Ten Tips for Managing Debt (with a little bit of interest)

January is often a month when you look at the credit card statement and after a quick panic decide to do something about your debt position. To get you off to a good start here are ten quick and easy tips.

1. Draw up a budget: It seems an obvious step, but few people do it effectively. Knowing what you spend and what you earn, and the difference between the two is a real leveller. Detail essential and non-essential expenditure. Decide how much you will save and how often. If you fall short on meeting bills and debt repayments, you'll know something's got to give on the outgoing side. Start to cut back on the non-essential expenditure. The reduction may only be for a limited period of time, until your debts get under control.

2. Keep some emergency money aside: While you may be juggling your finances to meet all of your commitments, make sure you have a small cash reserve, usually two months expenses at least, for unforeseen circumstances. This will protect you from being forced to accept costly, short-term lending arrangements. It is widely held that an adequate emergency cash reserve should be in the order of $10,000. This could be held in your mortgage as advance payments if it was immediately available on demand.

3. Use a Cash Management Trust: Set up your income flow, including your salary, interest and dividends from investments and rental income, to be paid into the one CMT. Organise then for all debts to be paid from the account automatically. Most CMT's can cater for this. It takes the worry out of paying things on time. The CMT may require an initial $5,000; but then you can’t let the balance drop below $1,000. You’ll pay the manager a fee of the net value of the funds, but the net interest you’ll receive will be much higher than that offered on most standard deposit accounts.

4.      Use taxation benefits: While tax alone is the wrong reason on which to base investment decisions, it should certainly be a consideration, particularly in light of recent Government initiatives to encourage saving and investment by Australians. The change in the treatment of capital gains tax is one way investors can increase returns after holding an investment for at least 12 months. Increased after-tax returns can help repay debt.

5. Be smart with lump sums: You may be tempted on receiving a lump-sum payment like a tax return, inheritance or windfall gain to take that much-deserved holiday, new wardrobe or buy the latest Lotus. Don't. The short-term satisfaction won't last, particularly with debt collectors at your door. Use the money to reduce your debt to more manageable levels or invest half for the longer term.

6. Pay your debts automatically: Talk to your employer to see whether you can have your salary paid into multiple accounts, including your debt accounts. The obvious benefits here are that your income flows will be better managed and the money disappears before you get it, thus reducing the temptation to spend more instead of repaying debt. Alternatively, have set amounts deducted from a nominated account to automatically pay outstanding debts. The essential point here is to make sure you have enough money in the account when the deduction falls due, otherwise your bank will hit you with a nasty fee for dishonouring the arrangement. Banks normally have a minimum account balance of, say, $500. Below this an account-keeping fee is charged.

7. Get smart with credit: If used wisely, credit cards and lines of credit can get you ahead at a low interest cost. Pay all of your income into your line of credit mortgage and use your credit card to pay all your bills and outgoings. Then, just before the interest-free period on the card ends, draw down from your line of credit to pay the card bill. The danger here, of course, is that you spend too freely on clothes, restaurant meals and other non-essentials, and you effectively pay for it with equity from your home. Even though the interest rate is low, such behaviour could put you years behind in paying off your house and building an investment portfolio. Budget your money!

8. Consolidate:  Pool all of your debts into one. The benefits here are that the overall interest cost may be lower than the interest cost you may be paying on some individual debts. This would certainly be the case if you used a line of credit facility. If the facility was attached to your mortgage, however, you may be eating into the equity on your home, which is an unwise strategy. See previous.

9. Be wary of “interest-free” offers: These are broadly offered on electrical goods and furniture but can be a trap because the interest rates you may be required to pay at the end of the interest-free period are usually extremely high. Before buying into such an offer, make sure you have adequate cash flows to enable you to make high regular repayments with a view to paying off the loan before the end of the interest-free period.

10. Be wary of short-term lending facilities: Money exchange services are an example, and they can be very costly. A new generation of credit providers in Australia, known as “pay day lenders”' operate national distribution networks and specialise in short-term, high-cost loans to consumers experiencing a cash crisis. Such facilities should never be used.

As “rules of thumb;” Never buy anything on credit. Spend less than you earn. Make a budget item for the amount you will save. Put your savings somewhere where it is harder to get out.

Stick to your goals more often than you do not.

For help, call Hugh Kilpatrick* of RIadvice Group on 03 9471 0080

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

A helping hand when you need it - Aged Care

With Australia’s ageing population growing at a rapid rate, more and more people are facing the challenge of making aged care decisions for themselves or their loved ones.

This can be an extremely difficult time for everyone involved, and the financial decisions you make now could have a significant impact on you or your loved one’s future. So it’s important to get professional advice to ensure you understand the big picture, before you make any long-term decisions.

Realising your loved one is unable to support themself can be a deeply emotional time and with so many things to consider, it can be difficult to know if you’re making the right decisions.

To begin with, you may need to determine whether your loved one needs a little extra help around the house, or needs to move into an aged care facility.

Before making any decisions, your loved one will need to be assessed by an Aged Care Assessment Team (ACAT) to determine what level of care they require.

Options include community care programs and support for older Australians who wish to stay at home, short-term or respite care, low level care such as a hostel, or high level care in a nursing home.

If your loved needs to move into an aged care facility, there will be a lot of things to consider such as whether to sell the family home, how to fund accommodation expenses and daily care fees, and how to invest the money for your loved one’s future as well as future generations.

In many cases, to enter an aged care facility your loved one will be required to pay daily care fees and either an accommodation bond or annual accommodation charge, depending on the level or care required.

These expenses are subject to asset and income testing, so whether or not you sell the family home will have a huge impact on how much you’re likely to pay, and of course your Centrelink entitlements.

A financial adviser is a calm voice at this difficult time and can help you to understand the accommodation bonds, annual charges, the implications of selling the family home, and arrange your finances to help put you in the best overall financial position. They can also be a useful objective observer should there be any family disagreements on the best course of action.

Additionally, we can also help you with enduring powers of attorney, adjusting your Will to reflect your changing living arrangements and other estate planning strategies.

Moving a loved one into an aged care facility can be a difficult time, both emotionally and financially. That’s why it makes sense to seek help from a financial adviser, preferably early before a trigger event occurs. That way your loved one can still be involved in financial decisions, and you can ensure you make the right decisions for their future.

For more information on aged care or a helping hand to make the right decisions for your family, call Hugh Kilpatrick* on 03 9471 0080 today.

* Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on the information provided without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

Terminal illness and superannuation - Estate planning and testamentary trusts - Debts and Centrelink assessment

Terminal illness and superannuation

One of the most difficult periods in a person’s life is when they are diagnosed with a terminal illness. As personal issues become the main focus, it’s easy to lose sight of one’s financial situation. However, with prudent planning, the financial burden can be eased and assets can be maximised for surviving beneficiaries.

One of the key assets to consider upon terminal illness is superannuation. A member of a super fund with a terminal medical condition can generally access their superannuation benefits as a tax free lump sum. The lump sum may be required for immediate medical or personal reasons. Although it may be tempting to cash the entire super balance as a lump sum, it may be advantageous to leave a portion in the fund particularly where a spouse or children are beneficiaries.

Following death, a number of strategies can be used with the super fund. Certain beneficiaries of a lump sum are eligible for a boost to the super benefit, known as the anti-detriment payment. This payment represents a refund of the tax paid in the account. Furthermore, tax effective income streams can be paid to certain beneficiaries to meet ongoing needs.

It’s important to seek financial advice if you suffer a terminal illness as the best financial planning strategy depends on your personal situation and objectives.

 

Estate planning and testamentary trusts

A testamentary trust can be an effective estate planning tool, providing asset protection, flexibility and the tax effective distribution of wealth. A testamentary trust can be set up by an appropriate clause in the Will and is set up following death using estate assets. You can also use superannuation and insurance proceeds to fund the trust.

Testamentary trusts are normally discretionary trusts, offering flexibility. The trustee can vary the income distributions each year depending on the beneficiaries’ circumstances. This can generate tax savings, particularly if there are a significant number of children or grandchildren in the family. Minors who are beneficiaries of a testamentary trust pay tax on trust income at normal marginal tax rates. Given the low income tax offset, individual taxpayers can receive income up to $16,000 in the 2011/12 financial year without paying tax (excluding other tax offsets).

A testamentary trust could be used to provide greater control over the distribution of the estate assets. For example, a beneficiary may only become entitled to capital from the trust upon attaining a certain age.

There are some considerations with testamentary trusts. Firstly, the estate may be delayed until grant of probate is completed. This further delays the establishment of the trust. Secondly, the estate may be contested, so the trust may have reduced assets available for beneficiaries.

Testamentary trusts could be used to provide for your beneficiaries. Furthermore consider how your parents could use a testamentary trust to effectively transfer wealth to you and your beneficiaries. Financial and legal advice is important when considering your estate plan, including the need for a testamentary trust.

 

Debts and Centrelink assessment

If you receive (or are about to receive) a Centrelink payment you should understand the rules for assessment of debts. Generally, the value of an asset under the assets test is reduced by any outstanding charge or debt over that asset. For example, a margin loan of $70,000 on a $100,000 investment reduces the assets test value to $30,000.

A charge or debt cannot reduce an asset’s value where it is secured against an exempt asset, for example, the family home. So let’s say $300,000 is borrowed using the principal residence as security to purchase an investment property. The entire amount of the investment property is assessed under the assets test, with no reduction for the amount of debt. Where the lender permits, you may be able to use the investment property as security, rather than the principal residence. In this case, the $300,000 debt reduces the market value of the investment property and consequently Centrelink payments may increase.

Unsecured loans can only reduce an asset’s value if you can provide evidence that the loan was obtained specifically for the purchase of that asset. Unsecured loans obtained for general purposes or for purposes other than the purchase of the asset (eg. for an overseas holiday) do not reduce the value of a person’s assets.

 

RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This information does not consider your personal circumstances and is general advice only. You should not act on any information without obtaining professional financial advice specific to your circumstances.

Taking control of your estate during divorce

Breaking up is hard to do, as the song says – emotionally, spiritually and financially. If you’re going through a divorce, the last thing you probably feel like thinking about is the possibility of something happening to you.

However, if you’re going through or even contemplating a divorce, finding out what would have happened to your worldly possessions, if you had died or been disabled yesterday, should be looked at as a matter of priority.

Although you may be separated from your spouse, in perhaps body and or soul, in the eyes of the law you are still legally married until a judge signs the divorce papers.

This means if something were to happen to you and you died or became incapacitated, your estranged partner could still have control over your estate – not a thrilling prospect for most people.

For example, if you did not have a Will in place and you died during a divorce, your estranged spouse would automatically be entitled to control your estate, and depending on whether or not you have kids, would most likely be entitled to at least half, if not all, of your assets.

So if you’re going through a divorce or separation, it’s important to review and revise your Will as soon as possible.

It’s not just your Will you need to worry about, at this time.

It’s also considerations such as how to ensure debts are covered in the event of your death or incapacity while leaving enough for the ones you care about, making sure your have nominated beneficiaries for your insurance policies, superannuation and pensions, the tax implications and how any assets would be reallocated if a beneficiary were to die before you.”

After all, you’ve worked hard to build wealth so you want to make sure that your wishes would be handled in the way that you intended when you’re gone. Or at least they are more likely to be respected.

Of course, it’s not just your divorce that could have a huge impact on your family succession planning, but also any other changes in marital status for you or your beneficiaries.

For example, one day you may decide to remarry – and it is to someone who has also been married previously.

Or perhaps one of your children will separate, or decide to marry someone at risk of bankruptcy or with a gambling problem.

If this happens you’ll want a plan in place to ensure your final wishes are met.

These days with more and more people getting divorced, remarrying and starting blended families, estate planning is becoming increasingly complicated so financial advice is crucial.

A professional adviser can work closely with your solicitor to help you cut through the legal jargon and find out what is most important to you. That way you can rest assured if anything happens to you, your final wishes will still be met.

Without a good plan, particularly with the added complexity a divorce can bring, there can be very sad consequences: from family squabbles and legal wrangling to unanticipated tax losses.

For help to working through your estate planning issues following a divorce contact *Hugh RI Advice - RetireInvest on 03 9471 0080 today.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

We are continuing to live longer

According to recent statistics released from the Australian Bureau of Statistics, there is a continuing trend for Australian men and women to live longer.

A baby boy born in 2007-2009 is expected to live, on average, 79.3 years. A baby girl born over the same period is expected to live, on average 83.9 years. Over the decade to 2009, this represents an increase for males of 2.7 years and for females 1.9 years. Females are still expected to live longer but males are catching up.

A similar trend appears in the residual life expectancy at age 65. Females age 65 in 2007-2009 are expected to live another 21.8 years to age 86.8 (an increase of 1.4 years) and males another 18.7 years to age 83.7 (an increase of 1.9 years).

Our increased life expectancies have been attributed to improvements in aged care management, medical advances resulting in a decline in the number of deaths from chronic health conditions (e.g. heart disease, cancer and strokes) and behavioural changes such as improvements in diet and lower rates of smoking.

Although it is good news that we are expected to live longer, it does have financial planning implications. If we are living longer in retirement, our retirement funds need to last longer. This issue is magnified just because you are a member of a couple as both of you are expected to live longer.

Whether you are saving for retirement, about to retire or already retired, a financial planner can assist you in meeting your retirement income needs. Professional financial advice could be the difference between supplementing your retirement income with the Age Pension and entirely relying on the Age Pension to meet all of your income needs.

Mortgage stress

In Australia, the proportion of household disposable income dedicated to interest payments (known as the debt servicing ratio) is quite high at 12%. In comparison, the previous high was 9% just prior to the 1990’s recession.

Given the high debt servicing ratio, the global financial crisis and the rising cost of living it is no surprise that an increasing number of Australian households are facing mortgage stress.
In the first half of this year, the big four banks reported an increase in the value of loans considered to be 90 days in arrears. Westpac reported an increase of 35% since September 2010.

If you have outstanding debt you may be at risk of mortgage stress. It is important you can identify the signs of mortgage stress early and act as soon as possible.

If you are worried or experiencing mortgage stress you should speak to your financial adviser. Your financial adviser can assist you in creating a budget or in some cases, help you access your superannuation savings to help alleviate mortgage stress.

Legal Aid NSW has produced a Mortgage Stress Handbook which can be accessed from the Legal Aid NSW website, www.legalaid.nsw.gov.au and search for ‘Mortgage Stress Handbook’.

Social Security pension payments increase

If you are receiving an income support payment from Centrelink or the Department of Veteran’s Affairs, your payment increases from Tuesday the 20th September. Pensions increase by up to $19.50 per fortnight for singles and $29.60 per fortnight for couples.
This pension increase reflects changes to the Pension and Beneficiary Living Cost Index of 2.7% for the 6 months to June 2011.

What is the Pension and Beneficiary Living Cost Index (PBLCI)?

The Pension and Beneficiary Living Cost Index (PBLCI) measures the change in disposable income of households whose received mainly from government pensions and benefits. This differs from the Consumer Price Index (CPI) which measures price inflation for the household sector as a whole. Since the PBLCI began in the June quarter of 2007 it has risen 16.2% compared to 13.2% for CPI. For the June quarter 2011, the most significant price rises were for food (+1.4%), transportation (+1.7%) and household contents and services (+1.2%).

Given the increased relative cost of living for pensioners combined with fluctuating sharemarkets, many pensioners are questioning the adequacy of their retirement plan. Some retirees have even returned to casual or part-time employment. If you are feeling the pinch of rising living costs, are worried about the longevity of your retirement savings or are currently retired but considering returning to casual or part-time employment, then you should be speaking to your financial adviser.

RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This information does not consider your personal circumstances and is general advice only. You should not act on any information without obtaining professional financial advice specific to your circumstances.

Term deposits on the menu?

Since the Global Financial Crisis, there has been a flood of money into term deposits, with many people, especially those in or close to retirement, concerned about the increased level of volatility in markets.

“Investment Platforms” are ways to invest your money inside Superannuation or outside of superannuation – they give cost effective access to an extensive range of investments. An investment platform is an administration service that enables more efficient management of your investment portfolio.

These days platforms are one of the most common ways to invest your money, giving you access to a range of investments including those normally only available on a wholesale basis, consolidated reporting, and a convenient, holistic view of your investments’ performance.

But did you know there is now a new safe way to park your cash on your investment platform – giving you quick and convenient access to your money when you want to reinvest? A term deposit on platform!

While for most, cash certainly isn’t the answer to meeting long-term financial goals, given recent market volatility it’s understandable many retirees and people close to retirement are keen to invest a greater portion of their money into cash.

For those people term deposits can make a lot of sense and give a degree of comfort. They are widely available, offer competitive returns and are easy to understand. You simply put your money in the bank and are paid interest at the end of the term.

However rather than rushing off to your nearest bank, it may be worthwhile talking to your adviser about the possibility of a term deposit on your investment platform.

Putting your cash on a platform alongside your other investments will give you good overall picture of your financial circumstances, and once you regain confidence in the market will allow you to switch to other asset classes quickly and easily.

The other advantage is that they offer consolidated tax reporting, saving you a lot of time and effort when it comes to tax time.

The problem with traditional term deposits is that your money is locked in for a predetermined period, making it difficult to adapt to changing conditions.

Often when markets recover they do so quickly and without warning. So if you’re locked into a fixed term, you’re likely to miss out on any gains when markets bounce back.

Term deposits on platforms are usually more flexible, giving you the opportunity to switch quickly and conveniently, sometimes even overnight.

Although traditional term deposits and term deposits on platform offer comparable rates, investors should beware of banks offering honeymoon rates.

Often banks will entice customers with an attractive interest rate, only to drop that rate after a short period. Then, when it comes time to rollover your cash into another term deposit, you find your return is no longer competitive – you may also have missed opportunities elsewhere.

Overall the most important thing to remember is to take an approach that suits your needs as an individual – this will include, usually, short, medium and long term investing.

While investing in a term deposit can be a worthwhile approach for retirees and pre-retirees who want to reduce anxiety and safeguard a portion of their portfolio in the short-term, focusing on cash investments over the long-term could mean you won’t end up with enough money to achieve your financial goals.

For advice on using cash options, including how to utilise term deposit solutions on a platform, or to review your portfolio in light of the changing investment climate contact Hugh Kilpatrick* of RI Advice today, on 03 9471 0080.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This article does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives.

Time to seek professional assistance is when...

Any change in financial goals/priorities, such as:
Awareness of new investment structure/opportunity
Birth of a child
Buying a car
Buying/selling investment assets
Career break or change planned
Change in Government assistance payments
Change in risk appetite
Decrease/increase in living expenses
Divorce
Financial needs of family change (e.g. parent)
Home purchased or new home purchased
Increase in Income
Investment recommendation from a friend
Investments overweight in one asset class or type
Marriage
Moving to part time work
Personal loan/credit card paid off
Receiving a bonus
Receiving an inheritance
Renovating the house
Retirement
Second or subsequent marriage (essential to seek guidance re asset ownership)
Selling business assets
Starting a business
Super beneficiaries change/dependency status changes
Temporarily incapacitated
Travelling overseas
Undertaking study
Unhappy with current super fund

Time for women to bridge the super gap!

While the women's movement has delivered many successes over the last 50 years, the area of financial independence still lags behind. The retirement savings gap between men and women, in particular, is a key area that needs to be addressed.

Many women are exposed to a substantial risk of poor retirement living standards due to the massive underfunding of their superannuation. Statistics from the Association of Superannuation Funds in Australia (ASFA) in 2009 highlights the depth of the problem and are a real wake up call.

The average retirement payout for women going into retirement is only $73,000, whereas men are more than double this amount at an average of $155,000.

What are some possible reasons for such a disparity? Women are still the primary care-givers in most families, which means their career and income are more likely to be interrupted. They may also be over-represented in casual and part time workforce, which may result in lower incomes and limited ability to contribute to super. Those who take multiple part-time jobs where they may be earning less than $450 per month in each job, are particularly worse off, because current rules say that they are not eligible for compulsory super contributions to be made by their employers.

Divorce and the high proportion of single parent families that are headed by women have added to the problem and many women remain single and are solely responsible for their own retirement saving.

It also pays people to exercise caution on a reliance on the age pension to substitute for proper retirement saving. The age pension is already under significant pressure from an ageing population and it won’t even go close to providing what most would consider a comfortable retirement income. For example, if you are currently earning a $60,000pa income, the rule of thumb is that you would need a retirement income of around $40,000pa. The age pension is not going to deliver that sort of money, so it is up to the individual to plan ahead.

On the positive side, women are generally far better money managers and more able to set goals and stick to strategies. Often, they simply haven’t found out what they need to be doing, or putting away, to fund their retirement.

To help target such retirement savings goals it is important to take advantage of whatever government incentives are available. This is where seeking some professional advice can help. There are incentives such as the spouse super contribution that allows the main breadwinner to make super contributions on behalf of a spouse who is not working or is not earning a high income. This can provide a rebate of up to $540.

For women with a higher income earning spouse, there is the possibility of splitting super contributions. Not only would this boost the woman’s super balance, it may also provide the couple with Centrelink benefits or the opportunity to access their super earlier.

Salary Sacrifice is a critically important strategy in a lot of cases.

Opportunities such as these will depend on specific circumstances and this is where advice from a professional can be useful. At times of low or interrupted income, such advice can help map out future contribution strategies and even help with transition to retirement strategies that are also tax efficient.

For further information on how you and/or your partner can better plan out your super strategies contact *Hugh Kilpatrick from RI Reservoir on 03 9471 0080.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This editorial does not consider your personal circumstances and is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.

Super – who gets it?

Strict rules govern how your super is distributed when you die and if you don't get it right, your super savings could be given to someone other than your desired beneficiaries.

Most people will be surprised to hear that your super doesn't always form part of your estate when you die, so it often won’t be distributed as part of your Will.

One of the most important decisions you make when you join a super fund revolves around the question of who to nominate as the beneficiaries of your super when you die.

There are limitations on who you can nominate. Superannuation law stipulates that a superannuation fund can only pay a death benefit to your partner/spouse (including a de facto spouse, whether same sex or not), children, a person who was financially dependent on you or who you had an interdependency relationship with at the time of death or your legal personal representative (i.e. your estate).

Defining an interdependency relationship can be complex. Problems are much more likely to occur when there are blended families - step children, ex-partners - therefore potentially multiple beneficiaries. If someone comes forward saying they are entitled to claim some (or all) of your super balance, the trustee will generally take their claim into account.”

The trustees of your fund will have the ultimate discretion as to who will receive your super. They will take into consideration any nomination of beneficiaries that you have made, but are often not bound by your request.

The fight over super death benefits is now such a major issue that such cases comprise a third of all complaints made to the Superannuation Complaints Tribunal, the body established to oversee disputes relating to regulated super funds.
To avoid confusion and family disputes and to ensure your super balance goes to who you choose a person should consider making a binding death benefit nomination.

This is a nomination that the trustees are generally obliged to follow. You are still limited as to who you can nominate, which must be a spouse, child, someone who you held an interdependency relationship with, or a financial dependant.

If you want your superannuation to pass to someone else, such as a friend or charity, you would need to nominate your estate as the binding beneficiary of your superannuation entitlements. Your superannuation will then be paid into your estate and distributed according to the terms of your will - you would need to nominate such people or bodies as beneficiaries of your Will.

It is important to review death benefit nominations regularly (generally they are only valid for 3 years) and to include full details of your beneficiaries.

Keeping your super fund trustee informed of any changes to your beneficiaries - or changes to their personal details - will make the task of distributing your super much less complex for all involved.

If your fund does not have binding nominations, insist that they put it into their fund. If they are unwilling or unable, it is in your best interests to seek an alternative fund. You may think that where your money goes should be your choice!

A financial adviser can help you to review your death benefit nominations to increase the likelihood of your superannuation going to your intended beneficiaries and reduce the chance of hassles or disputes amongst the people you care about.

For further information contact *Hugh Kilpatrick from RIadvice-RetireInvest on 03 9471 0080 today.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This information does not consider your personal circumstances and is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.

Superannuation contributions not always welcome

Superannuation is undoubtedly a tax effective way to save for retirement; therefore it makes sense to consider making extra contributions to super at any time - especially in the years leading up to retirement.

However, if you aren’t aware of the rules, those extra contributions could come back to bite you.

The Government wants to encourage people to save for retirement, but at the same time they don’t want people treating superannuation as a tax haven. That’s why they’ve placed caps on both ‘concessional’ (before tax) contributions and ‘non-concessional’ (after tax) contributions.

The concessional contribution cap is currently $25,000 per year, although a transitional arrangement allows people aged over 50 to contribute up to $50,000 per year until 30 June 2012.

The non-concessional contribution cap currently sits at $150,000 per year. However, in any year it’s possible to ‘bring forward’ your next two years’ contributions enabling a total contribution of up to $450,000. Past contributions need to be monitored carefully if using the ‘bring forward’ rule, as it’s critical not to contribute more than $450,000 in any 3 year period.

People saving for retirement can’t afford to be blasé about these caps, as breaching them can result in substantial tax penalties.

Excess concessional contributions are taxed at 31.5%, with the amount of your excess contribution also counting towards the non-concessional limit, and excess non-concessional contributions are taxed at 46.5%.

Members of self managed super funds (SMSFs) need to be especially vigilant about these caps. According to the Australian Taxation Office (ATO), more than 65,000 tax payers breached the SMSF contribution caps in 2009-10.

The ATO is obliged to impose the additional tax penalties even if the excess contribution is a genuine mistake, although a 2011 Federal Budget proposal may help to alleviate this problem.

From the 2011-12 financial year, the Government plans to give members the option to withdraw up to $10,000 of excess concessional contributions without penalty. However, this dispensation will only apply for a first-time breach.

The potentially serious consequences of breaching the contribution caps highlight the importance of good financial advice.

If you are looking to maximise your retirement savings, you need to be aware of changing legislation and can’t simply focus on the current year’s contributions. As well as helping to stay within the prescribed limits, a financial adviser can help you select and implement the most appropriate strategies for your situation.

For further information contact Hugh Kilpatrick* from RI on 03 9471 0080.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This editorial does not consider your personal circumstances and is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.

Are you a winner from the 2011 Australian Budget?

The Gillard Government's first budget walked the fine line between keeping onside with a fickle electorate, while making progress toward future surplus targets. In the areas of tax, superannuation and social security, the result was a series of relatively low risk 'tweaks' to existing programs, rather than any serious slashing reforms.

It seems not to have upset too many vested interests and on the plus side, there were some limited wins for small business, retirees and income earners. In looking at these changes it is important to remember that most measures are proposals only and further changes could be made. Legislation is still required to be passed.

Although the lack of dramatic announcements may have discouraged people from digging through the detail, there are rewards to be had if you know where to look.

Concessional super contribution gains
A case in point is a small but potentially important change that may appeal to those who are taking full advantage of concessional contribution limits to load their super. Previously, contributions made in excess of the cap were penalised with a potentially higher rate of excess contributions tax. From 1 July 2011, any 'first time offenders' who overstep the concessional contributions cap by up to $10,000 can request the excess contributions be refunded and assessed at their marginal rate of tax, rather than at the higher 'excess contribution' tax rate.

Over 50s with less than $500,000 in super assets now have more certainty on potential future indexation increases to the cap. The transitional cap for this group is currently at $50,000. The good news is that any indexation increases in the $25,000 base cap from 1 July 2012 will have a matching increase in the higher cap, thereby allowing for greater overall increase in cap level.

Account based pension relief
Retirees also stand to benefit if they have account-based pension investments. Over the last 3 years these types of investments have benefited from a 50% reduction in minimum amount of income that the account holder was obligated to draw down. This allowed them to preserve more capital to help them recover from the effects of the GFC. There was some fear that this relief would disappear in this budget, but fortunately it has been retained for another year, albeit at a lower level of 25%. For someone aged between 65-74, for example, this means they need only drawdown 3.75% of their investment, rather than the standard 5%.

The superannuation co-contribution thresholds would remain frozen until 30 June 2013. The co-contribution scheme gives dollar for dollar contribution support for those earning up to $31,920 who are contributing after tax dollars to their super. The Government will chip in up to $1,000 for these people. Those earning higher incomes can also receive a lower level of co-contribution support - phasing out to zero at an income of $61,920.

Tax changes worth noting
On the tax front, a range of relatively small but important adjustments have been made to both personal and business tax regimes.

Taxpayers with a dependent spouse aged less than 40 years will lose the dependent spouse tax offset from 1 July 2011, unless they are a carer, an invalid, or are permanently unable to work. Those with children and who are eligible for Family Tax Benefit B, (or eligible for the zone, overseas forces or overseas civilian tax offsets), will also not be affected by this change.

Families would receive some tax relief if they have 16-19 year olds that are in full-time secondary study, or the vocational equivalent. From 1 January 2012 they will receive up to $160 extra per fortnight through Family Tax Benefit (FTB) Part A for each eligible teenager. There will also be more flexibility around obtaining advance payment of up to $1,000 of FTB Part A entitlements.

Reforms to the Low Income Tax Offset (LITO) include an increase in the amount of the offset that can be taken in weekly pay packet, rather than waiting for the end of year tax return. Abuse of the system by those attempting to avoid income tax has been stopped by closing the loophole that allowed diversion of dividends, interest and rent income to a non-working minor, who could previously have had access to the LITO provisions for non-work related income.

Small business wins a tax break!
Small business owners achieved some notable budget bonuses, starting with an immediate tax deduction of up to $5,000 for motor vehicles bought from 2012/13 onwards. An increase in the immediate tax deductible amount will also apply to assets valued at under $5,000, up from a previous level of $1,000. Incorporated small businesses will benefit further with a reduction in company tax rate to 29 per cent.

If you want to know more about how the 2011 Budget may affect you and your family, or to set up your financial affairs for a more profitable financial year, contact RI Advice Group on 03 9471 0080 before 30 June 2011 – we are ready to help.

Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This article does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances. This information is correct as at 13 May 2011.

The real value of Financial Advice

Whilst many people believe good financial advice is all about picking the right investments, studies in recent years have shown the value of advice goes way beyond that. In fact a recent study by KPMG Econotech showed that people with an adviser would be an average $100,000 better off at retirement.

Having a financial “coach” may improve all aspects of your financial life.

The KPMG study found that people with a financial adviser increase their net wealth by an additional $1,590 in a year, compounding, compared with those without a financial adviser.

Not only does an adviser help you with budgeting and savings strategies, but the act of seeking advice also puts your financial goals at top of mind.

Goal setting improves financial discipline. The research found that high quality financial advice increases both savings behaviour and financial discipline.

This is still just the tip of the iceberg - savings are just one aspect of financial advice.

Other benefits include getting the most out of your super; ensuring you and your family are financially protected against accident and illness; giving directions as to what happens to your money after you’ve gone.

There are many financial benefits in getting advice when dealing with significant life events such as redundancy, divorce, inheritance or moving a loved one into an aged care facility. The right advice in these matters could translate into a better financial outcome for your future.

However, there are also many benefits that are harder to put a dollar figure on. Things like peace of mind; getting more definition around personal goals; relieving stress regarding financial and investment decisions.

Research conducted by CoreData in 2010 and commissioned by the Association of Financial Advisers (AFA), showed that people with a financial adviser are both better planned and happier with their investments than those who don't.

Those who have a financial adviser seem to attribute a deep personal value to having a confidante or coach that can help them to define their goals and discuss their desires, fears and aspirations for the future.

Of course the technical aspects of what is done are vital, but it’s often the emotional context that drives a good outcome for the client.

For example, being confident they will have enough money to last them into retirement; knowing their children will be looked after no matter what happens to them; being sure they are making the right choices for ageing parents – all have deep emotional significance.

Once the goals are in place, it’s easier to make plans for your savings, investments, protection and estate planning, and it’s much easier to feel happy about your finances and your future.

The value of financial advice is much more than the sum of its parts. It’s about defining what you want out of life, and finding the right strategies to get you there.

To get started is often the greatest challenge – make the time, make the call.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL238429. This information does not consider your personal circumstances and is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.

What if your boss dropped your income by 10% and you couldn’t get another job?

You would survive, wouldn’t you? You would spend less and adjust.

Most people have the ability to direct a portion of their pay to a different bank account. Decide this year to put 10% of your take home pay into another bank account. Leave it there, and live on the rest.

At the end of the year, you’ll have enough for a memorable holiday – or better still, half for a holiday and half to begin investing.

Be the best boss you have ever had, reduce your take home pay be 10% and enjoy the benefits.

Are you set financially for a happy new year?

“Money doesn’t buy happiness” - it does seem to help, at least to a point.

Recent research found that happiness increases along with income up to about
$US75,0001. Beyond this amount, people may feel more successful but they aren’t necessarily any happier.

The difference lies in how people view money.

People who accumulate money just for the sake of it, or to ‘keep up with the Joneses,’ are unlikely to see much real improvement in their well-being.

On the other hand, people who focus on growing and protecting money so that it supports their lifestyle ambitions, and is there when they need it, are far more likely to be happy with their life.

This may explain why a person living in a two-bedroom cottage in the outer suburbs may be happier than someone living in a mansion by the sea.

Most of the clients I speak to associate happiness with a positive balance of social interaction, career, health and financial security. If there’s no financial plan or direction, it’s very hard for people to feel secure and stay positive in those other areas of their lives.

Research from the Association of Financial Advisers highlights the value of financial advice in this quest for happiness, finding that people who seek advice are “significantly happier with the manageability, diversification and return of their current investments than those who are unadvised.”

Essentially, people who have a sound financial plan in place have a greater sense of focus and realise that money is simply a means to an end.

It’s not just the strategic or specific recommendations that a person receives; ongoing advice unlocks value for clients in diverse ways. For example, a client may seek advice about choosing the right super fund yet derive the most value and satisfaction from getting clarity on financial goals for the first time, and the discovery of what they were looking for in their lives.

Remember that having a plan and financial goals also means you’re more likely to improve your saving habits and debt management.

In addition to the financial worth, clients who seek advice can benefit from greater emotional rewards.

In research commissioned by the Financial Planning Association of Australia, 66% of respondents said that financial advice gave them peace of mind. 63% also said it gave them greater control of their finances, while 46% said it gave them the ability to save.

Most people value having some control over their finances. Of course, you can’t put a value on the peace of mind of having a personalized, structured plan or knowing your family is properly protected – these benefits are priceless.

Other less tangible benefits of financial advice include time savings, because someone else is looking after the paperwork and reducing the hassle and stress of having to keep on top of investment markets and legislative changes.

Your best chance of reducing money worries may come from developing a financial plan that’s specifically designed for your circumstances and goals.

Often the most financially successful clients realise that money is simply the fuel to help us reach our goals, rather than the destination itself. Designing a financial plan that’s based on helping you achieve your lifestyle ambitions is the key to financial well-being.

Kick start your way to financial happiness.

Call Hugh Kilpatrick from RIadvice on 03 9471 0080 today.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This article does not consider your personal circumstances and is of a general nature only. You should not in any way act on the information provided. You should obtain professional financial advice specific to your circumstances - including needs, goals, desires and investor profile.