Stay up to date with what’s happened in the Australian economy and markets over the past month.
The RBA dropped the cash rate to 4.10%, the first reduction since November 2020, however the RBA remains cautious regarding further cash rate cuts.
While tension continues between Russia-Ukraine and the Middle East, and a trade war looms due to Trump’s proposed tariffs, the global economic outlook remains unpredictable and markets are volatile.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Deciding when to retire is a big decision and even more difficult if you are concerned about your retirement income.
The average age of Australia’s 4.2 million retirees is 56.9 years but many people leave it a little later to finish work with most intending to retire at just over 65 years.i
If you’re not quite ready to retire, a ‘transition to retirement’ (TTR) strategy might work for you. It allows you to ease into retirement by:
supplementing your income if you reduce your work hours, or
boosting your super and save on tax while you keep working full time
The strategy allows you to access your super without having to fully retire and it is available to anyone 60 years or over who is still working.
Working less for similar income
The strategy involves moving part of your super balance into a special super fund account that provides an income stream. From this account you can withdraw funds of up to 10 per cent of your balance each year.
As you will still be earning an income and making concessional (before-tax) contributions to your super, this approach allows you to maintain income during the transition to full retirement while still increasing your super balance, as long as the contributions continue.
Note that, generally speaking, you can’t take your super benefits as a lump sum cash payment while you’re still working, you must take super benefits as regular payments. Although, there are some exceptions for special circumstances.
Take the example of Alisha.ii Alisha has just turned 60 and currently earns $50,000 a year before tax. She decides to ease into retirement by reducing her work to three days a week.
This means her income will drop to $30,000. Alisha transfers $155,000 of her super to a transition to retirement pension and withdraws $9,000 each year, tax-free. This replaces some of her lost pay.
Income received from your super fund under a TTR strategy is tax-free but note that it may affect any government benefits received by your or your partner.
Also, check on any life insurance cover you have under with your super fund in case a TTR strategy reduces or stops it.
Give your super a boost
For those planning to continue working full-time beyond age 60, a TTR strategy can be used to increase your income or to give your super a boost.
To make it work, you could consider increasing salary sacrifice contributions into your super then using a TTR income stream out of your super fund to replace the cash you’re missing from salary sacrificing.
In another example, Kyle is 60 and earns $100,000 a year. He intends to keep working full-time for at least another five years. Kyle transfers $200,000 from his super to an account-based pension so he can start a TTR strategy then salary sacrifices into his super.
This will reduce his income tax, but also his take-home pay. So, he tops up his income by withdrawing up to 10 per cent of his TTR pension balance each year.iii
A TTR strategy tends to work better for those with a larger super balance, a higher marginal income tax rate and those who have not reached the cap on concessional contributions.
Nonetheless, it can still be useful for those with lower super balances and on lower incomes, but the benefits may not be as great.
Some things to think about
TTR won’t suit everyone. For example, be aware that you cannot withdraw more than 10 per cent of your super balance each year.
Also, if you start withdrawing your super early, you will have less money when you retire.
The rules for a TTR strategy can be complex, particularly if your employment situation changes or you have other complicated financial arrangements and investments. So, it’s important to seek professional advice to make sure it works for you and that you are making the most of its benefits.
If you would like to discuss your retirement income options, give us a call.
Achieving your long-term financial goals doesn’t need to be overwhelming. If you can put in place some basic financial steps, you are on the road to a successful outcome.
It means keeping on top of your options and devising strategies for investment, debt reduction and risk protection. The start of the year is a perfect time to take a few proactive steps, that your future self will thank you for.
Building your nest egg
Adding to your superannuation is one of the most powerful and tax-effective ways to build your wealth over the long term. If you’re an employee, consider salary sacrifice to add to the mandatory contributions made by your employer. Even a small amount, paid regularly, will make a big difference over time. Don’t forget that there are some limits on how much you can invest before tax is affected, so it’s a good idea to keep track of any before-tax, or concessional, contributions.i
Small business owners, sometimes struggling with cash flow issues, may be tempted to neglect their own super contributions but you risk missing out on the benefits later in life.
Finding ways to cut living expenses and reducing or eliminating debt, including paying off the mortgage as quickly as possible, are also obvious ways to attain financial security, although not always easy to implement with cost-of-living pressures. But, again, any small and regular steps towards your goal are a positive contribution.
Preparing for the unexpected
Apart from finding ways to build your wealth and reducing debt, being prepared for unexpected losses is another way to secure your future.
For example, losing your home, business premises or vehicle in a catastrophic event when you’re not adequately insured creates a significant financial burden.
As natural catastrophes increase in frequency and intensity so does the ‘protection gap’, the economic losses caused by underinsurance or no insurance. One study estimated these losses in Australia at more than $18 billion in the nine years to 2023.ii
The Insurance Council of Australia (ICA) says there are some common reasons for underinsurance.iii
Making an incorrect guess about how much it would cost to repair, rebuild or replace property and contents. The ICA suggests using a building insurance calculator and a contents insurance calculator. Most insurers include both types of calculators on their websites.
Forgetting to update your insurance after upgrades to your home and belongings. Renovations, new furniture, and upgraded appliances can all add to the value of your home. It’s a good idea to reconsider the value of replacement at least every time you renew your policy.
Adding the extra costs such as demolition, clean-up, asbestos removal, council applications, architect, and surveyor services, and even the cost of temporary accommodation during a rebuild.
Not accounting for all your assets – you probably own a lot more than you realise. Have you included the contents of your garden shed and you wardrobe?
Financial protection for personal events
Protecting yourself financially against unexpected personal events is also worth weighing up.
A survey of more than 5000 working Australians shows that, on average, almost 80 per cent have car insurance while just one-third have life insurance.iv
Life insurance is a valuable protection for your family if something happens to you. There is also income protection insurance and various other personal insurances that can ensure you continue to receive an income when you’re unable to work.
While cost-of-living pressures might make insurance or self-insurance seem like a luxury you can’t afford, making an informed choice is the best you can do. That means the financial risks associated with events that affect yourself or your property and carefully weighing your options.
We’d be happy to help you review your wealth building and risk strategies and solutions for a financially safer 2025 and beyond.
At this time of year, when giving is particularly on our minds, some might turn their attention to how best share their wealth or an unexpected windfall with their loved ones.
You might be thinking about handing over a lump sum to help them with a major purchase or business opportunity, or be keen to help reduce or extinguish their student loans. Alternatively, it might be about helping to solve a housing problem.
Whatever the reason there are some rules that it is worth being aware of to ensure both you and they are protected.
Giving a cash gift
You can give anyone, family or not, a gift of cash for any amount and, as long as you don’t materially benefit from the gift or expect anything in return, no tax is paid on the amount by either you or the receiver.i
The same applies if you’re planning to pay out your child’s student loans.
However, be aware that if the beneficiary of your cash gift is receiving a government benefit, such as an unemployment benefit or a student allowance, there is a limit on the size of the gift they can receive without it affecting their payments.
They may receive up to $10,000 in one financial year or $30,000 over five financial years (which can not include more than $10,000 in one financial year).ii
Helping out with housing
Many parents also like to help their children get into the property market, where possible.
It’s been a difficult time for many in the past few years in dealing with the COVID-19 pandemic, the rising cost of living and interest rates, and a housing crisis.
A Productivity Commission report released this year found that while most people born between 1976 and 1982 earn more than their parents did at a similar age, income growth is slower for those born after 1990.iii
With money tight and house prices climbing, three in five renters don’t believe they will ever own a home even though most (78 per cent) want to be homeowners, according data collected by the Australian Housing and Urban Research Institute (AHURI).iv
Just over half of those surveyed (52 per cent) were renting because they didn’t have enough for a home deposit and 42 per cent said they couldn’t afford to buy anything appropriate, the AHURI survey found.
So, in this climate, help from parents to buy a home isn’t just a nice-to-have, it’s becoming a necessity for many.
Moving home
Allowing your adult child, perhaps with a partner and family, to share the family home rent-free is common option, giving them the chance to save up for a deposit.
One Australian survey found that one-in-10 people had moved back in with their parents either to save money or because they could no longer afford to rent.v
If it gets too much living under the same roof, building a granny flat in your backyard may be an option. Of course there are council regulations to consider, permits to be obtained and the cost of building or buying a kit but on the upside, it may add value to your home.
Becoming a guarantor
Another way to help might be to become a guarantor on your child’s mortgage. This might be the best way into a mortgage for many but before you sign, think it through carefully, understand the loan contract and know the risks.vi
Don’t forget that, as guarantor, you’re responsible for the debt. You will have to step in and repay if the borrower can’t afford to repay, and the loan will be listed as a default on your own credit report.
Any sign that you are being pressured to be a guarantor on a loan may be a sign of financial abuse. There are a number of avenues for advice and support if you’re concerned.
It’s vital that you obtain independent legal advice before signing any loan documents.
If you would like more information about how to provide meaningful financial support to your children, we’d be happy to help.
Ah, Christmas! – the time of year when your bank account shrinks, your social calendar explodes, and your family dynamics resemble a poorly scripted soap opera. As we navigate this festive minefield of shopping, social gatherings, and feasting, it’s common to feel a little frazzled.
In fact, research has found that the holiday season is one of the six most stressful life events we go through, in the same category as moving house and divorce.i
But it does not have to be – before you let the silly season get the better of you, here are some ways to not just survive, but thrive, to make it through the festive chaos and bring in 2025 feeling energised and on track to reaching your goals.
Get organised
Let’s face it, the silly season is a whirlwind. Between work parties, family catch-ups, and obligatory gatherings with distant relatives you only see once a year, it’s enough to make anyone want to retreat to a deserted island.
However, rather than running off to Bora Bora, if you want to survive the silly season relatively unscathed, planning ahead is a must. With the social calendar filling up quicker than you can say cheers, it becomes easy to overcommit and leave yourself feeling a little stretched. Rather than maintaining a constant schedule of parties and social engagements, why not learn the power of saying ‘no’. Choose the events you really want to attend and think about each invitation before you send that RSVP. Remember to allow for some guilt-free ‘down time’ amongst all the festivities.
Shopping shenanigans
Shopping during the silly season can be akin to a scene from an action movie—chaotic, frenzied, and with a distinct chance of an all-in brawl.
Channel your inner Santa Claus and make a list. And yes, check it twice! A good list keeps you focused and reduces the chances of impulse buys—like that life-sized inflatable Santa that seemed like a good idea at the time. (Spoiler alert: it wasn’t.)
Consider shopping online, too. You can sip your coffee in your pyjamas while avoiding the chaos of the shops. Just remember: the delivery cut-off dates are real! Don’t be the person frantically searching for gifts at 9 PM on Christmas Eve.
The present predicament
Let’s talk presents. It’s lovely to give and receive gifts, but when did we all agree that every adult needs a new mug or another pair of socks?
To combat the gift-giving madness, consider doing a Secret Santa among adults. Set a reasonable budget and unleash your creativity. Who doesn’t want a mysterious gift that could range from a novelty toilet brush to a box of chocolates?
Navigating the family dynamics
Family gatherings can be a delightful mix of love, laughter, and the occasional argument that would make for great reality TV. You know the drill—everyone has an opinion, and even the Christmas ham can become a hot topic of debate.
Before the big day, set some ground rules. No politics, no discussing that relative’s questionable life choices, and absolutely no karaoke unless everyone is fully prepared to participate. If tensions start to rise, a little humour can go a long way. Embrace the absurdity of it all. If Uncle Bob starts arguing about the best way to cook prawns, counter with a story about how Auntie Sheila once tried to deep-fry a turkey—because that’s a Christmas classic in its own right.
Don’t try to do it all
If you’re hosting this year, congratulations! You’re officially in charge of managing the chaos. But you don’t have to shoulder the entire load.
Encourage those who are coming to bring their ‘special’ dish. Not only does it lighten your load, but it also allows everyone to show off their culinary skills (or lack thereof). Plus, you might discover that Aunt Margaret’s “special” potato salad is actually a hidden gem—just don’t ask what’s in it.
Survive and thrive
At the end of the day embrace the chaos, lean into the hilarity of when things don’t go to plan, don’t take it all too seriously and be prepared to step back a little when you need a break from all the festivities.
Here’s to a joyful festive season filled with laughter and the wonderful chaos that is Christmas. We’ll catch you on the other side. Cheers!
Stay up to date with what’s happened in the Australian economy and markets over the past month.
While headline inflation eased to 2.8% in the September quarter, the RBA appears cautious on interest rates.
The RBA Governor stated that Australia’s core inflation remains too elevated to justify interest rate cuts in the near term.
The sharemarket reacted to the RBA’s comments in the last days of a month that had seen several all-time highs as markets globally reacted to Donalds Trump’s win.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Self managed super funds (SMSFs) can offer their members many benefits, but one that’s often overlooked is their potential as a multigenerational wealth creation and transfer vehicle.
Family SMSFs are relatively rare. According to the most recent ATO statistics (2022-23), the majority of SMSFs (93.2 per cent) have only one or two members.i Just 6.6 per cent have three or four members and only 0.3 per cent have five or six members (the maximum allowed).
Advantages of a family SMSF
An SMSF is sometimes established when two or more generations of a family share ownership or work in a family business. The fund can then form part of a personal and business succession plan, potentially making it easier to pass on ownership and management of assets to the next generation.
With more members, SMSFs also gain additional scale, allowing them to invest in larger assets (such as property). You can add business premises to the SMSF and lease it back without violating the related parties rule and 5 per cent limit on in-house assets.ii
Reduced tax and administration costs are also a benefit of multigenerational funds.
Running a family SMSF means the costs of establishing and administering the fund are spread across more members. This can be particularly helpful for adult children just beginning to save for their retirement.
In addition, more fund members means more people to share the administrative burdens of running an SMSF, which may be helpful as you get older.
A family SMSF does not need to be automatically wound up if you die or lose mental capacity and they can simplify the process of paying out a member death benefit as well as potentially allowing it to be paid tax-effectively. Note that death benefits paid to non‑tax dependent beneficiaries incur a tax rate of up to 30 per cent plus the Medicare levy.iii
More fund members also make setting up a limited recourse borrowing arrangement (LRBA) easier because their contributions reduce the fund’s risk of being unable to pay the borrowing costs. (An LRBA allows an SMSF to borrow money to buy assets)
Funding pension payments
Another advantage of an SMSF with up to six members may be when the fund begins making pension payments to older members.
If younger members are still making regular contributions, fund assets don’t need to be sold to make pension payments, which avoids the realisation of capital gains on assets.
Family SMSFs can also provide non-financial benefits, helping to transfer financial knowledge and expertise between the generations. And, while your children gain a solid financial education from participating in the running the SMSF, they can also provide valuable investment insights from a different perspective.
Risks and responsibilities
It is important to note that a multigenerational SMSF may not be right for everyone.
SMSFs of any size come with some risks and responsibilities. You are personally liable for the fund’s decisions, even if you act on advice from a professional, and your investments may not provide the returns you were hoping for.
Before you start adding your children and their spouses to your fund, it’s essential to spend time thinking about the challenges in running a family SMSF. Developing an asset allocation strategy catering to different life stages can be complex. Older members may prefer a strategy designed to deliver a consistent income stream, while younger members are usually more focused on capital growth.
Risk profiles are also likely to vary. Typically, younger fund members have a higher appetite for investment risk than members closer to retirement.
Family conflict can also be an issue when relationships are under pressure from divorce, blended families, and personality clashes.
The death of a parent can also create disputes over the distribution of fund assets or forced asset sales. Decisions about the payment of death benefits by the remaining trustees can derail carefully made estate plans and result in expensive legal battles.
Larger families with multiple adult children and partners may also find the six member limit an obstacle, forcing them to look at other options such as running a number of family SMSFs in parallel.
If you would look more information about establishing a family SMSF, call our office today.
There is no debate that Australians love investing in property. The value of Australian residential real estate at the end of August 2024 was an estimated $10.95 trillion.i
Some love it so much that they believe property is a better option for providing a retirement income. They see a bricks and mortar investment as a more tangible and solid approach than say, superannuation, preferring to take their super as a lump sum on retirement to buy property. They may also choose to invest a windfall, such as an inheritance, or the proceeds from downsizing the family home, in property instead of their super.
So, given that a retired couple above age 65 needs an estimated yearly income $73,337 to lead a comfortable lifestyle, could a property investment do the job?ii
While it’s true that a sizeable property portfolio could deliver rental income to equal a super pension, it might mean missing out on some useful benefits.
After all, super is a retirement savings structure with significant tax advantages. It also has the flexibility to provide investments in a range of different asset classes, including property.
Meanwhile, super fund performance has, generally speaking, outstripped house price movements over the past decade. Super funds (invested in an all-growth category) returned an annual average of 9.1 per cent during that time while average house prices in Australian capital cities grew 6.5 per cent per year over the same period.iii, iv
Not that past performance can give you any guarantees about what will happen in the future. Indeed, the average numbers smooth out the years of high returns and the years of negative returns. More important considerations in making an informed decision are your financial goals, your investment timeframe and how much risk you’re comfortable with.
Liquidity
One of the most significant differences between super and property investments is liquidity, or how quickly you can convert your investment to cash.
With super, assuming you’re eligible, funds can be accessed relatively easily and quickly. On the other hand, if your wealth is tied up in property it may take some time to sell or it may sell at a lower price.
Nonetheless, market cycles affect both property and super investments. They can be affected by volatile conditions and deliver negative returns just at the time you need access to a lump sum.
Long-term investing
Superannuation is designed for long-term growth, often spanning decades as you accumulate wealth over your working life. The magic of compounding interest can lead to substantial growth over time, depending on your investment options and the state of the market.
Property investments, on the other hand, can be invested for short, medium, and long-term growth depending on the suburb, the street, and the type of house you invest in. Of course, there are additional costs in buying a property (such as stamp duty) plus costs in selling (including capital gains tax). If there’s a mortgage over the property, you’ll need to factor in the additional costs of repayments and interest (bearing in mind that interest on investment properties is tax deductible).
Risk appetite
Investors’ attitudes towards risk also play a role in choosing between super and property.
Superannuation funds can be diversified across various asset classes, which helps to reduce risk. But property investments expose investors to a single market meaning that while there might be a big benefit from an upswing, any downturn may be a blow to a portfolio.
Making an informed choice
Ultimately, any decision between superannuation and property should align with individual financial goals, risk tolerance, and investment strategies. And, of course, it doesn’t need to be one or the other – many choose to rely on their super while also holding investment property so it’s best to understand how super and property can complement each other in a well-rounded retirement plan.
We’d be happy to help you analyse your retirement income strategy to develop a plan that works for you.
Stay up to date with what’s happened in the Australian economy and markets over the past month.
Welcome news on the inflation front in October pointed to the Reserve Bank of Australia (RBA) holding steady on rates this month.
The latest quarterly inflation figures show inflation has slowed to its lowest level since the height of the pandemic and now sits within the RBA’s target range at 2.8%.
Global share markets softened in the final two weeks of October, reflecting economic and geopolitical uncertainly.
The S&P/ASX 200 closed slightly down over the month of October, after again reaching record highs mid-month.
With the US election on the horizon there is much speculation about what that will mean for markets and the economy, both in the US and Australia.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Most people intend to retire between ages 65 and 66, according to the latest data and, surprisingly, despite growing superannuation balances, the Age Pension is the main source of income for many retirees.i
The intended retirement age has increased significantly in the last two decades, from just over 62 years on average in 2004.
Australian Bureau of Statistics (ABS) figures show that, in 2022-23, a government pension or allowance was still the main source of personal retirement income. This was followed by super, an annuity or private pension.
More than 60 per cent of those aged over 65 years were receiving the Pension in 2021ii
Am I eligible?
It is important to remember that, while you may not meet the eligibility requirements today, you may qualify later in life.
In 2021, only 44 per cent of people aged 65-69 received either full or part Age Pensions but this increased to 81 per cent for those aged 80 to 84 years.iii
Veterans who have served in the Australian Defence Force may be eligible for pensions or benefits from the Department of Veterans Affairs.iv
You are generally eligible for the Age Pension if you:
are over 67 years (depending on when you were born)
are an Australian resident and have lived in Australia for at least 10 years
can meet an income and assets test
What are the income and assets tests?
The Age Pension means tests considers your income and the value of any assets you own. If the value of your income and assets exceed certain limits, your payment will be reduced.
Income includes money from a job (including salary packaging), other pensions or annuities, earnings from investments and any earnings outside of Australia.v
Assets are items of value you or your partner own or have an interest in such as investment properties and artworks; caravans, cars, and boats; shares; and business assets. While your family home isn’t included in the assets test, your pension may be affected if you sell it.vi
Can I still work?
Singles can earn up to $212 per fortnight without their pension being affected. For every dollar over that amount, their pension will be reduced by 50 cents. Couples can earn up to $372 per fortnight and for every dollar over that amount, 25 cents in the dollar will be deducted from their pension payment.vii
If your income in a fortnight goes over a certain amount, you will not receive a pension payment. This cut-off amount is $2500.80 for a single person and a combined $3,833.40 for a couple. There are other higher cut-off allowances for those affected by ill-health.
The Work Bonus may help you earn more from working without reducing your pension. You don’t need to apply for it, the Bonus will be automatically applied to your eligible income – you just need to declare your income.viii
What does the Age Pension pay?
There are different rates of pension for singles and couples.
The current maximum basic rate for a single person is $1047.10 per fortnight. A couple would receive 1,578.60 per fortnight. With extra supplements, those on a full Pension could receive a fortnightly total of $1,144.40 for singles and $1,725.20 for couples.ix
Get in touch if you’d some help to work out your eligibility for the Age Pension and other government entitlements.
