Superannuation has dominated recent headlines, with proposed changes announced by Treasurer Jim Chalmers. While the details of these changes still need to be released, it’s worthwhile turning our focus to superannuation balances as we approach the end of financial year.

There are lots of different ways to top up your super, but if you want to take advantage of the opportunity to maximise your contributions, it is important not to wait until the last minute.

One of the simplest ways to boost your retirement savings is to contribute a bit extra into your super account from your before-tax income. When you make a voluntary personal contribution, you may even be able to claim it as a tax deduction.

If you have any unused concessional contribution amounts from previous financial years and your super balance is less than $500,000, you can also make a carry-forward contribution. This can be a great way to offset your income if you have higher-than-usual earnings this year.

Another easy way to boost your super is by making tax-effective super contributions through a salary sacrifice arrangement. Now is a good time to discuss this with your boss, because the Australian Taxation Office requires these arrangements to be documented prior to commencement.

Non-concessional super strategies

If you have some spare cash and have reached your concessional contributions limit, received an inheritance, or have additional personal savings you would like to put into super, voluntary non-concessional contributions can be a good solution.

Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.

Although you can’t claim a tax deduction for non-concessional contributions because they aren’t taxed when entering your super account, they can be a great way to get money into the lower taxed super system.

Downsizer contributions are another option if you’re aged 55 and over and plan to sell your home. The rules allow you to contribute up to $300,000 ($600,000 for a couple) from your sale proceeds.

And don’t forget you can make a contribution into your low-income spouse’s super account – it could score you a tax offset of up to $540.

Eligible low-income earners also benefit from the government’s super co-contribution rules. The government will pay 50 cents for every dollar you pay into your super up to a maximum of $500.

Your tax bill can benefit

Making extra contributions before the end of the financial year can give your retirement savings a healthy boost, but it can also potentially reduce your tax bill.

Concessional contributions are taxed at only 15 per cent, which for most people is lower than their marginal tax rate. You benefit by paying less tax compared to receiving the money as normal income.

If you earn over $250,000, however, you may be required to pay additional tax under the Division 293 tax rules.

Some voluntary personal contributions may also provide a handy tax deduction, while the investment returns you earn on your super are only taxed at 15 per cent.

Watch your annual contribution limit

Before rushing off to make a contribution, it’s important to check where you stand with your annual caps. These are the limits on how much you can add to your super account each year. If you exceed them, you will pay extra tax.

For concessional contributions, the current annual cap is $27,500 and this applies to everyone.

When it comes to non-concessional contributions, for most people under age 75 the annual limit is $110,000. Your personal cap may be different, particularly if you already have a large amount in super, so it’s a good idea to talk to us before contributing.

There may even be an opportunity to bring-forward up to three years of your non-concessional caps so you can contribute up to $330,000 before 30 June.

If you would like to discuss EOFY super strategies or your eligibility to make contributions, don’t hesitate to give us a call.

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It’s no secret that scammers are getting more sophisticated. As this is an ever-evolving space, scammers are constantly developing new ways to part you with your hard-earned cash – and they cast their net wide. 

While it’s easy to think “it will never happen to me”, people who never expected to be victims of scams are actually among the most vulnerable to being taken advantage of. While the stereotype is that older people are the most likely to be scammed, Gen Xers, Millennials, and Gen Zs are actually more likely than seniors to report losing money to fraud.ⁱ

The reality is scammers don’t discriminate and people of any age or demographic who believe they are too smart to be tricked may be less careful and more likely to suffer a loss.ⁱⁱ  And the losses are considerable. Australians were expected to lose around $4 billion to scams in 2022.ⁱⁱⁱ

Here are some scams to be aware of that are doing the rounds:

Texts or calls from a trusted brand

One of the most common scams at the moment is where a criminal pretends to be a trusted brand or government agency getting in touch to collect personal information or demand a payment. You may be contacted by email, social media, phone call, or text message and they will often direct you to an official looking website.

It’s easy to be taken in via text message as it can appear to be from a legitimate sender as the scammer uses ‘alpha tag’ technology to register a mobile number with a word or acronym – the ATO (Australian Tax Office) for example.

Beware of clicking on links and if you get a text message or call that doesn’t seem right, you can find the official contact details on the company’s website and call them to verify the scam.

Buying and selling

Scammers prey on consumers and businesses that are buying or selling products and services.

As a buyer you may pay the money and never receive the goods you have paid for. To protect yourself be on the alert for scams – if the advertised price looks too good to be true, it probably is. For rental properties or holiday accommodation, only use reputable online booking agents.

As a seller, you may be tricked into believing the buyer has paid in full or even paid over your advertised amount, including sending falsified payment receipts to support their claim. The buyer may then request a refund for overpayment. To protect yourself, don’t accept a mobile payment from someone you don’t know and never accept or refund a deposit for more than the selling price.

False billing scams request you or your business to pay invoices for services or supplies you did not order so always double check and query demands for payment if in doubt.

Tugging on the heart strings

Dating and romance scammers often make their approaches on social media or dating sites and will go to great lengths to gain trust. Protect yourself by never giving money or goods of value to someone you have never met in real life.

Scammers also appeal to our emotions by impersonating genuine charities to ask for donations after natural disasters or major events. To avoid being scammed approach charity organisations directly and check an organisation’s credentials on the Australian Charities and Not-for-Profits Commission (ACNC) website to see if they are a genuine charity.^iv

Attempts to gain personal information

These include when a scammer gains access to your personal information by using technology.

Consider using multifactor authentication, a security measure that requires one or more proofs of identity to grant you access to any applications you use regularly and change passwords regularly, making sure to choose secure passwords.

Taking a little extra care to be aware and alert to the possibility of being scammed could save you a lot of heartache. Of course, we are here to help if you think something may be a little suspect.

i https://consumer.ftc.gov/consumer-alerts/2022/11/fraud-reports-and-losses-not-just-grandparents-story
ii https://www.finrafoundation.org/sites/finrafoundation/files/exposed-to-scams-what-separates-victims-from-non-victims_0_0.pdf
iii https://www.news.com.au/finance/money/costs/australia-to-cop-4-billion-scam-loss-in-2022-according-to-scamwatch/news-story/890e469b4b05a6c950e3cb6b4f83f56c
iv https://www.acnc.gov.au/charity/charities

What is a bridging loan?

A bridging loan, or bridging finance, is a short-term loan that can help you finance the purchase of a new property while you sell your current property. Most people sell their old home first, and then buy their new home with the available equity. But there are times when buying first may suit you better.

How does a bridging loan work?

Let’s say you’ve found the house you want, but haven’t sold the one you’re in. You’ll need finance to meet the gap between receiving funds from the sale of your existing home and buying your new property. It’s essentially giving you a line of credit to cover the ‘bridge’ between purchasing the new property and receiving settlement funds on the old.

But it’s important to remember that you’ll need to pay your original home loan and the bridging finance loan at the same time. You’ll have to show evidence that you can repay the bridging finance interest costs during the period between buying and selling.

Once you’ve sold your property, you’ll have 12 months to repay the cost of the ‘bridge’.

When’s the best time to sell?

Whether it’s location or lifestyle, there are many reasons you might want to sell. But your timing may not necessarily coincide with the perfect property market conditions, so it’s important to know a few things about the market.

Seasonality

The real estate market changes with the seasons in Australia. Typically, spring is the most popular time to sell, with the highest number of sales.

But there are benefits to selling your home during quieter periods, like winter. With fewer properties to choose from, more potential buyers will get to see your place.

Market conditions

• Seller’s market: when the demand for homes is greater than the amount of homes available for sale. In a seller’s market you’re more likely to sell your property quickly.

• Buyer’s market: when the number of houses available for sale is higher than the number of buyers who are looking to buy. In a buyer’s market, it’s all about patience and being realistic about price.

Helpful tips

Working out what the property market is doing and where it’s going can help you decide when to buy or sell. Try:

• keeping an eye on weekly property sales in your area of choice

• staying up to date with the wider economy and interest rate movements.

To determine the best time to sell, you’ll need to consider your personal circumstances, reasons for selling, market conditions and seasonal factors.

Selling before buying

Pros

• You’ll know the exact amount you’ll have to put towards your next purchase.

• You don’t have to rush it and can wait until you’re happy with the sale price of your property.

• You won’t need to apply for a bridging loan to finance both properties – and you won’t have to pay two loans at once.

Cons

• The house you need may not be on the market, meaning you’ll have to move out without a permanent place to live.

• You might have to pay for rent and have the added expense and hassle of moving twice.

• Prices might go up after you sell and you might be priced out of the market, or not able to find your dream home for the right price.

Buying before selling

Pros

• Avoiding moving into a rental property and multiple moving fees.

• Not worrying about finding a new house to buy in a hurry.

• Taking advantage of a rising market and potentially getting more for your money and making more from your home sale.

Cons

• You may need a bridging loan to finance the new property.

• Interest on bridging loans is more than the interest on our standard term loans.

• You’ll have the extra cost and stress of having to repay two mortgages at once.

• It may force you into selling your original property at a lower price if you need the money to meet your loan payments. Bridging loans must be repaid within 12 months.

• If you can’t sell your existing home for the price you need or expected, you may have to find more funds to cover the shortfall.

• If you’re making a conditional offer on a property, you might need to make a higher offer to convince an owner to hold the property while you sort out your circumstances.

Options for when bridging finance isn’t for you

Taking out bridging finance has its risks. We’ve run through the pros and cons, but you need to be truly comfortable with the risks. You also need to ensure it’s financially possible for you to manage two loans. If not, selling first is the way to go.

If you’ve sold and now need to find a new home, there are a few things you can do to make the process smoother and minimise the stress.

• Try and negotiate a longer settlement period on the sale of your home, so you have more time to find a new house and only have to move once.

• Organise to rent your home from the new owner to give you more time to find a property.

• Stay with family and place your goods in storage to avoid rental costs while you look for a new home.

• Put your goods in storage and rent furnished accommodation to save yourself the hassle of moving and unpacking twice.

As with any financial decision, everyone’s position is different. Before you decide to take out the loan, call us on Phone: 07 5641 4134 to see if bridging finance is right for you.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/buy-next-home/bridging-loans

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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

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

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

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

Mistakes people make

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

1. Not knowing your living costs

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

2. Not looking at your super until just before retiring

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

3. Underestimating the impact of inflation

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

4. Not understanding your government entitlements

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

5. Letting the noise affect your investment decisions

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

6. Trying to time the financial markets

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

7. Being asset-rich and cash poor

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

8. Not consulting professionals

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

Start Planning

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

A phase of life you have looked forward to for so long deserves careful planning. So please get in touch if you would like to review your retirement income needs.

i Retirement Income Review Final Report, July 2020 page 63 Retirement Income Review Final Report (treasury.gov.au)

ii https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release

iii From 31 Oct 2003 to 04 Oct 2022, Fidelity Australia Timing the market | Fidelity Australia

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Index funds continue to outperform the majority of active managers over time, but a blend of passive and active funds can be a powerful combination.

The Australian share market ended 2022 lower than where it started the year, and in between it was a bumpy ride for investors.

Over 251 trading days, the S&P/ASX 200 index (which tracks the top 200 listed companies on the Australian Securities Exchange) closed higher than the previous trading session 138 times and lower 113 times.

And there were some sizeable daily swings last year. In 81 trading sessions the Australian share market either rose or fell by 1 per cent or more.

Which begs a question. Rather than investing in a “passive” index-tracking exchange traded fund or managed fund that delivers the share market return, minus costs, is it better to invest in actively managed funds that hand-pick companies so they can try and outperform the share market?

Active versus index

The 2022 results of Australian active fund managers’ performance, compiled by global share market index provider Standard & Poor’s, have just been released.

The Australian share market, using the S&P/ASX 200 index as the measure, fell by close to 6 per cent in 2022. Index funds investing in all of the top 200 companies on the ASX also delivered negative returns.

But the S&P Indices versus Active (SPIVA) scorecard shows that more than half (58 per cent) of actively managed Australian Equity General Funds – that is, funds that invest in a selection of large Australian companies chosen by an investment team – fared worse than the broader Australian share market.

Over the longer term, underperformance rates were even higher, with 81.2 per cent, 78.2 per cent and 83.6 per cent of funds underperforming the S&P/ASX 200 index over the 5-, 10- and 15-year horizons, respectively.

A large number of active fund managers also failed to outperform other segments of the share market last year, and over longer periods.

Percentage of funds outperformed by the index (based on absolute return)

Source: S&P Dow Jones Indices LLC, Morningstar. Data for periods ending 30 December 2022. Outperformance is based on equal-weighted fund counts. Index performance based on total return. Past performance is not a guarantee of future returns. Underperformance rates for Australian Bonds and Australian Equity Mid- and Small-Cap categories are reporting for time horizons over which the respected benchmark indices were live.

On the surface, it could be easy to reach a conclusion that investing in low-cost passive index funds tracking broader sections of the share market can deliver higher returns than active funds.

But consider that, by reversing the percentages in the SPIVA table, a large number of active managers did actually outperform the broader market in 2022.

And, although the underperformance percentages do get higher over the longer term, it’s evident that some active managers have been able to deliver higher-than-market returns over periods of time.

The active-passive decision framework

Having a blend of index and active funds in a portfolio can be a powerful investment combination.

Investment strategies designed to achieve broad diversification and to lower portfolio volatility often use both passive index funds and active funds and are framed around what’s known as a “core and satellite” approach.

In many cases this approach involves having most of one’s portfolio invested into passive core investments on the basis these can deliver consistent long-term returns with reduced volatility. Smaller allocations can be directed to actively managed satellite investments that have the potential to deliver higher growth.

In essence, any decision to employ a core and satellite strategy – and how much active risk you are willing to take on – largely comes down to your overall risk tolerance.

Making an active choice

Ultimately, there is no one-size-fits-all formula for investors when it comes to passive versus active allocation.

A sensible approach to active management allocation needs to focus on talent, cost, and patience.

Talent is about carefully selecting managers with proven processes and demonstrable investment abilities and this is where we can help.

Actively managed funds that have shown better performance returns over time are those run by experienced and talented managers, that have low-cost structures, and that take a patient rather than reactive investment approach.

Cost is also key, and it’s a factor you can control by focusing on managers that have low fees.

Thirdly, patience is fundamental to long-term investment performance.

While low costs and a rigorous, considered manager selection process can go a long way to improve your results using active management, those benefits can be eroded significantly if a manager fails to maintain a long-term investment perspective.

In short, investing is not simply a passive or active choice. It’s about making the best choices and finding the right balance for you.

Using a licensed financial adviser to find the right asset allocation balance, based on your personal investment goals and tolerance for risk, is a very good starting point.

We can help! Talk to us today if you’d like to find out more about investing. Contact us on Phone: 07 5641 4134.

Source: Vanguard

Important information and general advice warning

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer and the Operator of Vanguard Personal Investor and the issuer of the Vanguard^® Australian ETFs. We have not taken your objectives, financial situation or needs into account when preparing the above article so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for any relevant Vanguard product, before making any investment decision. Before you make any financial decision regarding Vanguard investment products, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the relevant TMD before making any investment decisions. You can access our IDPS Guide, PDSs Prospectus and TMD at vanguard.com.au or by calling 1300 655 101. Vanguard ETFs will only be issued to Authorised Participants. That is, persons who have entered into an Authorised Participant Agreement with Vanguard (“Eligible Investors”). Retail investors can transact in Vanguard ETFs through Vanguard Personal Investor, a stockbroker or financial adviser on the secondary market. Retail investors can only use the Prospectus or PDS for informational purposes. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This article was prepared in good faith and we accept no liability for any errors or omissions.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

As we age, we may require additional support to maintain our independence and quality of life. For many seniors, this can involve accessing home care services that help with daily tasks like cooking, cleaning, and personal care. One way to access more comprehensive home care services is by applying for a higher level home care package. In this article, we will discuss the steps involved in applying for a higher level home care package.

1. Determine Your Eligibility

The first step in applying for a higher level home care package is to determine your eligibility. To be eligible, you must be assessed as requiring a higher level of care than what is provided by a lower level package. You will need to undergo an assessment by an Aged Care Assessment Team (ACAT) or a Regional Assessment Service (RAS) to determine your eligibility. These assessments are conducted in your home and assess your level of care needs, health, and lifestyle.

2. Choose a Home Care Provider

Once you have been assessed as eligible for a higher level home care package, you can begin researching and selecting a home care provider. Look for providers that offer services that align with your needs and preferences. You may want to consider factors such as location, pricing, and the quality of care provided. Online directories such as Aged Care Online can provide you with a free, comprehensive list of home care providers that service your area. 

3. Develop a Care Plan

With the help of your chosen home care provider, you will need to develop a care plan that outlines your care needs and preferences. The care plan will be reviewed regularly to ensure that it is meeting your needs and can be adjusted as necessary.

4. Apply for a Home Care Package

Once you have determined your eligibility, selected a home care provider, and developed a care plan, you can apply for a home care package through the My Aged Care website. You will need to provide information about your care needs and preferences, as well as your financial situation. Your application will be reviewed, and you will be notified of the outcome.

5. Accept Your Home Care Package

If your application is successful, you will be offered a home care package. You will have 56 days to accept the package, during which time you can negotiate the terms of the package, including the services provided and the pricing. Once you have accepted the package, you can begin receiving home care services.

Applying for a higher level home care package can be a complex process, but it is an important step in accessing the care and support you need to maintain your independence and quality of life. By following the steps outlined in this article, you can navigate the application process with confidence and find the right home care provider to meet your needs.

Where can I find a Home Care Package Provider?

Home Care Packages are available Australia-wide. To begin your search for home care providers in your area, simply click on your state below:

• Home care in the Australian Capital Territory

• Home care in New South Wales

• Home Care in the Northern Territory

• Home care in Queensland

• Home Care in South Australia

• Home Care in Tasmania

• Home Care in Victoria

• Home Care in Western Australia

to find out more about Home Care packages, contact us on Phone: 07 5641 4134.

Source:

This article was originally published on https://agedcareonline.com.au/2023/03/How-Can-I-Apply-for-a-Higher-Level-Home-Care-Package. Reproduced with permission of DPS Publishing.

Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

Any information provided by the author detailed above is separate and external to our business. Our business does not take any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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

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

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

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

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

Stepped vs level premiums

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

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

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

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

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

The earlier, the better 

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

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

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

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

It’s a personal decision

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

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

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

If you would like to know more, or would like to discuss your life insurance needs, give us a call on Phone: 07 5641 4134.

i https://www.insurancenews.com.au/life-insurance/super-reforms-reveal-scale-of-underinsurance

ii https://www.choosi.com.au/life-insurance/articles/do-australians-have-enough-insurance

iii https://www.insurancewatch.com.au/stepped-vs-level-premiums.html

iv https://www.insurancewatch.com.au/stepped-vs-level-premiums.html

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Proposed changes to superannuation have the potential to reshape the retirement landscape. The objective of super remains the missing ingredient in the mix.

At its most fundamental, successful investing is about getting the balance right between risk and reward.

Some risks are front and centre; they are in your face (or at least on your nightly TV news or social media feed). Market risk, manager risk and specific company risk are the usual suspects when investors are considering risk within their portfolio.

After the past 12 months no-one doubts the impact of geopolitical risk given Russia’s invasion of Ukraine or the turmoil that comes with a global pandemic.

But in recent weeks we have been reminded of another risk – legislative risk.

The risk that comes when governments change rules, particularly tax rules.

It is not surprising that any change to superannuation law is contentious, because inevitably there will be aggrieved people who have invested into their super based on the law of the day only to find the goalposts are going to move.

It also speaks to the success of superannuation that it has become such a key part of working Australians’ financial well-being and planning for retirement that any change will be hotly debated.

Changing the rules

The debate on the proposed $3 million cap on individual superannuation balances has a considerable way to run leading up to the Federal Budget in May and beyond, given the planned start date is not until July 2025.

The Government framed the initial debate around the question of whether very wealthy people – those with more than $100 million in super was an example used by Assistant Treasurer Stephen Jones – will be subsidised by other taxpayers?

That is a hard principle to argue against on a public policy basis, irrespective of whether the Federal Budget needs major repair.

But the devil will be in the detail in terms of how it will be implemented. Certainly, taxing unrealised gains raises interesting questions, along with the lack of indexation of the cap limit, to highlight just two fundamental points.

This entire debate of course would be entirely academic if the reasonable benefits limit (RBL) had not been scrapped back in 2006-07. Which perhaps reminds us that the original super system design was pretty well thought out, because the concessional tax rates applied up to the RBL and above that marginal tax rates applied.

This removal of RBLs was the driver that has led to excess funds being able to be held within super at concessional tax rates. It certainly provided simplification but at a cost that was perhaps not well understood at the time.

Enshrining an objective

These types of tax rule changes always run the risk of unintended consequences and while the vast majority of people will be unaffected – at least initially – there is always the risk they may undermine confidence in the broader superannuation system.

This could particularly be the case among some younger members who may decide to not make voluntary contributions for fear of future rule changes.

The prospect of further rule changes also underlines the value of finally enshrining an objective of superannuation into legislation, something that was originally proposed back in 2014 in the Financial System inquiry.

While near-term focus of the public policy debate may well be on whether the objective should solely focus on retirement income and the definition of sustainability, hopefully, a legislated objective will provide a framework for future proposed changes to be assessed against.

The concessional tax rates on super means for most people that continuing to contribute as much as you can will make as much sense after July 2025 as it does today.

For those people fortunate enough to have to consider the impact of caps on their balance, it likely means another thing.

That is, to factor into the annual conversation with your financial adviser what should be within super and what investments would be better being held outside of the super system.

Speak to us if you have any questions the above, call us on Phone: 07 5641 4134.

Source: Vanguard March 2023

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Crypto-assets (crypto) mean digital assets including cryptocurrencies, coins or tokens. They digitally represent your ownership of a value or rights to something. They may or may not be backed by physical assets.

Crypto is a high-risk investment. The value of crypto is very volatile, often fluctuating by huge amounts within a short period.

More than with any other investment, you must be prepared to lose what you invest.

How crypto works

What is crypto

Crypto-assets (crypto) describe an asset class that includes cryptocurrency, digital tokens and coins. It does not exist physically as coins or notes, but as digital tokens stored in a digital “wallet”. These digital tokens rely on cryptography and technology such as blockchain for security and other features. Crypto may or may not have an actual asset behind it.

The Reserve Bank of Australia’s website explains how cryptocurrency and blockchain technology (including mining) works.

Crypto is used for payment systems, to execute automated contracts, and run programs. Anyone can create a crypto-asset, so at any time there can be thousands in circulation.

Why crypto is so volatile

The price of crypto can fluctuate at extreme levels often based solely on market speculation. Factors that can influence the price of crypto include:

• media focus

• public announcements

• individuals with large amounts of a crypto-asset who promote or influence it through social media

So if you buy crypto-assets, be prepared to lose everything that you put in. 

How crypto is used

Cryptocurrencies were first developed as a digital currency to use as money. Some stores accept crypto as payment for goods and services. Some ATMs let you withdraw it as physical money.

But crypto is not legal tender in Australia and is not widely accepted as payment. Most people don’t use it for everyday transactions. It is not the sort of investment to use to build your savings.

Once you invest there are no regulatory restrictions on how your funds are used. In some cases, your funds may be used for other investments, such as loans. This may jeopardise your investment.

Buying and storing crypto

You can buy or sell crypto on a trading platform using money. Or buy or sell it directly.
Crypto is kept in a unique digital or software wallet (hot) or hardware (cold) wallet. Each wallet has private keys (unique codes) that authorise transactions on the blockchain network.

A hardware wallet stores these private keys on a secure device not connected to the internet. This can protect the wallet from hackers.

A software wallet is held by an individual or by a crypto trading platorm on your behalf. This can simplify buying, selling and storing crypto, but is not a regulated service. So you may not be able to recover the crypto if the trading platform fails.

Scam alert: an increased number of Australians have reported losing money through crypto-asset or cryptocurrency scams.

Types of crypto-assets

Each crypto-asset has different capabilities. Most were not created to be investments.

There are no universally defined categories of crypto-assets. Some common types are listed below, but this does not cover them all. New cryptos are created all the time, but many aren’t well structured and don’t last.

Cryptocurrencies

What are they

Assets designed to act as a medium of exchange, with transfers enabled on blockchains. Cryptocurrencies have no intrinsic value and are only worth what people are willing to pay for them.

Examples include: BTC, ETH, Litecoin

Stablecoins

A ‘Stablecoin’ is a marketing term for crypto that aims to maintain a stable value relative to a specified asset, or basket of assets.

Many aim to track the value of a government issued currency (for example, USD). Some track other assets such as gold, equities, bonds or other crypto.

Stablecoins try to stabilise their market value by:

• being physically backed 1-for-1 by an external asset, such as government-issued currency, gold or securities

• being physically backed by a variety of assets where the value of these assets is intended to be greater than the value of the Stablecoin on issue

• using algorithms to control the available demand and supply of the asset, such as minting additional assets or changing an interest rate for holding the asset

Examples include: Tether, USDC, TrueAUD, DAI

Non-Fungible Tokens (NFTs)

What are they

NFTs are tokens which record ownership of an object using blockchains. Each NFT is unique (hence they are not ‘fungible’). However, owning an NFT may not give you exclusive rights to the underlying asset.

Examples include: Board Apes, game tokens

DeFi tokens

What are they 

These are tokens created through participating in decentralised finance (DeFi) protocols. Each token will have unique features based on the DeFi protocol that it relates to.

Other token types

What are they

There are a broad range of terms for other types of tokens. Some types include:

• utility tokens — allow you to undertake certain activities, or perform an action, in a crypto project, such as being exchanged for a service

• governance tokens — these allow you to participate in the running of a crypto project

• community (or membership) tokens — ownership gives you access to the community

Why investing in crypto is high-risk

Crypto is largely not regulated

Many crypto-assets and other digital assets are not commonly considered to be financial products. Because of this, the platform where you buy and sell crypto may not be regulated by ASIC. So you may not be protected if the platform fails or is hacked.

When a crypto-asset fails, you will most likely lose all the money you put in. In most countries, crypto is not legal tender. You’re only protected to the extent that crypto fits within existing laws.

The value depends largely on popular opinion

Investing in crypto-assets is highly speculative. The market value can fluctuate a lot over short periods of time. It is affected by things like media hype and investor opinion.

The price of unbacked crypto may depend on:

• its popularity at a given time (influenced by factors like the number of people using it)

• how easy it is to trade or use

• the perceived value of the currency

• its underlying blockchain technology

Your money could be stolen

Be aware that a hacker can potentially steal the contents of your digital wallet.

Crypto systems allow users to stay relatively anonymous and there is no central data bank. So if a hacker steals your crypto, you have little hope of getting it back.

Using a wallet held offline, a ‘hardware wallet’ or ‘cold storage’, may offer more protection.

Technically complex

Crypto-assets can be hard to understand.

There is usually no product disclosure statement or prospectus that explains clearly how the crypto works. Developers may issue a ‘whitepaper’ to describe it, but these can vary in format and information.

A crypto-asset’s code may not be available to review. Or it may be written in obscure computing language. The underlying code of the crypto may also change over time.

To access a crypto network, you may need special software and need to know how transaction fees operate. Unfamiliar users run the risk of:

• sending a transaction to an incorrect address

• over-paying on transaction fees called ‘gas’ (sometimes by thousands of dollars)

• not paying enough for a transaction fee (and so losing the fee and transaction)

Crypto scams are increasing

Scammers use crypto because transactions are not easy to recover and have limited oversight. Money can quickly be sent overseas and is very hard to trace.

CASE STUDY 

Rhett is scammed $97,000 by a fake endorsement

Rhett saw an article on a news website about ‘The biggest deal in Shark Tank history, that can make YOU rich in just 7 days! (Seriously)’

The news article was really an advertisement. It took Rhett to a website that included endorsements from Shark Tank judges for Bitcoin trading software. The endorsements were fake.

Rhett was interested in trading bitcoin, so he provided his contact details. Soon, an Account Manager named Max began calling Rhett. Max called often, pressuring Rhett to open a trading account and make a deposit. By depositing between $40,000 and $50,000 upfront, Max promised Rhett he could earn at least $15,000 per month.

Max promised Rhett that the money he deposited would be safe because he would have total control of the account. “It’s more or less moving your money in your left pocket from your right pocket,” Max said. Max promised Rhett that he could withdraw his money whenever he wanted to.

Max eventually convinced Rhett to open an account and deposit $40,000. Rhett started trading bitcoin, but things didn’t go to plan, and Rhett started losing money. Max encouraged Rhett to deposit more money and promised Rhett that he would be able to withdraw the money he needed in a week.

Rhett deposited more money in the hope he could recoup his losses. Rhett ended up depositing and losing a total of $97,000.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/investment-warnings/cryptocurrencies

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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

An adult gap year is a chance to reset and to take stock of what’s important to you. There‘s the opportunity to learn new skills or another language, explore different cultures, do a road trip around Australia or just take time for an extended break. 

With a little planning, some savings and a determination to ’seize the day’, a gap year (or longer!) can be achievable.

Dare to dream 

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

You might consider:

• Setting off on the well-trodden path around Australia, taking time along the way to really get to know parts of the country you’ve never seen. You could camp, caravan or stay in quirky country motels along the way.

• Chasing the sun. Research affordable countries in warmer climates and set up in a beach shack. You will need to check rules on tourist visas.

• Becoming a backpacker. There are plenty of cheap but comfortable accommodation options around the world to allow you to prolong your time away.

• Taking a long walk. You can find much-loved and ancient tracks in Australia and around the world to expand your horizons. From the Great Himalayan Trail in Nepal – to Spain‘s Camino De Santiago, or one of Australia‘s iconic walks such as the Heysen Trail in South Australia.     

Costs and benefits

With your plan in hand, work out a budget that takes account of the costs you will continue to pay in Australia (such as insurance, loans, utilities, car registration and rates) as well as your best estimates for accommodation, food, travel and spending money for your destination.

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

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

• Living like a local by swapping your house with someone in another part of the world. House swap websites match up homeowners looking to live in different places for varying periods of time. Alternatively, you could rent out your home while you are away and/or sign up to a housesitting website to live in someone else‘s place.

• Working differently. Your gap year might be more about doing something different than taking it easy. Find organisations and websites – such as workaway.info and wwoof.com.au – that cater for working travellers. You could choose to work on farms around the world in return for food and board for example.

• If manual labour isn‘t your thing, becoming a digital nomad might be more appealing. Pack your computer and hook up to one of the many digital work websites – such as digitalnomadsworld.com, upwork.com or fiverr.com. Many countries now encourage this trend by offering digital nomad visas.

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

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

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

If you would like to discuss effective ways to save and invest to help fulfil your gap year dream, give us a call. 

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.