is particularly the case if you hold on to the policy till aged 65.

If you take out a policy at aged 30, then you will break even after 23 years. If you hold on to the policy for another 12 years until you are 65 then your savings over that 35-year period would be $58,700. This drops to a $46,000 saving if you take the policy out age 40 and a much smaller $10,000 if you wait until you are 50. Nevertheless $10,000 is a decent sum of money to save.^iv

It’s a personal decision

There are many reasons why you might choose a level premium, not least because it allows you to have certainty when it comes to budgeting.

But for many, the lure of cheaper premiums at the beginning can steer you to favour stepped premiums. Also, if you do not plan on holding life insurance for an extended period, but perhaps just until your children become independent or the mortgage is paid, then stepped premiums might work out best.

Some insurers can offer you a combination of stepped and level premiums which might help with your cash flow.

If you would like to know more, or would like to discuss your life insurance needs, give us a call.
i https://www.insurancenews.com.au/life-insurance/super-reforms-reveal-scale-of-underinsurance
ii https://www.choosi.com.au/life-insurance/articles/do-australians-have-enough-insurance
iii https://www.insurancewatch.com.au/stepped-vs-level-premiums.html
iv https://www.insurancewatch.com.au/stepped-vs-level-premiums.html

8 retirement mistakes and how to avoid them

Retirement is a phase of life most of us look forward to. It’s a chance to pursue other interests, travel and maybe do some part-time work or volunteering.

Thanks to more than 30 years of compulsory superannuation, we are retiring with more savings than previous generations but that also brings its challenges.

According to the government’s Retirement Income Review, the average age of retirement in Australia is around the ages of 62 to 65.ⁱ On average men and women can expect to live to 85 and 88 respectively.

To make the most of your retirement your savings need to last. The best way to achieve that is to have a plan that will help you avoid some common and preventable retirement mistakes.

Mistakes people make

While it’s impossible to predict what financial challenges lie ahead, these eight common retirement mistakes remain the same:

1. Not knowing your living costs

When you earn a regular income, you may be less focussed on keeping a track of your living costs. When the regular income stops at retirement, you can be unaware of whether your investment income and/or pension payments will support your lifestyle costs. Know what your living costs are before you retire to help manage expectations.

2. Not looking at your super until just before retiring

Investing too conservatively when you’re working could mean you don’t have enough super to fund your retirement. Review your super account regularly to ensure it is appropriate for each stage of your life.

3. Underestimating the impact of inflation

Australia’s rate of inflation hovered below 3 per cent per year between June 2012 and early 2020. Since the onset of the global pandemic in March 2020, inflation has jumped to more than 7 per cent.ⁱⁱ The cost of living may require you to reassess your retirement planning.

4. Not understanding your government entitlements

If you’re age 66 or older, you may be eligible for a full- or part-Age Pension. However, if you are not eligible for the Age Pension, you may still be eligible for other entitlements including the Seniors Card, Pensioner Concession Card, income tax offsets or pensioner stamp duty exemption/concession.

5. Letting the noise affect your investment decisions

Negative news headlines can create uncertainty during market volatility. History has shown, over the long run the market trends upwards. All this noise can make it difficult to stick your long-term strategy.

6. Trying to time the financial markets

“We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have,” said legendary share investor Warren Buffett. Say you invested $10,000 in the ASX 200 index by trying to time the market and missed the 40 best days between October 2003 to October 2022, your investment would be worth $9,064, whereas if you remained fully invested it would be worth $46,099.ⁱⁱⁱ Trying to time the markets is never a good idea.

7. Being asset rich and cash poor

You may have built up a strong balance sheet of assets, but in retirement you need income. For many Australians, their family home could be their biggest asset. You may have other assets but are they generating enough income? This could include rent from an investment property, share dividends or managed fund distributions. If the income is insufficient, downsizing into a smaller home could free up enough money to live on.

8. Not consulting professionals

Financial advisers, accountants and other financial professionals can help set you on the right path by navigating the complexities of superannuation, investments, constant rule changes and other factors that affect your retirement. A good retirement plan, implemented correctly, can set you up for life.

Start Planning

Whether it’s due to lack of time or awareness, too many people tend to make these same mistakes when entering retirement which can lead to unwanted financial surprises.

A phase of life you have looked forward to for so long deserves careful planning. So please get in touch if you would like to review your retirement income needs.i Retirement Income Review Final Report, July 2020 page 63 Retirement Income Review Final Report (treasury.gov.au )

ii https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release
iii From 31 Oct 2003 to 04 Oct 2022, Fidelity Australia Timing the market | Fidelity Australia

Raising resilient kids

We all want the very best for our kids and as much as we would like to shield them from the difficult aspects of life, sadly we can’t keep them from facing challenges along the way – both big and small.

The term ‘helicopter’ parenting has been bandied around a bit in recent years and refers to parents hovering over their children, with this well-meaning hyper vigilance aimed to keep them out of harm’s way. The problem with this style of parenting is that it can lead to children being so shielded from life’s mishaps that they don’t develop coping mechanisms.

It’s important for kids to learn how to cope when things don’t go well and deal with the big emotions that accompany life’s problems. After all, life only tends to get more challenging as we move from childhood into adulthood, and with the ability to bounce back more important than ever, by actively helping your kids develop resilience, you’ll be setting them up with important skills for life.

What is resilience?

Although the term ‘resilience’ is talked about a lot, it’s not always well understood. Resilience is not about putting on a brave face in an unfortunate situation or developing such a thick skin that we learn not to care about what happens to us. Resilience is the ability to acknowledge a challenging situation or negative event, employ coping strategies, and rebound to feel okay again. That does not mean that you don’t react or feel strong emotions, just that you are able to recover and continue on with your life.

This can be a lot easier said than done for us grown-ups with all our life experiences and coping skills that we can draw upon, but it can be particularly challenging for little ones, teens and even young adults.

How do we help our kids foster resilience?

The good news is that resilience is a skill that can be learned and built upon and when we help our kids, we as grown-ups can become more resilient too!

Each day, our kids are internalising messages about the world and their place in it and that inevitably includes exposure to stressors. However, that’s not all bad. Gradual exposure to stress, at manageable levels, actually helps children become more resilient. Their brains are encoding each experience, whether it’s minor like handing in homework late or more significant like being bullied.

Each experience they have creates new neural pathways to help them in future situations and assist them to develop their own coping mechanisms they can call upon in future.

A helping hand

There is one key thing that can help build resilience and that’s the role of supportive adults in children’s lives. To help kids navigate problems and bounce back from setbacks it helps to consider the following framework.

The “Three C’s”:

Connection: Children who feel a sense of connection with others are more equipped to handle problems. We connect with our kids when we spend time with them – giving them our full and present attention, listening to their hopes and fears and feeling their joy, and their sadness.

Consistency: Children need a foundation of consistency to be in the best possible place to cope with change. This can take many forms and could include consistency of routine, location or relationships. Establishing, and committing to threads of consistency in your child’s life anchors them as other pieces shift and move and provides a sense of stability in an uncertain world.

Comfort: A big dose of comfort when needed can help a child to be more courageous. Knowing that someone has their back and is there to comfort them when they fall can empower a child to take risks.

We can’t always wrap our children in cotton wool and prevent them from experiencing unpleasant situations – but we can do our best to equip them to deal with difficulties and be there to help when they need a guiding hand.

The post February 2023 appeared first on VISIS.

January 2023

VISIS Private Wealth — Mon, 23 Jan 2023 01:51:51 +0000

Insights

January 2023

As a new year begins, we wish everyone a happy, healthy and prosperous 2023. Many families will be glad to put 2022 behind them and although challenges remain, we look forward to better times ahead.

As 2022 drew to a close, investors remained focused on inflation, interest rates and recession worries. Inflation is running at around 7% to 11% in most advanced economies, including Australia (7.3%). The Reserve Bank of Australia (RBA) lifted its target cash rate by another 25 basis points to 3.1% in December, the eighth monthly rise in a row, up from 0.1% in May. The RBA noted that “inflation is expected to take several years to return to target range (2-3%)”, and most economists expect at least one more rate increase.

High inflation and borrowing costs continued to weigh on consumers in December. The ANZ-Roy Morgan consumer price index was steady at 82.5 points in the run-up to Christmas, 26 points below the same period the year before. Slowing consumer demand and rising costs also dragged the NAB business confidence index into negative territory for the first time in 2022, down to -4.4 points in November.

But it’s not all bad news. Australian company profits rose 18.6% in the year to September, the fastest pace in five years. Unemployment remains low, despite edging up to 3.45% in November and annual wages growth was 3.1% in the September quarter, the fastest pace in a decade. The Aussie dollar lifted slightly to US68.13c in December, down 6% for the year. Iron ore prices lifted 8% over the month but were down 1% for the year, while oil prices (Brent Crude) eased slightly but were up 11.4% in 2022 as war in Ukraine disrupted supply.

2022 Year in Review

Inflation dominated the economic landscape

The year began optimistically, as we finally began to emerge from Covid restrictions. Russia threw a curve ball that reverberated around the world and suddenly people who hadn’t given a thought to the Reserve Bank were eagerly waiting for its monthly interest rate announcements.

2022 was the year of rising interest rates, surging inflation, war in Ukraine and recession fears. These factors created cost-of-living pressures for households and a downturn in share and bond markets.

Super funds suffered their first calendar year loss since 2011. Ratings group Chant West estimates the median growth fund fell about 4 per cent last year.ⁱ

The big picture

Even though investors have come to expect unpredictable markets, nobody could have predicted what unfolded in 2022.

Russia’s invasion of Ukraine in February led to a global economy and investment markets shake up. It disrupted energy and food supplies, pushing up prices and inflation.

Inflation sits around 7 per cent in Australia and the US, with the Euro area around 11 per cent.ⁱⁱ

As a result, central banks began aggressively lifting interest rates.

Rising inflation and interest rates

The Reserve Bank of Australia (RBA) lifted the cash rate from 0.1 per cent in May to 3.1 per cent in December,ⁱⁱⁱ quickly flowing through to mortgage interest rates.

Australia remains in a better position than most, with unemployment below 3.5 per cent and wages growth of 3.1 per cent running well behind inflation.^iv

Australia’s economic growth increased to 5.9% in the September quarter^v before contracting to an estimated 3 per cent by year’s end.^vi

Volatile share markets

Investors endured a nail-biting year.

Global shares plunged in October only to snap back late in the year on hopes that interest rates may be near their peak. The US market finished 19 per cent lower, due to exposure to high-tech stocks and the Federal Reserve’s aggressive interest rate hikes. Chinese shares were down 15 per cent as strict Covid lockdowns shut down much of its economy.

Australian shares performed well by comparison, down just 7 per cent.

Energy and utilities stocks were strong due to the impact of the war in Ukraine on oil and gas prices. The worst performers were information technology, real estate and consumer discretionary stocks due to cost-of-living pressures.

Property slowdown

After peaking in May, national home values fell sharply as the Reserve Bank began increasing interest rates. The CoreLogic home value index fell 5.3% in 2022, the first calendar year decline since the global financial crisis of 2008.

Sydney (-12 per cent), and Melbourne (-8 per cent) led the downturn. Bucking the trend, prices edged higher in Adelaide (up 10 per cent), Perth (3.6 per cent), Darwin (4.3 per cent).

Rental returns outpaced home prices, as interest rates, demographic shifts and low vacancy rates pushed rents up 10.2 per cent in 2022. Gross yields recovered to pre-Covid levels, rising to 3.78 per cent in December due to strong rental growth and falling housing values.

Despite the downturn, CoreLogic reports housing values generally remain above pre-COVID levels. At year end, capital cities combined were still 11.7 per cent above March 2020 levels, while regional markets were 32.2 per cent higher.

Looking ahead

While the outlook for 2023 remains challenging, there are signs that central banks are nearing the end of their rate hikes.

Issues for investors to watch out for in the year ahead are:

A protracted conflict in Ukraine
A new COVID wave in China disrupting supply chains further, and
Steeper than expected falls in Australian housing prices which could lead to forced sales and dampen consumer spending.

If you would like to discuss your investment strategy in the light of prevailing economic conditions, please get in touch.

Note: all share market figures are live prices as at 31 December 2022 sourced from: https://tradingeconomics.com/stocks.
All property figures are sourced from: https://www.corelogic.com.au/news-research/news/2022/corelogic-home-value-index-australian-housing-values-down-5.3-over-2022

i https://www.chantwest.com.au/resources/another-strong-month-for-super-funds-as-recovery-continues/

ii https://tradingeconomics.com/country-list/inflation-rate

iii https://www.rba.gov.au/statistics/cash-rate/

iv https://www.rba.gov.au/snapshots/economy-indicators-snapshot/

v https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release

vi https://www.rba.gov.au/publications/smp/2022/nov/economic-outlook.html

How to plan a gap year for grown ups

It’s not just school leavers who dream of a gap year. Those of us who’ve been working for a decade or two (or more) may also long for a real break from career and commitments.

It does not even need to be a year – just enough of an extended break to reset and to take stock of what’s important to you. There‘s the opportunity to learn new skills or another language, explore different cultures or do a road trip around Australia.

By planning ahead and making sure your break is not going to derail future financial goals, taking an extended period off work can be achievable.

Dare to dream

Start by finding an idea that might work for you. There are a host of websites that can help you to plan your adult gap year. They will provide tips and tricks for travel and where to find work (paid or volunteer).

You might consider:

Setting off around Australia. Taking off on an extended trip you can take the time along the way to really get to know parts of the country you’ve never seen. You could camp, caravan or stay in quirky country motels along the way.
Chasing the sun. Research affordable countries in warmer climates and set up in a beach shack. You will need to check rules on tourist visas.
Becoming a backpacker. There are plenty of cheap but comfortable accommodation options around the world to allow you to prolong your time away.
Taking a long walk. You can find much-loved and ancient tracks in Australia and around the world to expand your horizons. From the Great Himalayan Trail in Nepal – to Spain‘s Camino De Santiago, or one of Australia‘s iconic walks such as the Heysen Trail in South Australia.

The importance of planning

Once you have established what your break will involve, work out a budget that takes account of the costs you will continue to incur (such as mortgage or loan repayments, insurance, utilities, car registration and rates) as well as your best estimates for accommodation, food, travel and spending money for your destination.

Don‘t be daunted by an amount that may appear unachievable at first glance.

Work out how to save on costs when travelling. Some ideas include:

Living like a local. Try swapping your house with someone in another part of the world. House swap websites match up homeowners looking to live in different places for varying periods of time. Alternatively, you could rent out your home while you are away and/or sign up to a housesitting website.
Working differently. Your gap year might be more about doing something different than taking it easy. Find organisations and websites – such as workaway.info and wwoof.com.au – that cater for working travellers. You could choose to work on farms around the world in return for food and board for example.
Becoming a digital nomad. If manual labour isn‘t your thing, you could pack your computer and hook up to one of the many digital work websites – such as digitalnomadsworld.com, upwork.com or fiverr.com. Many countries now encourage this trend by offering digital nomad visas.

Then, with your costs under control, and a clear goal in mind, it‘s time for a savings plan.

You will want to reduce your current living expenses as much as possible to maximise savings and think about setting up a direct debit to a high interest savings account. Check the MoneySmart Savings Goal calculator to see how much you will need to save every month.

If you have more than a few years to plan your gap year, you could look into some longer term savings and investment options such as shares, exchange-traded funds (ETFs), or term deposits.

While a gap year is exciting, planning ahead financially is essential to ensure you don’t fall into debt.

You also need to carefully consider how this could affect your long-term financial goals. You probably won’t be making super contributions, so this may impact your super balance and retirement plans.

If you would like to discuss your overall financial position in these uncertain times, then call us.

Keeping yourself accountable

At the end of the day, we are accountable to ourselves – our success is a result of what we do – Catherine Pulsifer

It can be both empowering and a little uncomfortable to think that we are responsible for our successes – and failures. Being willing to accept the consequences of our actions, choices or behaviours is not always easy.

We’ve all at some time or another played the “blame game”. It’s so easy to look outward and blame others for our problems, hardships or the obstacles that are getting in the way of us achieving our goals and dreams. For example, it’s the company’s fault that I keep getting passed over for that promotion, my team at work is holding me back, my partner is not being supportive enough of me.

The reality is there are always external forces at play that impact our lives and focussing on these external forces takes away our personal accountability.

What does it mean to be accountable?

Being personally accountable means taking responsibility for one’s own actions (or in some cases – lack of action!). It’s maintaining an ongoing commitment to yourself and what is important to you.

Here are a few ways you can become more accountable.

1. Remove the roadblocks

It all starts with your mindset. Choose to consciously embrace an accountable approach and recognise that you are the architect of your destiny.

That means letting go of the excuses and recognising them for what they are – roadblocks that are holding you back from taking responsibility for your own actions.

2. Set goals

It helps to know what you are trying to achieve – whether that be in your career, relationships or personal life. Take the time to set concrete goals, jot them down, and have a plan of how you will achieve them and in what timeframe.

Start by setting yourself smaller goals as they will be easier to achieve in the beginning. Setting goals (even if they are small ones) and achieving them allows you to prove to yourself and others that you can and will hold yourself accountable.

3. Create your own opportunities

Accountability empowers you to be in control of your actions in your personal life and career. You can create your own opportunities rather than passively allowing life to happen to you.

Being accountable is about fulfilling your obligations to yourself as well as to others, so when you achieve what you’ve been aiming for, take time to recognize these milestones and celebrate them.

4. Take responsibility for your decisions

Embrace the ‘good, the bad – and the ugly’ and accept the consequences of your actions, choices and behaviours, be they positive or negative.

Revel in the positives, but don’t be afraid to admit and own up to your mistakes. One of the most powerful ways we learn is through making mistakes and taking responsibility for them. That means acknowledging that there is a problem, identifying your role in it and proposing a solution to minimise or eliminate the chances of it happening again.

5. Learn from your mistakes

To reach your potential it’s necessary keep extending what you are capable of and taking risks and that means making mistakes. Don’t beat yourself up but think of what you would have done differently and what you’ve learned from the experience.

6. Ask for help

The road to success does not have to be a lonely one. While you are responsible for your own successes, that doesn’t mean you can’t ask for a hand or even better, work with another, or others to get the support and encouragement you need.

An accountability partner can be someone who shares your goals and supports you to keep your commitments or maintain progress on a desired goal.

Having an accountability partner has been proven to increase your chances of success to an astonishing 95% if you have a specific accountability appointment with a person you’ve committed to.ͥ

So, if you are wanting to be more accountable to your own success this year don’t go it alone – make a time for a chat with us and we can work with you to help you achieve your goals and dreams.

i https://www.afcpe.org/news-and-publications/the-standard/2018-3/the-power-of-accountability/

The post January 2023 appeared first on VISIS.

December 2022

adrianadelmonaco@gmail.com — Thu, 01 Dec 2022 11:39:00 +0000

Insights

December 2022

November 2022

Content

Celebrating the festive season, the Aussie way
Buying shares for kids: a gift that keeps on giving
Sustainable investing on the rise

It’s December, summer is here and holidays are just around the corner. We take this opportunity to wish you and your family a happy festive season!

The big story on the global economic front continues to be inflation, and how high interest rates will go to tame it. November began with the US Federal Reserve hiking its federal funds target range by another 75 basis points to 3.75-4.00%. There are signs the tough approach is working, with the annual rate of inflation falling from 9.1% in June to 7.7% in October.

In Australia, the Reserve Bank lifted the cash rate another 25 basis points to a decade high of 2.85%. Inflation fell to 6.9% in the year to October, down from 7.3% in September, but remains high and economic signals are mixed. Reserve Bank governor Philip Lowe is keeping a close eye on consumer spending, where higher interest rates are having an impact. Retail trade fell 0.1% in October for the first time this year. And while the ANZ-Roy Morgan consumer sentiment index was up 5.6% to 83.1 points in the last three weeks of November, it remains 22.9 points below the same week last year. But rate hikes are not yet affecting the labour market, with unemployment falling to a 48-year low of 3.4% in October, while annual wages growth rose 1% to 3.13% in the September quarter, the fastest growth in a decade.

The Aussie dollar lifted 3c to around US67c over the month, crude oil prices fell 10% while iron ore lifted 0.5%. Shares remain skittish but positive overall. The ASX200 index rose more than 5% in November while the US S&P500 index was up more than 2%.

Celebrating the festive season, the Aussie way

If you’ve ever hosted a visitor from overseas during the festive season you may have seen them a little bemused by the way we celebrate. It’s quite understandable as we do things a little bit differently down under.

Christmas in Australia – while fundamentally a religious festival celebrating the birth of Jesus – is also a melting pot of traditions we have inherited over time, mainly from the northern hemisphere.

Look no further than our Christmas carols, many of our festive songs and imagery reference snowflakes and cosy nights by the fireside. Think of how many of our songs are about chestnuts roasting on an open fire, riding in one-horse sleighs, and building snowmen – even though this kind of imagery is not so appropriate in Australian on a scorcher of a day.

Warm weather traditions

Santa would be much more comfortable in Australia in a pair of board shorts and a t-shirt than his fur trimmed red robes and warm hat. In fact, he has been spotted at Bondi Beach on a few occasions hitting the surf, in the lead up to his busiest time of year.

Instead of playing in the snow, we are playing in the waves, with those who live near the coast hitting the beach for a picnic or game of beach cricket during the festive season.

Prawns on the barbie at lunch

While many still opt for the roast with all the trimmings, Australians have embraced the seafood platter or something they can throw on the BBQ – or better still – seafood on the BBQ. Pavlova and trifle are common alternatives to Christmas pudding. And with no eggnog or mulled wine in sight, a refreshing drink of something icy cold is the Aussie way.

As opposed to the European tradition of having dinner on the 25th of December, we Aussies tend to have a big, long Christmas lunch (preferably with a snooze on the couch after opening all the presents).

Christmas street parties

In the suburbs, entire neighbourhoods organise street parties, getting council permission to close streets to traffic. Barbeques are pulled out onto the asphalt and tables set up with goodies. Kids roam around with water pistols and inflatable wading pools are set up if it’s warm enough, with games organised. Tug of war between the odd and even house numbers anyone?

Carols and pageants

Even though we are singing about snow falling gently and jack frost nipping at our toes, we are usually watching carols on a balmy evening with bats flying overhead in the Botanic Gardens if we are in Melbourne or the Domain Gardens in Sydney.

In Adelaide and Perth millions of kinds have grown up watching annual street parade pageants which liven up the festivities with a carnivale atmosphere and floats, music, and dancing.

Boxing Day sales and the cricket

While the various origins of Boxing Day are not universally agreed upon, the day is traditionally a day of rest after the excesses of Christmas day. It is said to have its origins in England when the wealthy gave their servants a day off and sent them home to their families with boxes of gifts and leftover food from their celebrations the day before.

We don’t tend to have much of a rest on Boxing Day. If we are not hitting the Boxing Day sales or packing up the car to head off on holiday, we are at the cricket. The Boxing Day test is one of the most attended and watched games in the country since its inception in 1950.

The start of summer holidays

Christmas in Australia comes at the start of the summer holidays so the lead up to the festive season also involves workplace break ups and celebrations with colleagues.

Then after the festivities on the 25th are done and dusted it is time to take off for what will hopefully be a nice relaxing break.

Of course, there are many ways to celebrate at this special time of year. We are blessed to live in a vibrant multicultural nation, feeling the influence of other cultures and traditions from all over the globe. However you choose to mark the occasion, we wish you much joy and happiness in your celebrations.

Buying shares for kids: a gift that keeps on giving

Many parents and grandparents worry about how to help the children in their lives achieve financial independence. But the value of long-term investment can seem like a dry and complicated idea for kids to get their heads around.

In fact, many young people would like to know more about money, according to a Young People and Money survey by the Australian Securities and Investments Commission MoneySmart website. The survey found more than half of the 15-21-year-olds surveyed were interested in learning how to invest, different types of investments and possible risks and returns. What’s more, almost all those young people with at least one investment were interested enough to regularly check performance.

One way to introduce investment to children may be to begin a share portfolio on their behalf. The child can follow the progress of the companies they are investing in, understand how the market can fluctuate over the short- and long-term, as well as learn to deal with some of the paperwork required, such as filing tax returns.

How to begin

Setting up a share portfolio doesn’t need to be onerous. It’s possible to start with a minimum investment of around $500, using one of the online share trading platforms. Then you could consider topping it up every year or so with a further investment.

Deciding on which shares to buy comes down to the amount you have available to invest and perhaps your child’s interests.

If the initial investment is relatively small, an exchange traded fund (ETF) may be a useful way of accessing the hundreds of companies, bonds, commodity or theme the fund invests in, providing a more diversified portfolio.

ETFs are available in Australian and international shares; different sectors of the share market, such as mining; precious metals and commodities, such as gold; foreign and crypto currencies; and fixed interest investments, such as bonds. You can also invest in themes such as sustainability or market sectors such as video games that may appeal to young people.

Alternatively, buying shares in one company that your child strongly identifies with – like a popular pizza delivery firm, a surf brand or a toy manufacturer – may help keep them interested and excited about market movements.

Should you buy in your name or theirs

Since children cannot own shares in their own right, you may consider buying in your name with a plan to transfer the portfolio to the child when they turn 18. But be aware that you will pay capital gains tax (CGT) on any profits made and the investments will be assessable in your annual income tax return.

On the other hand, you could buy the shares in trust for the child. While you are considered the legal owner the child is the beneficial owner. That way, when the child turns 18, you can transfer the shares to their name without paying CGT. Your online trading platform will have easy steps to follow to set up an account in trust for a minor.

There is also some annual tax paperwork to consider.

You can apply for a tax file number (TFN) for the child and quote that when buying the shares. If you don’t quote a TFN, pay as you go tax will be withheld at 47 per cent from the unfranked amount of the dividend income. Be aware that if the shares earn more than $416 in a year, you will need to lodge a tax return for the child.

Taking it slowly

If you are not quite ready to invest cash but are keen to help your children to understand share investment, you could consider playing it safe by playing a sharemarket game, run by the ASX.

Participants invest $50,000 in virtual cash in the S&P/ASX200, a range of ETFs and a selection of companies. You can take part as an individual or a group and there is a chance to win prizes.

Another option, for children able to work independently, is the federal government money managed website. This is pitched at teens and provides a thorough grounding in savings and investment principles.

Call us if you would like to discuss how best to establish a share portfolio for your child, grandchild or a special young person in your life.

Sustainable investing on the rise

Sustainable investing isn’t new and is becoming more mainstream. From climate change to gender diversity, more people are aligning their money with their values.

In 2021, Australia’s sustainable investment market increased 20 per cent to a record $1.5 trillion. The Responsible Investment Association Australasia (RIAA) 2022 benchmark report found sustainable investments represents 43 per cent of total professionally-managed funds.

In addition to traditional shares and fixed interest sustainable investments offer a wide range of assets, including property, alternatives such as forestry, infrastructure, private equity and cash.

Most big super funds offer a sustainable investment option and some offer this as their default option. You can also buy sustainable managed funds, including a growing list of exchange-traded funds (ETFs).

What are sustainable investments?

Focus on people and planet

Sustainable investing is also known as ethical, responsible and ESG (environmental, social, governance) investing, with the focus on people, society and/or the environment.

Sustainable investments are selected using a variety of screening methods, including:

Positive screening selects the best investments in their class
Negative screening excludes harmful sectors, companies or activities such as arms, gambling, animal testing, tobacco and fossil fuels
Norms-based investing screens for minimum standards of relevant business practices
Impact investing has the explicit intention of generating positive social or environment impacts.ⁱ

The term ESG investing is used when a fund or company commits to sustainable investing in these three areas:

Environmental – air and water pollution, biodiversity and climate change
Social – child labour and labour standards, ethical product sourcing, gambling and human rights
Governance – board diversity, corruption, business ethics, corporate culture and whistle-blower schemes.

The report found gender diversity and women’s empowerment are also gaining popularity.

Sustainable investing is not all warm and fuzzy. Performance still matters.

Performance gains

Initially, sustainable investing often came at the expense of returns but that is no longer necessarily the case.

The report compared the performance of what it terms responsible investment funds and mainstream investments funds (on average and net of fees) over the past 10 years to December 2021.

Responsible multi-sector growth funds consistently outperformed mainstream funds and their benchmark over 1, 3, 5 and 10 years. Responsible Australian share funds generally outperformed or were on par with mainstream funds. Only responsible international share funds disappointed, underperforming mainstream funds across all timeframes.

Watch out for greenwashing

Increased demand for sustainable investments has led to a rapid increase in the number of products available. The rush to cash in on the trend has sometimes led to what is known as ‘’greenwashing”. The Australian Securities and Investments Commission (ASIC) describes greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

ASIC warns investors to review the product terms. For example, a fund might describe itself as ‘’no gambling” but may invest in companies that earn less than 30 per cent of revenue from gambling. Look for a clear explanation of how the product will achieve its aims and don’t rely on vague language like “considers”, “integrates” or “takes into account”.

Australian companies lifting their game

It’s not just super funds and managed funds taking sustainable investing more seriously, Australian listed companies are also adapting to changing investor preferences and regulatory environment. A recent analysis of ESG reporting by Australia’s top 200 listed companies, PwC found a 13 per cent increase in companies declaring a commitment to net zero emissions. However, only 55 per cent of those disclosed a transition plan or activities that will enable them to reach net zero.

There was also a 10 per cent increase in companies disclosing climate risks and opportunities, and a 30 per cent increase in companies disclosing a gender diversity policy.

For investors seeking sustainability along with financial returns from their investments, momentum and choice is growing. So please get in touch if you would like to discuss your investment options.

i https://responsibleinvestment.org/wp-content/uploads/2022/09/Responsible-Investment-Benchmark-Report-Australia-2022-1.pdf

The post December 2022 appeared first on VISIS.

November 2022

adrianadelmonaco@gmail.com — Tue, 01 Nov 2022 11:40:00 +0000

Insights

November 2022

Content

Federal Budget 2022-23: From a tax perspective
How to spot and stop financial abuse
Catching the kindness bug

Welcome to our newsletter. While the race that stops a nation is always a highlight of early November, on the economic front the Labor government’s first Budget, handed down in late October, has been a talking point.

Treasurer Jim Chalmers’ first Budget was delivered against a backdrop of continuing turmoil on the global economic front. The UK reversed its promised tax cuts that spelled the end of Liz Truss’ brief tenure as Prime Minister. She was replaced by the more economically credible Rishi Sunak. In the US, media reports suggested the US Federal Reserve will scale back its aggressive interest rate hikes in December. Both events were welcomed by financial markets, but the same challenges remain. Escalating war in Ukraine, energy supply shortages, rising inflation and interest rate hikes to fight it, still point to a likely recession in the US and elsewhere. Oil prices continue to rise as OPEC restricts supply, with Brent Crude up about 13% this month, but recession fears are moderating the price pressures.

In Australia, economic signals are mixed. Reserve Bank assistant governor, Luci Ellis said in a speech that Australia’s ‘’neutral” cash rate should be at least 2.5%. The rate is already at 2.6% after a 25-basis point rise this month, but further increases are expected. Unemployment rose slightly to 3.5% in September, perhaps indicating labour shortages are easing. The ANZ-Roy Morgan consumer confidence index slipped below its 2022 average of 90.3 on recession fears and the falling Aussie dollar. The dollar fell another 2c to around US63.2c in October. Businesses are more optimistic, with the NAB business conditions index up 3 points to a 15-month high of 25 points in September.

Federal Budget 2022-23: From a tax perspective

Quiet on the tax front, for now

For once, tax measures took a back seat in a Federal Budget, with the second version for this year being billed as a “solid and sensible Budget suited to the times”.

The October 2022 Budget resisted the recent trend to continually tinker with our tax system, but it seems likely this steady-as-she-goes approach won’t last long, with the new Treasurer, Jim Chalmers, repeatedly referring to the need for tax reform in the days prior to delivering his first Budget.

Tax was not entirely forgotten, however, with the ATO to extend many of its tax compliance programs, a new focus on multinational corporate tax and higher fines for tax breaches.

ATO compliance focus

The ATO was a big winner in the Budget, receiving extra funding to help it achieve higher levels of tax compliance.

The tax regulator will receive $80.3 million to extend its current Personal Income Tax Compliance Program for two years from 1 July 2023. This program will focus on overclaiming tax deductions and incorrect reporting of income.

The ATO also received additional funding for its Shadow Economy Program and Tax Avoidance Taskforce, with additional compliance activities in these areas expected to raise $3.7 billion over four years.

Tax penalty increases

Fines for breaches of the tax and financial laws will rise from 1 January 2023.

The current fine of $222 per penalty unit will rise to $275 per penalty unit, with fines to be indexed in line with the CPI again from 1 July 2023. This increase is expected to raise an additional $31.6 million over four years.

Multinational tax measures

The Budget included measures designed to close tax loopholes and ensure multinationals pay their fair share of tax in Australia. The multinational tax integrity package is expected to raise around $1 billion over 4 years.

The government also intends to focus on working with other countries to reform the international corporate tax system to “better address the challenges arising from digitalisation and globalisation”.

Electric vehicle buyers

More small businesses may be tempted to go electric with their vehicles, with the $345 million Electric Car Discount to exempt eligible electric vehicles from fringe benefits tax (FBT) and the 5 per cent import tariff.

On an electric car valued at about $50,000, the new FBT exemption will save an employer up to $9,000 a year. For individuals using a salary sacrifice arrangement, the saving could be up to $4,700 a year. As an additional sweetener, customs duties of up to $2,500 are also being removed if the vehicle was previously subject to an import tariff.

Supporting small business well-being

Small businesses have not been forgotten entirely, with the Budget providing $15.1 million in additional funding to extend the small business mental health and financial counselling programs, NewAccess for Small Business Owners and the Small Business Debt Helpline.

Almost $63 million in new grants will also be available to small and medium-sized businesses so they can improve their energy efficiency and reduce their energy usage by investing in energy efficient upgrades.

Lower eligibility age for downsizer contributions

The super system was given a break from its endless reforms, with only a minor tweak to the existing rules.

The Budget included a measure to allow more people to make downsizer contributions into their super accounts by reducing the minimum eligibility age from the current 60 to 55 years of age. Older Australians will also be encouraged to downsize by exempting their home sale proceeds from pension asset testing from the current 12 months to 24 months.

End of tax offsets and low-income payments

A noticeable absence from the Budget was new tax offsets and payments to lower-income earners.

There was no extension of the previous Low and Middle Income Tax Offset (LMITO), which means eligible taxpayers will no longer receive the offset when lodging their annual tax return. The Coalition’s one-off $420 cost-of-living offset was also not renewed.

How to spot and stop financial abuse

Until recently, financial abuse was often kept secret, especially where it occurred within the family. Thankfully that’s changing with public awareness campaigns and help becoming more readily available.

The emotional and economic damage caused by financial abuse can be far reaching and devastating. A recent Australian report calculates that in 2020 alone, financial abuse victims lost $5.7 billion while the cost to the broader economy was $5.2 billion.ⁱ

Nearly one in 30 women and one in 50 men suffer financial abuse each year, according to the Deloitte Access Economics report The Cost of Financial Abuse in Australia, 2022. These figures are almost certainly an underestimate, the report adds.

There are no typical victims of financial abuse: those affected are of all ages and means. Sadly, the abuser is often a friend, carer, partner or family member.

What is financial abuse?

Financial abuse is when someone uses your money without your permission, prevents you from getting access to money or takes charge of your financial decisions.

These days, financial abuse is considered a form of domestic and family violence, taking away your independence and leaving you feeling vulnerable and anxious. Victims may also suffer physical violence and emotional abuse.

The most common type of financial abuse is withholding income or controlling how it is spent, according to the Deloitte report. But there are other forms of abuse that can be equally harmful such as making a partner liable for a joint debt, preventing someone from working, refusing to contribute to household expenses and refusing to contribute to the costs of raising a child.

Many victims also suffer flow-on effects of the abuse such as financial hardship and stress, leading to mental health issues. Some may also lose their home.

In some cases of family violence, one partner takes control of the couple’s finances, preventing the victim from leaving the relationship. In others, where the victim does manage to leave, the abuser may continue their abuse using tactics such as expensive legal action or disrupting the victim’s work or business.

Recognising the signs

Victims of financial abuse may not be aware of the abuse for some time, allowing perpetrators to empty bank accounts, deplete investments and incur large debts in the victim’s name.

The federal government agency, Services Australia says the warning signs include:

taking or using your money without your permission
not being allowed to work
having to account for how you spend your money
withholding financial information from you
spending any government payments you receive without your consent.ⁱⁱ

Incurring debts in your name is another form of financial abuse. Your partner may spend more than you agree on your credit card, pressure you into co-signing a loan with them, or take out a loan in your name, according to Australian Family Lawyers.ⁱⁱⁱ They may also limit your educational opportunities by, for example, preventing you from enrolling in studies that could advance your career.

Older people and those living with disability can be particularly vulnerable to financial abuse if they rely on others for help and advice. Financial abusers may take money from their bank accounts or wallets, ask an older person to change their Will, take jewellery or other valuable items from their home, or take control of their decisions using a Power of Attorney when they are still capable of making their own decisions.

Where to go for help

If you or someone you know is suffering financial abuse, a number of free and confidential resources are available.

The MoneySmart website provides information about free legal advice at community legal centres or legal aid centres, and a number of suggestions if you need urgent help with money.

You can also find free and confidential counselling for family violence, abuse and sexual assault at: 1800RESPECT (24 hours a day, seven days a week) 1800 737 732

For crisis support, contact Lifeline (24 hours a day, seven days a week). 13 11 14

We understand that it can be difficult reaching out for support if you feel you or someone you love is being taken advantage of financially, especially if a family member is involved. Please call us if you would like a confidential discussion about safeguarding your finances.

i https://www.commbank.com.au

ii https://www.servicesaustralia.gov.au/what-family-and-domestic-violence?context=60033#a8

iii https://www.australianfamilylawyers.com.au/information-centre/signs-of-financial-abuse

Catching the kindness bug

Australians have seen more than their share of tough times over the past few years and there are many stories of how individuals and communities responded to natural disasters and the pandemic with empathy and valuable assistance.

Being kind and helping others does not have to be something that we only do in times of crisis however, every day can provide opportunities to look out for others and be more caring and compassionate in the way we conduct ourselves.

A kind nation

A recent study shows that we truly believe ourselves to be a kind nation and that we are living this out in our daily lives, with the average Australian performing 16 acts of kindness every week.ⁱ

The amazing thing about being kind is that it not only helps the recipient of your care and compassion – it also benefits you, the giver, in so many ways.

The benefits of a kind act

If you feel good after you’ve done something nice for someone else, you are not just basking in the psychological glow of a job well done and the thanks they gave you. Biologically, kindness releases chemicals like the “love hormone,” oxytocin, which helps us form social bonds based on trust and give us a sense of belonging and community, and serotonin which promotes a feeling of calmness and combats depression.

There are a host of other physical benefits that can come from doing something nice for others. Doing a good deed for others has been proven to lower blood pressure, improve the health of your heart, reduce anxiety, and stress, and even boost immunity.ⁱⁱ

Kindness – the gift that keeps on giving

Kindness tends to be contagious (but in a good way!). If you are the recipient of kindness, it can spur you on to think of others and in turn do a good deed for someone else.

Research also shows that the happiness people get from giving to others creates a ‘positive feedback loop.’ The more you give, the more positive you feel, which leads to feeling more inclined to help others.ⁱⁱⁱ

Random, spontaneous acts of kindness

Being kind is all about the small things. You don’t need to be daunted by the effort or possible expense of a grand gesture. If you keep it small, it’s easy to include random acts of kindness as part of your daily routine. These could be as simple as offering a compliment to a co-worker or contacting a friend who is going through a tough time and just asking how they are doing and letting them know they are in your thoughts.

If it’s not something that comes naturally to you, it can help to just consciously aim to do one nice thing for someone every day. If kindness is on your radar, you can work some spontaneous gestures into your day. Pay forward that coffee in the café you always go to, open the door for the person struggling with their groceries or hold the lift for the guy in a hurry.

Once you’ve mastered spontaneity, you can take it one step further and plan how you’d like to help others on an ongoing basis. Here are a few ideas to get you thinking:

Join a website to give things away you don’t use
Share your skills by offering to mentor someone in your industry
Help an elderly neighbour by offering to walk their dog or pick up some shopping when they need it
Sponsor a local charity

Being kind to yourself

Finally, fostering kindness is not only about being kind to others. As kids we may have been told to ‘treat others as you would treat yourself’ but we are often not as kind to ourselves. Many people maintain a negative internal dialogue that we would not tolerate from someone else, and we can be extremely hard on ourselves if we fall short of our own expectations. A little positive self-talk and self-care can go a long way when it comes to looking after yourself and it’s not selfish to do so.

Each act of kindness can change the way we see ourselves and others, as well as how others see us. so, when you are faced with the choice of how to react to a particular situation – take the opportunity to be kind.

i https://mccrindle.com.au/article/blog/what-are-the-most-common-acts-of-kindness-in-australia/

ii https://www.quietrev.com/6-science-backed-ways-being-kind-is-good-for-your-health/

iii https://www.healthdirect.gov.au/acts-of-kindness-and-compassion

The post November 2022 appeared first on VISIS.

October 2022

adrianadelmonaco@gmail.com — Sat, 01 Oct 2022 19:18:00 +0000

Insights

October 2022

August, 2022

Content

Getting the balance right in decision making
Mortgage vs super
Guide to concession cards for seniors

It’s October and the footy finals are almost over, depending on which code you follow. In Canberra though, Treasurer Jim Chalmers is warming up for his first Budget on October 25 against a background of mounting economic pressures.

In September, persistently high inflation and aggressive rate hikes by the world’s central banks put global share and bond markets under pressure. The US Federal Reserve has lifted rates seven times this year, but US inflation remains at 8.3%. There is now growing fear that central banks may push the world into recession. In a surprise twist, the Bank of England (which has also lifted rates seven times this year) was forced to switch back to Quantitative Easing, buying government bonds to support the British pound which crashed to a record low in response to a stimulatory mini-Budget released by the new Conservative Party leadership. This led to a late relief rally on global sharemarkets and a fall in the US dollar and global bond yields. Even so, major global sharemarkets finished the month down 6% or more.

In Australia, the picture is a little brighter. Economic growth was up 3.6% in the year to June. Company profits are also strong, up 28.5% in the year to June, and unemployment remains low, at 3.5% in August. While inflation eased from 7% in July to 6.8% in August, due to falling petrol prices, it is still well above the Reserve Bank’s 2-3% target. Aussie consumers continue to spend at record levels, pushing up retail spending by 19.2% in the year to August, and petrol prices are set to increase by at least 22c a litre after the reinstatement of the fuel excise. Both will put upward pressure on inflation and interest rates.

The Aussie dollar fell more than 3c against the surging US dollar in September, to US65c.

2022 Year in Review

Getting the balance right in decision making

We all approach decision making in our own way, making a multitude of decisions every day: ‘Should I hit snooze again on the alarm?,’ ‘Do I take the train to work, or do I drive,’ ‘What should we have for dinner?’

In fact, researchers estimate that the average adult makes 35,000 decisions every day.ⁱ While most of these are fairly insignificant, we also constantly make complex decisions that may support us in many areas of our lives – from navigating a change of career, handling a new project at work, or even managing the complexities of interpersonal relationships.

Having some knowledge of the decision-making process can help you to be more self-aware when faced with those larger, more complex decisions.

The biology of thought

The human brain is an intricate organ. It contains about 100 billion neurons and 100 trillion connections, and controls our emotions, thoughts, and actions. Our brains appear wired to work in complex ways to enable us to make the best decisions possible with the information we’re given. In very simple terms the process is a little like a court trial. Our brains register sensory information like sights and sounds and then act as a jury to weigh each piece of ‘evidence’ to make a judgement or decision.

Thinking fast and slow

Nobel laureate Daniel Kahneman in his hugely successful book Thinking, Fast and Slow – suggests that there are two distinct and different ways the brain forms thoughts.ⁱⁱ

‘Fast thinking’ is automatic, intuitive, and used for most common decisions. It is our brain conserving energy by making the bulk of its decisions on some degree of autopilot. This style of thinking uses cognitive shortcuts to let us respond quickly and instinctively to a wide range of fast and ever-changing inputs, like discerning emotions from facial expressions, ducking when something is thrown at us, reading words on a billboard, or driving a car on an empty road.

On the other hand, ‘slow thinking’ is more thorough and logical but also takes more time and is resource intensive. It kicks in when you focus on a task or problem, monitor and control your behaviour, formulate an argument or do anything that causes your brain to exert itself.

Different thinking for different situations

Of course, both styles of thinking have their place. It’s important to be able to make fast decisions when required – in fact, fast thinking comes from the most primal part of our brain to help us make the kind of snap decisions integral to survival. However, there are times when you need to analyse and think through all the implications of a complex decision like whether to accept that new job offer interstate or buy that new car.

Amongst the multitude of small decisions we face every day, it can be hard to find the time and energy for the big ones. Steve Jobs famously explained that he wore the same outfit every day to have one less easy decision to make so that he could focus his energy on the more complex decisions he was dealing with.

Minimising mistakes

If you find you rely heavily on fast thinking in your life, making choices based on gut instinct with little research or consideration, it may be time to consciously slow it down.

While that may not mean wearing the same outfit day in, day out, you might be able to have a few things in your life on autopilot, like putting together a weekly meal plan so thinking about what’s for dinner is one less decision to make in your busy day.

Slow thinking takes discipline and effort. It’s important to approach critical decisions in a measured way and give yourself the time and head space to think things through, rather than being swayed by emotion or the cognitive biases associated with fast thinking.

Good decision-making, either financial or otherwise also benefits from having a sounding board to talk things through with, and of course we are here to assist with any important financial decisions you may be faced with.

i https://iise.org/details.aspx

ii https://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow

Mortgage vs super

With interest rates on the rise and investment returns increasingly volatile, Australians with cash to spare may be wondering how to make the most of it. If you have a mortgage, should you make extra repayments or would you be better off in the long run boosting your super?

The answer is, it depends. Your personal circumstances, interest rates, tax and the investment outlook all need to be taken into consideration.

What to consider

Some of the things you need to weigh up before committing your hard-earned cash include:

Your age and years to retirement

The closer you are to retirement and the smaller your mortgage, the more sense it makes to prioritise super. Younger people with a big mortgage, dependent children, and decades until they can access their super have more incentive to pay down housing debt, perhaps building up investments outside super they can access if necessary.

Your mortgage interest rate

This will depend on whether you have a fixed or variable rate, but both are on the rise. As a guide, the average variable mortgage interest rate is currently around 4.5 per cent so any money directed to your mortgage earns an effective return of 4.5 per cent.ⁱ

When interest rates were at historic lows, you could earn better returns from super and other investments; but with interest rates rising, the pendulum is swinging back towards repaying the mortgage. The earlier in the term of your loan you make extra repayments, the bigger the savings over the life of the loan. The question then is the amount you can save on your mortgage compared to your potential earnings if you invest in super.

Super fund returns

In the 10 years to 30 June 2022, super funds returned 8.1 per cent a year on average but fell 3.3 per cent in the final 12 months.ⁱⁱ In the short-term, financial markets can be volatile but the longer your investment horizon, the more time there is to ride out market fluctuations. As your money is locked away until you retire, the combination of time, compound interest and concessional tax rates make super an attractive investment for retirement savings.

Tax

Super is a concessionally taxed retirement savings vehicle, with tax on investment earnings of 15 per cent compared with tax at your marginal rate on investments outside super.

Contributions are taxed at 15 per cent going in, but this is likely to be less than your marginal tax rate if you salary sacrifice into super from your pre-tax income. You may even be able to claim a tax deduction for personal contributions you make up to your annual cap. Once you turn 60 and retire, income from super is generally tax free. By comparison, mortgage interest payments are not tax-deductible.

Personal sense of security

For many people there is an enormous sense of relief and security that comes with having a home fully paid for and being debt-free heading into retirement. As mortgage interest payments are not tax deductible for the family home (as opposed to investment properties), younger borrowers are often encouraged to pay off their mortgage as quickly as possible. But for those close to retirement, it may make sense to put extra savings into super and use their super to repay any outstanding mortgage debt after they retire.

These days, more people are entering retirement with mortgage debt. So whatever your age, your decision will also depend on the size of your outstanding home loan and your super balance. If your mortgage is a major burden, or you have other outstanding debts, then debt repayment is likely a priority.

All things considered

As you can see, working out how to get the most out of your savings is rarely simple and the calculations will be different for everyone. The best course of action will ultimately depend on your personal and financial goals.

Buying a home and saving for retirement are both long-term financial commitments that require regular review. If you would like to discuss your overall investment strategy, give us a call.

i https://www.finder.com.au/the-average-home-loan-interest-rate

ii https://www.chantwest.com.au/resources/super-members-spared-the-worst-in-a-rough-year-for-markets

Guide to concession cards for seniors

The excitement of heading towards retirement and a new stage of life can be tinged with concern over how to manage finances. For many people, seniors’ concession cards are a good way to help make ends meet.

While discounts on goods and services are always welcome, they’re even more valued right now as living costs continue to climb.

Concession cards for seniors provide significant discounts on medicines, public transport, rates and power bills. Many private businesses – from cinemas to hairdressers – also offer reduced prices to concession card holders.

There are different types of concession cards offered by federal, state and territory governments. While some are for those receiving government benefits, others are available to almost anyone aged over 60.

The cards are free and should not be confused with commercial discount cards that require an upfront fee or ongoing subscription.

Seniors Card

The Seniors Card is offered by all state and territory governments when you turn 60 (64 years in Western Australia) and are no longer working full time. This card is offered to everyone, regardless of your assets or income.

The Card will allow you to claim discounts on things like public transport fares, council rates and power bills. Thousands of businesses across Australia also offer reduced prices to Seniors Card holders. In some states, a separate card is offered to access discounts provided by private businesses and another card is provided for public transport.

For eligibility requirements and the range of services offered in your state or territory, click on a link below:

Victoria
South Australia
Western Australia
Northern Territory
Queensland
New South Wales
Australian Capital Territory
Tasmania

Federal Government concession cards

If you’re receiving a government pension or allowance, you’re a self-funded retiree or you’re a veteran, you may be eligible for one of several cards issued by the Federal Government.

The Pensioner Concession Card is automatically issued to people receiving pensions or certain allowances.

The card provides discounts on most medicines, out-of-hospital medical expenses, hearing assessments, hearing aids and batteries, and some Australia Post services.

In most states and territories, card holders receive at least one free rail journey within their state or territory each year.

Commonwealth Seniors Health Card

If you’ve reached the qualifying age for an Age Pension (currently 66 years and 6 months) but you’re not eligible to receive a pension, you may be entitled to the Commonwealth Seniors Health Card.

You can receive the card if you:

Are Age Pension age or older
Can meet residence rules
Are not receiving a government pension or allowance
Can meet identity requirements
Can meet the income test
Provide a Tax File Number or are exempt

While there is an income test, no assets test applies. You will receive similar benefits to the Pensioner Concession Card.

Low Income Health Card

For those on a low income but not yet at Age Pension age, the Low Income Health Care Card can be a big help. If you meet the income test, you’ll get cheaper health care and medicines and other discounts.

Your gross income, before tax, earned in the eight weeks before you submit your claim is assessed and must be below certain limits.

The types of income included in the test includes wages and any benefits you receive from an employer, self employment income, rental income, super contributions as well as pensions and government allowances.

Other types of income are also counted including:

Deemed income from investments
Income and deemed income from income stream products such as super pensions
Foreign income
Distributions from private trusts and companies
Compensation payments
Lump sums such as redundancy, leave or termination payments.

Veteran Card

The Department of Veterans’ Affairs has a concession card for anyone who has served in the armed forces and their dependents. Like other government concession cards, the Veteran Card provides access to cheaper medicines and medical care as well as discounts from various businesses. The Veteran Card is a new offering, combining the former white, gold and orange cards. There is no change to entitlements or services with the new card.

As you can see, the potential savings from seniors concession cards can be significant so be sure to check your eligibility. If you would like help working out your income and other eligibility requirements, give us a call.

The post October 2022 appeared first on VISIS.

September 2022

adrianadelmonaco@gmail.com — Thu, 01 Sep 2022 11:59:00 +0000

Insights

September 2022

Content

Go on… take a break!
How is my insurance taxed?
How much super do I need to retire?

Welcome to our Spring newsletter. September means it’s football finals season and hopefully the beginning of warmer weather despite the recent late winter chill.

In August, the focus was on US Federal Reserve chair Jerome Powell’s speech at the annual Jackson Hole business gathering on August 26, and he was blunt. To hose down talk of interest rate cuts in 2023, he said the Fed was focused on bringing US inflation down to 2% (from 8.5% now), even at the risk of recession. He said this will “take some time”, will likely require a “sustained period of below trend economic growth”, and households should expect “some pain” in the months ahead. The S&P500 share index promptly fell 3.4% and bond yields rose. Economists expect the US central bank will continue lifting rates each month for the remainder of 2022.

In Australia, economic conditions are less gloomy. Australia’s trade surplus was a record $136.4 billion in 2022-23. Unemployment fell to 3.4% in July while wages growth rose to an annual rate of 2.6% in the year to June, the strongest in 8 years but well below inflation. The ANZ-Roy Morgan consumer confidence index rose slightly in September to a still depressed 85.0 points while the NAB business confidence index jumped to +6.9 points in July, well above the long-term average of +5.4 points. Half-way through the June half-year reporting season, CommSec reports ASX200 company profits increased 56% in aggregate while dividends are 6% lower on a year earlier.

The Aussie dollar fell more than one cent over the month to close around US68.5c. Aussie shares bucked the global trend, finishing steady over the month.

Go on… take a break!

One of the things many of us have been missing over the past few years is holidays, but now that the world is opening up again for travel and destinations that have been pretty quiet are now eagerly welcoming back tourists, taking a break has never been more appealing.

Holidays are not just a lovely way to spend time, they are fantastic for us on so many levels. Having a break from the daily grind gets us out of our usual routine, opens us up to new experiences and is good for us mentally and physically.

However, the stats tell us that for many Australians it’s been a long time between breaks. In fact, around 8 million Australians have accrued nearly 175 million days of leave over the past 12 months, up from 151 the previous year.ⁱ That’s a lot of missed holidays!

Whether you are one of those who hasn’t had much of a break lately or even if you’ve just got back from a trip and are planning your next one – there are a host of good reasons to take a holiday.

Holiday to keep the doctor away

Holidays have been proven to lower stress which has a myriad of benefits including addressing the risk of cardiovascular issues like stroke and heart attack. A study following more than 12,000 middle-aged men at high risk for heart disease, found those who took yearly breaks were less likely to die from any cause, including heart attacks and other cardiovascular issues.ⁱⁱ

It’s not just physical health that benefits, taking a break is unsurprisingly pretty good for mental health with even a short break of a few days having a powerful mood enhancing effect.ⁱⁱⁱ

Travel to broaden the mind

Lifelong learning is not only good for our careers but also important for our personal growth. And travel is a learning experience like no other, whether you are heading to a new country or a different part of your city or state you’ll meet new people and experience a different way of life.

Travel is also the ultimate experience in mindfulness – you are living in the moment when you are on holiday. A break in routine takes us off autopilot and puts us in charge.

Having a break makes you more productive

If you are worried about the impact a break can have on your career – don’t be! Research by Boston Consulting Group found that professionals who took planned time off were significantly more productive than those who spent more time working.^iv Holidays offer time for introspection, goal setting and a chance to recharge your batteries for a new lease on life.

Planning for a wonderful time

Not all vacations are created equal. Just taking any quickly thrown-together escape may not provide all the health and productivity benefits associated with taking a vacation. A poorly planned break can be a source of tension and stress, rather than the opposite.

So how do you get the best out of a break?

Be flexible – While it’s important to plan before you leave, have enough flexibility for discovery – be open to new experiences and willing to change the schedule to accommodate those spontaneous magical moments.

Don’t sweat the small stuff – Things can and do go awry once you are away but don’t let silly little things spoil the break.

Switch off – Don’t be tempted to check your emails or socials every few minutes – stay in the moment. A decent break from work will also reinforce that the office doesn’t need you 24/7 and that life comes first.

Watch the budget but have some allowances to splurge – Focus on experiences and the memories you’ll take home with you rather than what’s on sale at the gift shop or duty free.

And finally, don’t feel that a holiday must be a luxurious destination or for a long period of time to count. A change of scenery can be as good as a holiday – even taking a mini break and heading off for a weekend away to a lovely destination can provide all the benefits of a holiday. So, what are you waiting for? Start planning that next trip. The wide, wonderful world awaits!

i http://www.roymorgan.com/findings/8696-annual-leave-holidays-march-2021-202105170711

ii https://pubmed.ncbi.nlm.nih.gov/11020089/

iii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5800229/

iv https://hbr.org/2009/10/making-time-off-predictable-and-required

How is my insurance taxed?

With the cost of living on the rise, it’s more important than ever to have a financial safety net that protects you and your family in case the unexpected happens.

Most Australian employees have some form of life insurance, often through their superannuation fund, but many of us tend to ‘set and forget’.

To make the most of your life insurance policy, it’s useful to understand how it works, and how premiums and payments are affected by tax.

Various types of life insurance

Life insurance is an umbrella term for a range of policies that cover different situations. They include:

Life cover, which pays out after your death to someone you have nominated.
Income protection covers you if you’re unable to work because of illness or injury.
Total and permanent disability (TPD) insurance provides medical and living costs if you become permanently disabled.
Accidental death and injury cover pays a lump sum if you die or are injured.
Critical illness or trauma insurance pays a lump sum to cover medical expenses for major medical conditions.
Business expenses insurance covers ongoing fixed business costs if you’re a business owner suffering serious illness or injury.

Tax benefits and deductions

The premiums for most types of life insurance are not tax deductible, but there are exceptions. Premiums for income protection held outside of super are tax-deductible and inside super for the self-employed. Business expenses insurance premiums are also tax deductible.

The tax treatment of benefits paid out by policies also varies according to the type of policy and your situation, so it’s important to talk to us. Generally, life cover paid to someone who’s financially dependent on you (typically a spouse and children under 18 years) is not taxed. But if the beneficiary isn’t your financial dependent, they can expect to pay tax.

Income protection insurance payments must be declared on your tax return and will be taxed at your marginal rate, just like your usual salary. Business expense insurance payouts also taxable.

Lump sum payments made through other policies are not taxable.

Inside super or outside?

Some of these insurances, particularly life cover, income protection and TPD, can be purchased through your super fund. Most people have a basic level of cover held this way, but you should check to see if it’s adequate for your needs.

If you are aged under 25, have a super balance of $6,000 or less, or your account is inactive, you will need to “opt in” if you want insurance cover.

If you have a self-managed super fund (SMSF), you’re required to consider whether to hold life insurance for each of the fund’s members, although there’s no obligation to buy.

Super pros and cons

You’ll need to do the sums for your circumstances, which is where an adviser can assist, but there may be an advantage to using your super to pay the premiums. The main reason is cost.

Sometimes, the buying power of larger super funds allows them to negotiate competitive pricing for insurance products.ⁱ It’s not always the case, so you’ll need to shop around to make sure you’re getting the best deal.

Another potential financial benefit in paying the monthly premiums out of your super account, is that you’re using funds taxed at 15 per cent. Whereas, if you pay the premium from your own bank account, you’d be using funds already taxed at your marginal tax rate, which may be higher. That means your pre-tax dollars are working harder and you’ve still got your cash in the bank.

The main drawback to paying insurance premiums through super is that you’ll be reducing your super balance, which means less for retirement. However, you could choose to boost your balance using salary sacrifice or personal contributions.

Your safety net checklist
Decide on who and what needs to be financially protected if something should happen to you.

Weigh up the best type of life insurance to meet your needs and shop around.

Be clear about any tax implications of an insurance payout

Make sure the policy benefit is adequate and check it annually.

Deciding on the type of life insurance you need can be tricky, so give us a call to discuss your insurance needs.

i Insurance through super – Moneysmart.gov.au

How much super do I need to retire?

Working out how much you need to save for retirement is a question that keeps many pre-retirees awake at night. Recent market volatility and fluctuating superannuation balances have only added to the uncertainty.

So it’s timely that new research shows you may need less than you fear. For most people, it will certainly be less than the figure of $1 million or more that is often bandied around.

For most people, the amount you need to save will depend on how much you wish to spend in retirement to maintain your current standard of living. When Super Consumers Australia (SCA) recently set about designing retirement savings targets they started by looking at what pre-retirees aged 55 to 59 actually spend now.

Retirement savings targets

SCA estimated retirement savings targets for three levels of spending – low, medium and high – for recently retired singles and couples aged 65 to 69.

Significantly, only so-called high spending couples who want to spend at least $75,000 a year would need to save more than $1 million. A couple hoping to spend a medium-level $56,000 a year would need to save $352,000. High spending singles would need $743,000 to cover spending of $51,000 a year, and $258,000 for medium annual spending of $38,000.ⁱ

While these savings targets are based on what people actually spend, there is a buffer built in to provide confidence that your savings can weather periods of market volatility and won’t run out before you reach age 90.

They assume you own your home outright and will be eligible for the Age Pension, which is reflected in the relatively low savings targets for all but wealthier retirees.^*

Retirement planning rules of thumb

The SCA research is the latest attempt at a retirement planning ‘rule of thumb’. Rules of thumb are popular shortcuts that give a best estimate of what tends to work for most people, based on practical experience and population averages.

These tend to fall into two camps:

A target replacement rate for retirement income. This approach assumes most people want to continue the standard of living they are used to, so it takes pre-retirement income as a starting point. A target replacement range of 65-75 per cent of pre-retirement income is generally deemed appropriate for most Australians.ⁱⁱ
Budget standards. This approach estimates the cost of a basket of goods and services likely to provide a given standard of living in retirement. The best-known example in Australia is the Association of Superannuation Funds of Australia (ASFA) Retirement Standard which provides ‘modest’ and ‘comfortable’ budget estimates.ⁱⁱⁱ

SCA sits somewhere between the two, offering three levels of spending to ASFA’s two, based on pre-retirement spending rather than a basket of goods. Interestingly, the results are similar with ASFAs ‘comfortable’ budget falling between SCA’s medium and high targets.

ASFA estimates a single retiree will need to save $545,000 to live comfortably on annual income of $46,494 a year, while retired couples will need $640,000 to generate annual income of $65,445. This also assumes you are a homeowner and will be eligible for the Age Pension.

Limitations of shortcuts

The big unknown is how long you will live. If you’re healthy and have good genes, you might expect to live well into your 90s which may require a bigger nest egg. Luckily, it’s never too late to give your super a boost. You could:

Salary sacrifice some of your pre-tax income or make a personal super contribution and claim a tax deduction but stay within the annual concessional contributions cap of $27,500.
Make an after-tax super contribution of up to the annual limit of $110,000, or up to $330,000 using the bring-forward rule.
Downsize your home and put up to $300,000 of the proceeds into your super fund. Thanks to new rules that came into force on July 1, you may be able to add to your super up to age 75 even if you’re no longer working.

While retirement planning rules of thumb are a useful starting point, they are no substitute for a personal plan. If you would like to discuss your retirement income strategy, give us a call.

*Assumptions also include average annual inflation of 2.5% in future, which is the average rate over the past 20 years, and average annual returns net of fees and taxes of 5.6% in retirement phase and 5% in accumulation phase.

i CONSULTATIVE REPORT: Retirement Spending Levels and Savings Targets, Super Consumers Australia

ii 2020 Retirement Income Review, The Treasury

iii Association of Superannuation Funds of Australia (ASFA) Retirement Standard

The post September 2022 appeared first on VISIS.