In our article, ‘Financial mindsets of the super wealthy’, we discuss that whilst on the path to financial freedom, occasionally it can be helpful to gain perspective along the way, by considering and then reflecting on the financial attitudes and behaviours of others.
It’s this gained perspective that can sometimes allow us to look inwards and evaluate our own financial attitudes and behaviours, and where applicable, make adjustments.
In this article, instead of focusing on the super wealthy, we look at the financial attitudes and behaviours of everyday Australians as reported in the Australian Securities and Investments Commission’s (ASIC’s) latest Australian Financial Attitudes and Behaviour Tracker (Wave 5).
Australian Financial Attitudes and Behaviour Tracker
The Australian Financial Attitudes and Behaviour Tracker was launched by ASIC in 2014 to track a number of financial attitudes and behaviours among adult Australians. Below are several of the findings from the five main areas focused on.
Financial attitudes – the attitudes towards managing money
Around 6 in 10 Australians feel confident about managing their money, but more Australians find managing their money stressful. Within these overall findings, younger people, including those with children, expressed higher levels of financial stress when compared to other groups that responded to the survey.
In our article, ‘Recognising and dealing with financial stress’, we discuss the fact financial stress can arise at any point in your life. In these situations, it’s important to recognise and deal with financial stress when it does present itself. Furthermore, you may find that financial stress can occur when confidence around managing your money is a little low. As such, getting your personal finances in order can often be a great first step in the right direction to gaining confidence in the management of your money and alleviating financial stress.
Keeping track of finances – approaches to managing everyday expenses
Around 8 in 10 Australians have a budget and 9 in 10 are keeping track of their finances in some way; however, despite these overall findings, checking for unusual or suspicious transactions on either bank or credit card statements was a noticeable exemption for some.
In our animation, ‘Tracking your spending’, we discuss the importance of keeping track of your day-to-day spending habits. Tracking your spending is a great way to make sure your spending is aligned with the budget you have set for yourself, so that you can continue to work towards achieving your financial goals and objectives. It’s also an important means of assessing whether unusual or suspicious transactions have occurred, and where applicable, bringing these to the attention of your relevant financial institution so that they can be appropriately addressed.
Planning ahead – planning for the short, medium and long-term, including retirement and beyond
Around 1 in 2 Australians have a short to medium term financial plan (3-5 years), whilst around 1 in 4 have a long-term financial plan (15-20 years). Furthermore, roughly 2 in 3 Australians reported monitoring their progress in the last six months.
In our article, ‘Running the retirement plan race’, we discuss that financial plans are important individualised road maps devised to help you reach your financial goals and objectives. Along the way, it’s important to assess your progress, and where applicable, make adjustments so that you continue to move in the right direction.
Think about one overall long-term financial plan (where you want to be) that has multiple short to medium-term financial plans (how you are going to get there) within it – and, the markers of progress towards realising your overall long-term financial plan can be measured by reviewing your achievement of these short to medium-term plans over time.
Staying informed – use of information, tools and guidance when needed
Financial institution websites, followed by talking to family and/or friends, continue to be some of the most common sources of information Australians consulted in the last six months when considering bank accounts, credit cards, home loans and personal loans. However, in terms of investments, seeking professional advice was the most common source of information Australians consulted.
When it comes to your personal finances, an important consideration is the power of leverage gained when a team of professionals (such as a financial adviser, accountant, solicitor and mortgage broker) are built around you and appropriately utilised. In our video, ‘Teamwork, leverage and achieving a common goal’, we discuss the importance of recognising where your limitations lie (in terms of knowledge and skillset) and the subsequent circumstances where the benefits of teamwork may be appropriate in achieving your financial goals and objectives.
Ultimately, seeking professional advice in areas of your personal finances (cashflow, debt management, insurance planning, investments, and superannuation) will enable you to receive appropriate guidance that is tailored to your financial situation, goals and objectives.
Financial control – savings behaviour and managing debt
Around 1 in 5 Australians reported that they did not save any money over the last six months. In addition, a small percentage reported that they would not be able to cover three months’ living expenses if faced with a sudden loss of income.
Given the rising cost of living (such as electricity and grocery bills), and a relatively sluggish wage growth environment, at present you may have started to feel a slight pinch in the hip pocket when it comes to the availability of surplus income to put towards a savings plan or the repayment of debt. In our article, ‘Household expenditure: Finding surplus income’, we discuss that by completing or reviewing an existing budget, you can gain a better understanding of the movement of your money (inflows and outflows) and areas where surplus income may lie. By itemising your household expenditure and then taking the time to do an assessment of your spending habits, you can see whether adjustments can be made here or there to find surplus income.
In addition, in terms of managing living expenses with a sudden loss of income, it’s important to consider the establishment of an emergency buffer and appropriate personal insurances, so that if such a situation does arise you do not need to rely on other sources, such as credit cards and borrowing.
Financial literacy – level of understanding of several key investing concepts
Less than 1 in 3 Australians report understanding the risk/return trade-off concept and only 4 in 10 understand the investing principle of diversification.
In our article, ‘Diversification fundamentals in portfolio construction’, we discuss the importance of ‘not putting all your eggs in one basket’ and how diversification can be achieved through spreading your funds across different asset classes and markets and regions. Furthermore, we also discuss how your risk tolerance, financial situation and financial goals affect how diversification is applied when it comes to devising an appropriate investment mix to meet your needs within a specified time horizon.
Ultimately, words and our understanding of them can help us to comprehend in a meaningful way the information that we receive and make informed decisions in relation to our own personal circumstances. Although, jargon is prevalent in many industries, in terms of investments, the risk/return trade-off concept and diversification principle are two important things to understand.
Our ideas, thoughts and opinions can invariably influence our financial attitudes and behaviours, which can in turn influence how we manage our personal finances. Sometimes comparing similarities and differences to our own personal circumstances, via gained perspective from others, can allow us to look inwards and see whether there are things that we need to take the time to consider, improve upon or give ourselves a pat on the back for.
Please remember that we are here to help and support you on your journey towards financial freedom. As such, if there is an area of your personal finances (cashflow, debt management, insurance planning, investments, or superannuation) that you would like to discuss then book a time to have a chat with us.
Travelling in retirement can often be high on the priority list. You worked hard to accumulate wealth during your working years to live a comfortable lifestyle in retirement – and now, with time and resources at your disposal, you may want to do things that may not have been possible earlier in life due to personal and/or work-related constraints. With this in mind, we provide you with several savings tips worth considering when it comes to planning that next trip away.
It’s important to note that whilst this article mainly focuses on retirees, we think wealth accumulators will find some of the savings tips helpful as well.
The first port of call – financial situation
In our article, ‘Retirement savings and longevity risk’, we discuss the importance of making sure that you live within your means during your retirement years so that you don’t run the risk of running out of money down the track. For example:
- Being mindful of the transition from employment to retirement and spending accordingly.
- Understanding the impact of pension payment drawdown and ad-hoc lump sum withdrawals.
As such, one of the first things to consider, before we get into the savings tips, is your existing financial situation, specifically the funds that you have to work with.
An important question to ask, is whether you have the capacity to sufficiently fund the travel from your regular account-based pension payments (and, other sources of income, such as the Age Pension) or will it require an ad-hoc lump sum withdrawal, for example, from your account-based pension? And, if it’s the latter, is this in line with your overall financial plan in retirement? If you are unsure, these are things that we can help you to explore.
Once you know what your annual spending budget is, you can then start formulating ideas with regards to the more exciting aspects of planning travel – this is where the savings tips can help.
Savings tips – to help you stretch that dollar a little bit further
There are many savings tips with regards to travel, and largely, their usefulness will depend on your own personal circumstances, such as the type of travel you are accustomed to and your intended destination. As such, below are just a few that we thought might be helpful.
Pricing considerations when booking flights and accommodation
In many cases, the savings tips here are based on one of the fundamentals of economics – supply and demand. As such, if you are willing to be flexible with your travel plans then you might find that you are able to save a considerable amount of money.
1. Book in advance. For example, in terms of flights, according to Skyscanner’s research on over 250 million flight prices over the last three years (departures from Sydney):
- The cheapest months to travel are May and November, whilst the most expensive month is December.
- The best times to book, depending on location, are
- 5 months in advance for destinations such as Auckland and Bangkok.
- 6 months and more in advance for destinations such as Bali, Los Angeles, London and Singapore.
- 5 months in advance for destinations such as Brisbane, Cairns, Melbourne, Gold Coast and Perth.
- 6 months and more in advance for Adelaide.
As with flights, a similar approach can be taken when it comes to booking accommodation. A rough guide for best times to book is 3 to 5 months in advance for domestic and 5 months and more in advance for international.
Please note: Whilst you may find cheap deals at the last minute, by booking in advance, not only will you give yourself time to plan other aspects of your travel, but you will also be able to take advantage of cheaper deals designed by companies to initially attract attention/demand.
2. Travel to your intended destination during the shoulder or low/off season and book your flights/accommodation so that your arrival/departure is mid-week, instead of weekends. We have provided you with an example of just how much prices can vary according to not only the season, but also the day of arrival/departure chosen. The example we use, is a popular vacation spot in Merimbula (“Heart of the Sapphire Coast”), in New South Wales.
|Beach Cabins (Merimbula)|
Accommodation Pricing Changes
2017-18 Financial Year
|Low/Off Season*||Weekend||1st of September to 15th of September||$1,449|
|Mid-week||29th of August to 12th of September||$1,432|
|Shoulder Season^||Weekend||1st of December to 15th of December||$1,518|
|Mid-week||28th of November to 12th of December||$1,449|
|High/Peak Season#||Weekend||22nd of December to 5th of January||$2,990|
|Mid-week||19th of December to 2nd of January||$2,858|
*3rd of May to 18th of September.
^18th of September to 18th of December; 2nd of February to 23rd of March.
#18th of December to 2nd of February.
Please note: Low/off, shoulder and high/peak seasons can vary depending on the intended destination. As such, the above example in terms of seasons is only a guide for this particular destination; however, a general rule of thumb is to consider avoiding the times in which holidays are usually taken, such as school holidays and the festive season.
Accommodation selection considerations
1. Book accommodation that is outside of the city hub. Hotels and motels in the inner city are in most instances more expensive than those further out. If you can find something that’s close to public transport (e.g. train, tram or bus), you may find that you can save a lot.
2. Opt for accommodation that has a kitchenette. Eating out for breakfast, lunch and dinner everyday can quickly add up. By opting for a room with a kitchenette and shopping at a grocery store, you can help reduce some of the costs of eating by preparing your own meals from time to time. In addition, when you do decide to dine out, remember that lunch is often cheaper than dinner – which could be a good opportunity to fill up, but perhaps don’t follow Mr. Bean’s lead in this video…
3. Consider alternative accommodation to hotels and motels, such as Airbnb, motor homes, caravan parks, etc.; however, in terms of alternative options such as Airbnb, it’s important to weigh up the potential cost savings with your level of comfort and expectations, namely, staying in someone’s house/apartment (whether it be their primary residence or investment property) as opposed to a hotel or motel.
If you are planning to see the sights whilst at your intended destination, the transportation costs associated with getting to and from places can be costly. As such, if you are unable to utilise your own car, consider opting for public transport as opposed to taxis. In addition, in terms of other ride services such as Uber, you may need to weigh up the potential cost savings with your level of comfort and expectations, namely, being a passenger in someone’s own personal car as opposed to a taxi or public transport service.
Please note: Although convenient, car rentals can often be quite expensive, when all things are considered (e.g. daily hire rate, insurances, petrol and other optional add-on accessories, such as GPS). Furthermore, if you are in a foreign place, whether domestic or international, driving can be quite stressful as you navigate around.
Overseas travel and currency exchange considerations
If you are travelling overseas, consider the option to exchange your currency prior to arriving at the airport as the exchange rates on offer can often be cheaper than those available at airport global exchange services. Here is a simple example. Given the current exchange rate of the AUD dollar versus the US dollar, you may find that by exchanging $1,000 AUD at your local Post Office yields $755 US (0.7557 US exchange rate), as opposed to $719 US (0.7192 US exchange rate) at one of Sydney Airport’s global exchange services. In addition, you may wish to consider using a Travel Money card – these can be a convenient way to carry money and use foreign currencies whilst travelling. Funds held on Travel Money cards are fixed into an exchange rate the day you purchase the card, which can help provide you certainty around spending.
1. Tracking your spending. As with any trip away, excitement can sometimes get the best of us, so it’s important to keep track of your spending. Overspending here and there, can quickly add up if left unchecked – as such, whilst travelling consider regularly reviewing whether your spending is in line with the budget you have set yourself.
2. Seniors discounts. When travelling domestically, you may find that certain hotels/motels, cafes/restaurants, attractions (such as landmarks and museums) and public transport services offer discounts to seniors.
We hope you have enjoyed our savings tips on how to stretch your dollar a little further on your next trip away. By considering these, you may find that you are able to save some money that can either be kept in your hip pocket or put towards other things that you would like to do whilst away on your trip.
Moving forward, if you would like help with understanding your existing financial situation, and whether the types of travel you have in mind fit into your overall financial plan, please do not hesitate to book a time to have a chat with us.
The 2017-18 Federal Budget delivered by Treasurer Scott Morrison on the 9th of May 2017 was packed with proposed measures. Of most note was moves by the Government to address the issue of housing affordability.
In this article, we review several of these ‘housing affordability’ proposed measures that have recently passed through the parliamentary process and become law – in particular how they affect residential property investors, retirees wishing to downsize or prospective first homebuyers.
You may find it helpful to first recap on how proposals become law via our article, “From Proposal to Law”.
Residential property investors
Residential property investors are no longer able to claim a tax deduction for travel expenses for personally inspecting, maintaining or collecting rent for their residential rental property; however, can continue to claim travel expenses incurred by third parties such as property management services. This has been backdated to commence from 1 July 2017 onwards.
Furthermore, the Government has limited plant and equipment depreciation deductions to outlays incurred by the current owner of a residential real estate property; however, grandfathering arrangements may apply to existing residential real estate properties as at 9 May 2017. This has been backdated to commence from 1 July 2017 onwards.
Source: Treasury Laws Amendment (Housing Tax Integrity) Act 2017, which received royal assent on the 30th of November 2017.
Retirees wishing to downsize
From 1 July 2018, eligible homeowners aged 65 and over will be able to use the proceeds from the sale of their family home (main residence) to make a downsizer contribution of up to $300,000 each (that is, up to $600,000 per couple) into their superannuation.
This is referred to as the ‘Downsizing Measure’.
- Homeowners do not need to comply with the existing work test and age limit eligibility criteria for contributing to superannuation.
- The family home must have been owned for 10 years or more prior to disposing of it and not be a caravan, houseboat or mobile home. In addition, the proceeds from the sale must be either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.
- The exchange of contracts for the sale must occur on or after 1 July 2018. Furthermore, the contribution to superannuation must be made within 90 days of the date of change in ownership as a result of the disposal (e.g. the date of settlement); however, an extension may be granted in certain circumstances.
- The contribution amount cannot be greater than the total proceeds of the sale of the family home. For example, if a couple sell their family home for $500,000: the maximum contribution both can make cannot exceed $500,000 in total – this means the couple can either choose to contribute half each (i.e. $250,000), or split it (e.g. $300,000 for one and $200,000 for the other).
- The contribution is not limited by the contributions caps or the $1.6 million total superannuation balance limit on making non-concessional contributions; however, the amount contributed will increase the total superannuation balance and can therefore limit the ability to contribute in future years.
- Unlike the family home, funds that have been contributed to an individual’s superannuation may reduce their Age Pension benefits, and increase any means tested Residential Aged Care and Home Care fees they pay.
- Lastly, the Downsizing Measure may only be used once (i.e. on one family home) and despite the name, ‘Downsizing Measure’, there is no requirement to purchase another home nor is there a restriction imposed on purchasing a more expensive replacement home.
Source: Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017, which received royal assent on the 13th of December 2017.
Prospective first homebuyers
From 1 July 2018, eligible prospective first homebuyers will be allowed to withdraw their voluntary superannuation contributions (and, an amount of associated earnings*) for the purpose of purchasing or constructing their first home. These voluntary contributions, which must be made within existing superannuation contribution caps, include concessional (i.e. personal deductible contributions and salary sacrificed amounts) and non-concessional contributions. The amount available for withdrawal will be up to $15,000 of voluntary contributions per financial year since 1 July 2017 ($30,000 in total) plus associated earnings, less tax on concessional contributions and associated earnings (e.g. taxed at marginal tax rates, less a 30% offset).
This is referred to as the ‘First Home Super Saver Scheme’.
*Calculated using a deemed rate of return, which is based on the 90-day Bank Bill rate plus three percentage points (shortfall interest charge rate).
Please note: To be eligible to take advantage of the First Home Super Saver Scheme, an individual must, for example:
- Be 18 years or older – however, this does not prevent voluntary contributions that an individual makes before they turn 18 from being eligible to be released after they turn 18;
- Never have held interest in property (including investment property and commercial property) – however, those considered to be suffering financial hardship may be exempt from this provision. The specific regulations regarding financial hardship have not yet been released;
- Have not previously released funds under the First Home Super Saver Scheme;
- Intend to use the released funds for the purpose of purchasing or constructing their first home – and, in doing so:
- Enter into a contract within the first 12 months of the funds being released; however, an extension may be granted in certain circumstances.
- Occupy (or intend to occupy) the premises as soon as practicable as their main residence, and for at least 6 months of the first 12 months after it is practicable to do so.
Source: Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Act 2017, which received royal assent on the 13th of December 2017.
Please note: If the individual is unable to enter a contract to purchase or construct a home within the required period, they must recontribute the released amount (net of tax withheld), into super. If the funds have not been recontributed, a first home super saver tax will be imposed. The amount of this tax is 20% of the individual’s assessable first home super saver released funds.
Source: First Home Super Saver Tax Act 2017, which received royal assent on the 13th of December 2017.
So there are a number of proposed measures that have now become law, which aim to address the issue of housing affordability. Some impose restrictions, whilst other provide opportunities.
Whether you are a residential property investor, retiree looking to downsize or prospective first homebuyer, if you have any questions regarding anything discussed in this article then please contact us.
When considering personal insurances, often you may first think about protecting your household financially from unexpected events (e.g. a passing, sickness or injury) that may occur to yourself; however, unfortunately unexpected events can also happen to your loved ones, which can have a similar result in terms of the financial impact on your household.
Due to this, in our animation, “Personal insurance for families”, we touch on the concept of cross insurance, namely, insuring both heads of the household whether they be dual income earners or a sole income earner and a non-working spouse.
Similarly, it’s also important to consider the financial impact on your household if your child was to unexpectedly pass away or suffer a sickness or injury. Common questions worth considering, especially regarding a sickness or injury, are:
- Do you have the adequate resources available to pay for any immediate and ongoing medical treatment, or home and/or care modifications that your child may require?
- How would you cope financially if you or your spouse needed to stop work to care for your child either on a temporary or long-term basis?
Child trauma benefit
Some insurers offer a unique type of personal insurance that is specifically tailored to cover your child. This type of personal insurance is called the Child Trauma Benefit and can come as either an in-built inclusion or an optional extra (with its own insurance premium payable) to your Trauma insurance policy.
The Child Trauma Benefit provides a lump sum payment to you if your child was to pass away or suffer a specified medical event. Depending on the insurer, and whether the Child Trauma Benefit is an in-built inclusion or optional extra, the lump sum payment amount can be either fixed (e.g. $10,000) or an amount specified by you upon application (e.g. up to a maximum sum insured, such as $200,000). Furthermore, in the event that the Child Trauma Benefit is an optional extra, and the amount specified as the sum insured reaches a certain threshold, you may find that underwriting is required.
Medical events covered
The medical events covered under a Child Trauma Benefit can range between insurers. In addition, the medical events covered usually are not as extensive as those under an ordinary Trauma insurance policy. As such, below is a list of some of the medical events that you may find covered under a Child Trauma Benefit:
|Child Trauma Benefit|
|Benign brain and/or spinal tumour||Invasive cancer|
|Malignant bone marrow disorder||Skin cancer|
|Other serious events|
|Accidental HIV infection||Aplastic anaemia|
|Brain damage||Chronic kidney failure|
|Chronic liver or lung disease||Coma|
|Intensive care||Loss of hearing|
|Loss of use of limbs and/or sight||Loss of speech|
|Major head trauma||Major organ transplant|
|Multiple sclerosis||Muscular dystrophy|
|Paralysis (e.g. diplegia, hemiplegia, paraplegia, or quadriplegia)||Severe burns|
Things to consider
When it comes to the Child Trauma Benefit, there are several important considerations. Although these may vary between insurers, listed below are few (although not a comprehensive list).
Policy eligibility, cessation and conversion
You may find that the Child Trauma Benefit:
- Is only available to your child if they are within a specified eligibility age bracket. For example, between 2 and 15 years.
- Has a cease date that often refers to a period just after the upper limit of the specified eligibility age bracket has been reached. In addition, this can also occur if the relevant Trauma insurance policy that holds the Child Trauma Benefit ceases.
- Has the capacity to be converted to an ordinary Trauma insurance policy for the child just prior to them reaching the policy cease date related to the upper limit of the specified eligibility age bracket. In this circumstance, the policy becomes their own; however, depending on the sum insured, underwriting may apply.
Guaranteed future insurability
You may find that you are able to increase the sum insured by a predefined amount (up to a maximum limit) upon certain milestones being reached, such as the child’s 6th, 10th and 14th birthday, without an assessment of your child’s health.
Exclusions and qualifying period
You may find that the Child Trauma Benefit will not be paid in the event of one of the following:
- The medical event is caused by a congenital or pre-existing condition, an intentional self-inflicted injury, or attempted suicide.
- The medical event arises within three months of the commencement of the insurance policy.
Partial or full payment
Depending on the medical event that arises (e.g. type and severity), you may find that a partial or full payment is made under the Child Trauma Benefit.
We may not like to consider the thought of our child unexpectedly passing away, or suffering a serious sickness or injury; however, unfortunately it can happen. As such, in the event of an unexpected event, the Child Trauma Benefit aims to help ease the financial stress that may occur to you and your household during this distressing time.
Although in this article we have provided a general overview, the Child Trauma Benefit can vary considerably among insurers. Consequently, it’s important to seek professional advice and read the relevant Product Disclosure Statement.
If you would like to know more about the Child Trauma Benefit, please do not hesitate to book a time to have a chat with us.
As the clock strikes midnight to mark New Year’s Day, this is the time that we often begin to reflect on what we have achieved over the course of the last 12 months. Part of this reflection can also make us focus our attention on specific aspects of our life we may feel that we have neglected up until this point.
As such, roughly 41%* of us find ourselves devising a New Year resolutions list often with the aim of restoring a sense of balance in our life – this can entail a shifting of our priorities through the redistribution of time, effort and sometimes money.
According to TwitterAU, here were the most tweeted New Year resolutions in 2017 by Australians:
Top 10 New Year Resolutions in 2017
|4||Learn something new|
|6||Get a new job|
|7||Volunteer/donate to charity|
|8||Get a boyfriend/girlfriend|
Other common New Year resolutions tend to focus on enjoying life to the fullest, getting organised, reducing debt and spending less to save more.
Unfortunately, if you read our article, “Does a New Year Resolution set you up to fail?”, you will find that 25% of us ‘throw in the towel’ within the first week of making our resolutions. This percentage steadily increases with the passage of time (i.e. 29% in two weeks, 36% in one month and 54% in six months) – and, when all things are said and done, 88% of New Year resolutions fail. This may help to explain why our resolutions tend to be the same year after year.
As such, when establishing or reviewing your existing New Year resolutions list, it’s important to:
- Carefully consider your goals; are they realistic in their obtainment and do they hold specific relevance and meaning to you? By considering this first, you may find that you start off on the right foot and subsequently increase your chance of adhering to the path that you set for yourself in the achievement of your goals. This can be referred to as the contemplation stage.
- Put in place an appropriate plan (e.g. how are you going to get to where you want to be, such as the steps required and an appropriate support network) and then start making your goals a reality. A plan gives you a sense of direction and an appropriate network of people can provide you with support along the way, and with that, you are able to move from thinking about doing something to actually doing it. This can be referred to as the action stage.
- Periodically review your progress. Keeping track of how you are progressing towards your goals will not only give you an indication of what you have achieved to-date, but also allow you to gain a greater understanding of your current position in relation to your goals – this can often be done after important milestones have been reached. This can be referred to as the review stage.
- In a similar vein to above, proactively reaffirm your goals in the face of setbacks. Life often has a habit of getting in the way of our best intentions. In these situations, it’s important to appropriately address any setbacks that may occur, reach out to your support network, make any adjustments where required, and then refocus your attention to the goals at hand. This can be referred to as the reaffirm stage.
- Lastly, once you have reached your goals, it’s important to maintain, and in some instances build upon, what you have achieved. After all the hard work, it can sometimes be easy to fall back into old habits, which may see you ending up right back at square one. Like the milestones that lead to your goals, think of the completion of your goals as another stepping-stone to something else. This can be referred to as the completion stage.
In addition, to the list of resolutions that you may have already set, give thought to any areas of your personal finances that may also require some attention. Here are a few personal finance-related resolutions you may wish to consider:
- Talk to your partner about your existing financial situation, as well as the goals and objectives you would like to work towards now and into the future.
- Set aside some time, every so often, to educate your children on personal finance basics e.g. budgeting, spending and saving.
- Familiarise yourself with your Money Personality and increase your financial literacy with the resources on our Financial Knowledge Centre.
- Organise your finance-related paperwork in a filing system and actively engage with any statements you may receive e.g. investment and superannuation statements.
- Revisit your budget plan and track your day-to-day spending habits.
- Establish an emergency buffer.
- Get a handle on your debt repayments e.g. home loan, investment loan, personal loan, car loan and credit card debt.
- Make sure you have a suitable Plan B in place to insure against unexpected events that may occur in the future e.g. general and personal insurances.
- Familiarise yourself with the concept of ‘Future self-continuity’ and be proactive in planning for retirement. Read our article, “Running the retirement planning race”.
- Track down any lost superannuation and consider the consolidation of multiple superannuation accounts.
- Make sure your estate planning affairs are in order e.g. will, powers of attorney, guardianship, superannuation death benefit nomination, and potentially your cyber assets.
Focusing on areas that need attention and making the required changes in your life can sometimes be difficult, especially when things have become engrained in your daily habits; however, the results can be truly amazing when you look back at where you started and what you needed to do to achieve the goals that you set for yourself.
When it comes to areas of your personal finances, remember that you do not have to tackle these on your own. If you need help, please do not hesitate to book a time to have a chat with us.
* J. Norcross., M. Mrykalo., and M. Blagys. (2002). Auld Lang Syne: Success predictors, change processes, and self-reported outcomes of New Year’s resolvers and nonresolvers. Journal of Clinical Psychology, 58(4), pp397-405
Historically, a discussion on estate planning would normally focus on a will.
The aim of a will is to appropriately distribute your assets upon your passing, and can include assets such as:
1. Personal belongings
2. Your investments
3. And, superannuation death benefits if the estate is the nominated beneficiary.
With the growing rate in which we are finding ourselves interacting with digital technology, especially online, it may be time to also consider the inclusion of your online ‘digital footprint’ or ‘cyber assets’ in your will.
A prime example of just how prolific our cyber assets have become, as well as their integration into our daily lives, can be demonstrated by recent statistics highlighting the number of active users in several of the most well-known social media platforms. For example, in the month of October alone, there were roughly:
- 15 million Australians actively using Facebook and YouTube (2 billion and 1.5 billion globally)
- 9 million Australians actively using Instagram (700 million globally)
- 4.2 million Australians actively using LinkedIn (106 million globally)
- 3 million Australians actively using Twitter (328 million globally).
However, it’s important to note that your cyber assets extend further than just your social media accounts, they can also encompass:
- Email accounts (e.g. Google, Yahoo and Hotmail)
- Online paid memberships (e.g. Spotify, Netflix and Stan)
- Online money transfer accounts (e.g. PayPal and cryptocurrency accounts)
- Online businesses (e.g. eBay, Amazon and monetised YouTube accounts)
- Stored data (e.g. photos, music and videos) in cloud-based file sharing/storage facilities (e.g. Dropbox, Apple iCloud and Google Drive).
So why bother including these cyber assets in your will? One reason is that, if they are not included, your executorcould overlook them, due to either an inability to access them or simply being unaware of their existence in the first place – and, when considering inaccessible or unknown cyber assets that hold a monetary value, this can cause potential implications, such as an inappropriate:
- Assessment of assets and liabilities when filing your last tax return, and
- Distribution of assets to beneficiaries.
Examples of cyber assets that could hold a monetary value can include a PayPal account with a residual balance, an iTunes account that holds your music library or credits, or a monetised YouTube account. Furthermore, when considering online paid memberships and some cloud-based filing sharing/storage facilities, just like your utilities providers, your executor will need to notify these service providers of your passing so that services can be terminated where applicable.
In addition to cyber assets that hold monetary value, there can also be cyber assets that may hold sentimental value to your loved ones. For example, photos and videos in social media accounts and cloud-based file sharing/storage facilities. Consequently, the inclusion of these cyber assets may benefit your loved ones during the grieving process, and afterwards, by allowing them to access photos and videos that may not be otherwise stored anywhere else.
However, when including cyber assets in your will, it’s important to understand that each cyber asset will be subject to the underlying service provider’s terms of service regarding account access upon your passing, which may limit your executor’s legal authority to manage that cyber asset.
In light of the above, several service providers have developed varying protocols. Please see below for a brief overview of two major service provider’s protocols that can be followed either by you (prior to your passing) or others (upon your passing):
This service provider has developed the following protocols:
Prior to passing away – actions you can take
- Nominate a legacy contact. This is a Facebook friend who you choose to manage your account upon your passing. In this instance, your account will change to a ‘memorialised account’, and will have the word ‘Remembering’ next to your name. Your legacy contact will be able to do things like write a pinned post on your timeline (e.g. a final message on your behalf), respond to new friend requests, update your profile picture (and, cover photo), download a copy of what you have shared on Facebook and request the removal of your account. However, your legacy contact won’t be able to do things like log into your account, remove/change past posts and photos, read your messages or remove any existing friends (or make new friend requests).
- Request account deletion. If you do not want to nominate a legacy contact, you can instead choose to have your account deleted upon your passing. In this instance, an immediate family member or your legal representative (e.g. executor) can notify Facebook of your passing, provide the relevant documentation (e.g. death certificate) and request for your account to be deleted.
Upon your passing – actions others can take
- Request to have your account memorialised. In this instance, a friend, family member or your legal representative (e.g. executor) can notify Facebook online of the date of your passing, attaching a link to your obituary or providing the relevant documentation (e.g. death certificate), to request for your account to be memorialised. However, if you did not nominate a legacy contact prior to your passing, the account will not be able to be actively modified or cared for as per above.
- Request account deletion. In this instance, only a verified immediate family member or your legal representative (e.g. executor) can notify Facebook of your passing, provide the relevant documentation (e.g. death certificate) and request for your account to be deleted.
This service provider has developed the following protocols:
Prior to passing away – actions you can take
- Assign a trusted contact. This allows your trusted contact to download some of your account content, but not given login capacity, in the event your account is left unattended for an amount of time you have specified (e.g. 3, 6, 12 or 18 months). You can nominate what content you would like to give them authority to download, such as YouTube, Google Maps, Gmail, Google Drive and Bookmarks. The trusted contact will receive notification from Google after the specified time has lapsed and provided with details regarding your wishes that pertain to your content.
- Request account deletion. If you do not want to assign a trusted contact, you can instead choose to have your account deleted in the event it’s left unattended for an amount of time you have specified (e.g. 3, 6, 12 or 18 months).
Upon your passing – actions others can take
- Request to download some of your account content. In this instance, immediate family members or your legal representative (e.g. executor) can notify Google of your passing, provide the death certificate and request a US court order to download certain account content. Again, they will not be given login capacity.
- Request account deletion. In this instance, immediate family members or your legal representative (e.g. executor) can notify Google of your passing, provide the death certificate and request your account to be deleted.
At the end of the day, life-changing events can happen when we least expect them, subsequently it’s important to be appropriately prepared when it comes to your personal affairs.
As such, with the growing rate in which we are finding ourselves interacting with digital technology, especially online, it may be time to also consider the inclusion of your ‘cyber assets’ in your will – and, perhaps in other estate planning areas, such as powers of attorney, in the event that you were to lose your decision making capacity.
A starting point may be writing down a list of all of your cyber assets (and, a brief overview of the contents contained within each), followed by what you would like to happen to each of them in the event of your passing, or loss of your decision making capacity. Then researching, the protocols that have been put in place by the relevant service providers to handle such situations.
We hope you have enjoyed this article. Given the focus on cyber assets, something you may also be interested in reading is helpful tips on keeping your personal information safe. Please read our article, “Data security 101: Protecting your personal information”.
Have you started to feel a slight pinch in the hip pocket when it comes to the availability of surplus income?
Identifying and using surplus income appropriately can be helpful at any stage of life, whether that be during your wealth accumulation or retirement years.
By completing or reviewing an existing budget, you can gain a better understanding of the movement of your money (inflows and outflows) and areas where surplus income may lie.
You may find that your inflows are fixed (unless you anticipate a pay rise or are considering an additional income stream such as the sharing economy). As such, to identify surplus income potential, it may be time to take a closer look at your outflows, especially in relation to your household expenditure.
Itemisation of household expenditure
According to the Australian Bureau of Statistics’ most recent Household Expenditure Survey 2009-10*, the average household expenditure for Australians was roughly $1,236 per week in 2009-10. This is approximately $1,429 per week when broadly indexed for CPI/inflation to June 2017. Your individual circumstances may necessitate expenditure above or below this figure.
At this point, the abovementioned $1,429 per week is not very insightful; however, by drilling down further into the primary and (if you like) secondary levels of household expenditure, you can begin to see where spending habits lie. With more detailed information, it becomes easier to assess whether adjustments can be made.
Based on the average spending habits in 2009-10, the weekly figure of $1,429 is broken down into primary level expenses below.
|Australian Bureau of Statistics* Household Expenditure Survey, Australia|
|Household expenditure catorgories|
(goods and services)
|Total goods and services expenditure|
|Total goods and services expenditure|
|Current housing costs (selected dwelling)||258||18.0|
|Domestic fuel and power||38||2.6|
|Food and non-alcoholic beverages||236||16.5|
|Clothing and footwear||51||3.6|
|Household furnishings and equipment||68||4.7|
|Household services and operation||78||5.5|
|Medical care and health expenses||76||5.3|
|Miscellaneous goods and services||135||9.4|
This can be further broken down into secondary level expenses, as shown below.
|Australian Bureau of Statistics* |
Household Expenditure Survey, Australia
|Household expenditure |
(Food and non-alcoholic beverages)
|Total food and non-alcoholic beverages expenditure|
|Total of food and non-alcoholic beverages expenditure|
|Bakery products, flours and cereals||23.60||10|
|Meat (excluding fish and seafood)||28.73||12|
|Fish and seafood||5.65||2|
|Eggs and egg products||1.62||1|
|Edible oils and fats||1.98||1|
|Fruits and nuts||14.40||6|
|Condiments, confectionary, food additives and prepared meals||26.24||11|
|Meals out and fast foods||72.75||31|
|Other food and non-alcoholic beverages||9.27||4|
If you are unsure about how to break down your spending habits, consider tracking individual transactions via your receipts and bank statements over a period – this will help you to get a sense of how you spend your money.
Post-itemisation of household expenditure
Once you have a detailed overview of your household expenditure, it’s time to assess whether adjustments can be made. Below we’ve highlighted several areas that may be worth considering.
Needs/necessities and wants/luxuries
Making a judgement on what are your needs and wants can vary through your lifetime and may depend on many factors. Overall, fundamental needs that seem universal include clean water, nutritious food, shelter and the capacity to acquire these.
Although, we are not advocating you cut out all want expenses (as enjoying life is also important!), it’s vital to remember the distinction between the two. By understanding the difference, you can assess what really matters to you and exercise financial discipline in areas where you may be living in excess.
Keeping the lights on, staying comfortable during the seasons, meal preparation, refrigerating perishables, bathing, and washing clothes, are important household needs; however, this doesn’t necessarily mean that adjustments can’t be made here or there to save money.
For example, in one of our more recent articles, ‘Electricity bills: Time to get wired’, we discussed becoming more energy-savvy by taking the time to better understand the ‘sum of all the parts’ in terms of the individual cost of each appliance (as well as their energy rating and optimal energy saving usage) that you utilise in your household.
Reviewing your services
Paying bills for the services you receive can often seem like a continuous process. These can be for utilities, car insurance, home and contents insurance, gym membership, mobile and internet plan, magazines and publications as well as digital streaming (e.g. Netflix, Stan, and Foxtel Now).
Evaluating your existing service providers with competitors may help you assess whether there is a similar quality, but cheaper alternative available – and in terms of subscriptions, whether you are actually using these.
Please note: GST now applies to digital streaming services; this has been dubbed the ‘Netflix tax’ and will most likely mean an increase in your subscription costs moving forward.
According to a recent report^, Australians waste over $10 billion worth of food annually, which roughly equates to $1,100 per annum ($21 per week) for each household.
It’s important to note that this is more than just food waste being placed in the bin – it’s also hard-earned money, surplus income potential, which could have been directed towards other areas.
For further information on ways to reduce your food waste, please read our article, ‘Tips for Reducing Food Waste and Saving Money’ or watch our video, ‘Saving You Money and Food Waste’. One of the top tips is to shop wisely – plan meals and buy only as much food as you need.
After you’ve assessed your household expenditure, if you do find areas where surplus income potential may exist and want to use this for investment purposes, talk to us. We can help you to understand how an appropriate use of this surplus income can benefit you moving forward.
For those who have taken part in a marathon or other endurance sport, you’ll already know that to reach the finish line you need:
3. And, perseverance.
In many ways, retirement planning is quite similar. Below we take a look at some of the key considerations.
Getting clear on why you’re doing it and making the commitment
When it comes to taking that first step, one of the biggest obstacles to retirement planning is shifting one’s mindset. Understandably, it can be hard to engage with the topic of retirement, especially if it’s far off and you have competing priorities right now. One place to start is by considering what kind of lifestyle you’d like to lead in retirement and how you might fund it.
The Age Pension is a safety net for those who don’t have enough superannuation or other financial resources behind them to generate a reasonable minimum retirement income. The maximum Age Pension alone allows for a very basic lifestyle – the current full payment rate (including the pension supplement and energy supplement) is $23,096 pa for singles and $17,410 pa each for couples. From 1 July 2017, those at least 65.5 years may qualify, however the age is set to increase by 6 months every 2 years and will be 67 years by 1 July 2023.
If you are striving towards a better lifestyle in retirement and/or want to retire before the Age Pension kicks in you will need to build your own personal financial fitness, to either supplement the Age Pension or self-fund your retirement. This may involve ramping up your debt repayments and/or savings. For example, paying off your home and growing your superannuation (over and above your employer’s Superannuation Guarantee contributions) and/or other investments outside of superannuation to reach your goal.
Taking a proactive approach to retirement planning earlier, means you can benefit from the power of compounding and give yourself flexibility if things change along the way. This may enable you to move towards your goal at a more comfortable pace.
If you leave retirement planning for later, you may find yourself under more pressure to reach the same goal or your expectations for retirement may need to be revised. See our article “It’s Never Too Early or Too Late To Save For Retirement” for a good example of this. Here, we show how much money you need to set aside each month (assuming a 6% return pa) to reach $1 million by age 65 if you start at different ages during your lifetime. For example:
- Age 20 = $361.04 pm
- Age 30 = $698.41 pm
- Age 40 = $1,435.83 pm
- Age 50 = $3,421.46 pm
Building your support team, assessing your existing situation and cross-training
An important part of retirement planning is building a team of relevant people around you. For example, your financial adviser is here to help you map out an appropriate path and support you on your journey. This will initially be based on an assessment of your baseline financial fitness and the establishment of a plan that focuses on the steps that need to be taken to achieve your goal.
Depending on your circumstances, the plan can encompass many areas of your personal finances. For example:
- Creating a budget and monitoring your cash inflows and outflows
- Managing your debt levels and making extra debt repayments
- Saving and investing for the long-term
- Reviewing the use of superannuation as a vehicle for wealth accumulation
- Establishing a contingency plan with personal insurances.
Together these things can help you reach your goal. For example, budgeting can help you tap into surplus income, which can then be used to pay down debt faster. The extinguishment of debt, frees up further income, which you may choose to contribute into superannuation and/or build other investments outside of superannuation. Having appropriate personal insurances in place can help you stay on track to reach your goal when an unexpected event such as a sickness or injury occurs.
Milestones, reassessing your progress and blasting through the wall
Retirement planning is not a sprint. It’s a long-distance run. So, working towards smaller milestones, reassessing your progress and making adjustments where needed along the way can help you stay motivated and keep on track to achieving your goal. A milestone can be extinguishing debt by a certain date, reassessing your progress can include an annual review of your financial situation, whilst making adjustments can involve tweaking your plan to cater for changes in legislation over time.
Nevertheless, at a certain stage in your race whether it be at the beginning, halfway through or nearing the finish line, you may find yourself hitting a “wall”. This may be due to one or a combination of factors, for example, competing priorities and/or unexpected events. To manage your way through this, it’s important to assess the situation with your support team, make adjustments where required, and then refocus your attention to the goal at hand.
Digging deep, crossing the finish line and post-planning
Nearing the finish line, may be the point in your life where you have paid off your debts, accumulated a reasonable superannuation account balance, have additional investments outside of super and are in the highest income earning years of your career. This is where you can start to think about building on what you have already achieved to date. For example, by doubling down to further boost your superannuation in the time remaining, which may involve maximising your concessional and non-concessional contributions whilst still considering the limits.
Crossing the finish line is often accompanied by a feeling of relief and accomplishment. Your preparation, flexibility and perseverance has culminated into your goal becoming a reality. At this stage, it’s time to reassess your current situation and manage your recovery and relaxation. The next chapter of your life is upon you, although it may not be as physically and mentally demanding, it’s still important to stay on top of your new baseline financial fitness.
We hope you have enjoyed our look at some of the parallels between retirement planning and running a marathon. If you need help with your retirement planning, remember we are here to help you map out an appropriate path and support you along the way.
In one of our recent articles, we explored similarities between retirement planning and marathon running. One of the take-home messages that we touched on was that retirement planning doesn’t cease on the day that you retire – it’s simply a transition to the next phase of your life.
This retirement phase also requires careful planning and management, especially regarding the risks you may face in retirement. Probably one of the greatest risks is the potential to run out of money in your retirement savings by living longer than you had expected; this is commonly referred to as longevity risk.
In terms of life expectancies in Australia, based on 2013-15 statistics*, a 65 year old male could expect to live for an average of 19.5 years (to age 84.5 years) and a female 22.3 years (to age 87.3 years); however, there are many factors, such as your existing lifestyle choices and health status, that could see you live beyond these average life expectancies. As such, to fund your desired lifestyle, you may find that your retirement savings need to last longer than your life expectancy.
In this article, we discuss several interrelated considerations for retirees in terms of retirement savings and longevity risk.
Be mindful of the transition from employment to retirement and spend accordingly
Retirement often involves a shift from employment income to income derived from a combination of your retirement savings (investments inside and/or outside of superannuation) and potentially the Age Pension. In most cases, this requires a reduction of your lifestyle expenses to accommodate a drop in your total household income.
Initially it may be difficult making this adjustment, especially if you have become accustomed to a higher standard of living that your employment income allowed. Consequently, you may find that there is the temptation to keep your pre-retirement lifestyle afloat with larger than planned drawdowns from your retirement savings; however, it’s important to realise that, your retirement savings are a finite resource, that is, at some point they will run out. As such, the drawdowns you make to fund your retirement lifestyle need to be sustainable for the long-term.
If you are finding it difficult transitioning from employment income to retirement income and the subsequent change in lifestyle that often accompanies this, then consider completing a budget and reviewing your household expenditure. Both of these are great ways to help assess and manage the way you spend your retirement income. Furthermore, you may even identify areas where surplus income potential may exist and depending on your personal circumstances, it may be worthwhile considering using this for investment purposes to further bolster your retirement savings.
Understand the impact of pension payment drawdown
When you commence an account-based pension to fund your retirement lifestyle, you will find that there is a minimum annual pension payment amount that you must receive. As shown in the below table, this is a percentage drawdown on your account-based pension’s balance that incrementally increases as you reach certain age brackets in your retirement years.
|Minimum Annual Payments for Account-Based Pension|
|Age||2017/18 Minimum Percentage Drawdown|
|95 or older||14%|
Due to this minimum percentage drawdown, as well as other factors such as lump sum withdrawals and fees, your account-based pension’s account balance will eventually reduce. The rate at which it reduces can be accelerated by your decision to draw more than the minimum annual pension payment amount.
For example, let’s say you retire at age 65, commence an account-based pension with a $500,000 balance and the underlying assets generate a total net return of 5% per annum. If you opted to draw $25,000 per annum (indexed to inflation), then you may find that your account-based pension lasts approximately 25 years (age 90); however, if you decided to instead draw $50,000 per annum (indexed to inflation), then your account-based pension may only last 11 years (age 76). Based on the average life expectancies and drawing $50,000 per annum, this could mean a potential shortfall in your retirement savings of 8.5 years for a male and 11.3 years for a female. Consequently, you may then find that you need to rely solely on the Age Pension to support yourself in retirement, which may result in a reduction in your retirement lifestyle moving forward.
Although the above example is simplistic in nature, it does highlight the importance of being mindful of the impact that drawing more than the minimum pension payment amount can have on your retirement savings over the long-term and the potential ramifications that this may have for you later in life. In addition, it also leads us to the next consideration.
The three-bucket approach to retirement investing
Being too conservative with your underlying assets and not appropriately considering your specific cashflow requirements over time are two things that can also affect the life of your retirement savings. As such, the three-bucket approach aims to extend the life of your retirement savings whilst appropriately managing your retirement lifestyle needs along the way.
The three-bucket approach involves dividing the underlying assets into different short, medium, and long-term buckets to leverage the relationship between risk versus return (pegged to your specific timeframes and cashflow requirements) whilst still applying the principle of diversification and risk profiling. An example of the three-bucket approach, which could be applied to your account-based pension, is shown below:
- A ‘cash bucket’ with cash investments to fund your short-term retirement lifestyle (regular pension payments and expected lump sum withdrawals) over the next one to two years;
- A ‘stable bucket’ with other income generating investments (e.g. fixed interest) to help account for an additional one to two years of retirement income; and
- A ‘growth bucket’ with the remaining balance held with more risk-associated investments (e.g. property and shares) for longer-term growth.
The cash and stable buckets are then replenished periodically, with enough funds to cover the next two to four years of regular pension payments and expected lump sum withdrawals.
For a more detailed overview of the three-bucket approach, please read our article, ‘The three-bucket approach to retirement investing’.
Take advantage of available concessions
Another way to help your retirement income stretch further is to understand and take advantage of any concessions you may be entitled to. For example, depending on your eligibility, this may include the Commonwealth Seniors Health Card. This card may assist you with certain health care costs (e.g. cheaper medicine under the Pharmaceutical Benefits Scheme), and depending on your state or territory government and local council, you may be entitled to other benefits (e.g. a reduction in your utility bills and property and water rates).
Supplement your retirement income with part-time or casual work
Although this may be the last thing on your mind after retiring, by participating in part-time or casual work you may gain access to additional income to spend on your retirement lifestyle and/or use for investment purposes to further bolster your retirement savings. However, before undertaking part-time or casual work, it’s vital to consider what implications this may have on other aspects of your life, such as your Age Pension entitlements.
Invest a portion of your wealth in an annuity
An annuity primarily invests in cash and fixed interest assets. It can provide you with guaranteed income payments over your lifetime or for a fixed number of years; this may help secure income payments when market volatility may affect other income generating assets within your investment portfolio, as well as make sure a portion of your retirement savings are immune to longevity risk.
For further information on what an annuity is, how it works and also why it potentially shouldn’t be considered the sole solution to your retirement goals and objectives, please watch our animation, ‘What is an annuity?’
Given our increasing life expectancies, it’s no surprise that longevity risk is one of the major concerns for retirees; however, with careful planning and management, appropriately considered strategies can be put in place to help mitigate this and other potential risks you may face in retirement.
If you have any questions about the considerations discussed in this article, please contact us.