News

Financial planning doesn’t sound too difficult on the surface. In a city like Perth with high income level and a booming property market, one would think that we are all great at planning our budgets and finances. Recently, the owners of a website called Australia.CreditCards.com compiled the latest statistics about credit cards and debt.

The numbers should be enough to convince you that many of us could use some professional help in taking care of our finances.

Bankruptcy

Total personal financial insolvency rose 6.11% for the March 2014 quarter over the same period in 2013.* 4,932 Australians declared bankruptcy in the quarter, which was 3.31% more than the same quarter last year. Debt agreements for the March 2014 quarter rose to a record high of 2,678.

Western Australia, along with Queensland, had a record number of debt agreements in the March 2014 quarter. WA’s number of personal insolvency agreements rose 19.47% over the March quarter of last year.

Although we call it financial planning, a great part of what we do is retirement planning for our clients in the Perth area. If the recent Financial Services Inquiry (FSI) report is any indication, it will be even more important for every Australian to hire a financial planner at some time during the process of preparing for retirement.

While an increase in life expectancy is obviously seen as a very good development for most people, it has one major downside. Your retirement income has to last longer than it would with a shorter life expectancy.

The real surprise in the report is that Australians tend to underestimate their life expectancy by an average of seven years. Those who are 65 years of age and retiring can now have a reasonable expectation of living to be 90 years of age. One out of ten females who live to be 65 will live to be at least 100 according to the Australian Bureau of Statistics’ (ABS) Australian Life Tables (ALTs).

The Pitfalls of Retirement

If it were just a straight mathematical equation, it would be easy to figure out how much money each individual would need for retirement to sustain their preferred lifestyle. However, there are many factors that go into what will happen to your superannuation fund as you get further into your retirement years.

Why you may need income protection insurance and how to decide which level of cover you want.

If you are like most of us, you work for a living. Your income and livelihood depend upon being able to work every day. Most of us take it for granted that we will continue to be able to get up and go to work tomorrow and for many tomorrows to come. But what happens if you get sick or injured so badly that you can no longer work?

Who is going to pay your mortgage repayment? Your car payment? Who is going to buy food and pay the utility bills? If you have income protection insurance, you may receive up to 75% of your weekly income while you are unable to work. There are many different levels of coverage available, with the cost of the policy generally rising as the length of cover does.

How is Income Protection Insurance Different?

Income protection cover provides regular payments if you become unable to work. This helps you meet your monthly expenses. Life insurance pays your beneficiaries: not you. Total and Permanent Disability only pays when your disability is permanent. Trauma insurance pays for specific events or illnesses.

Those who offer financial planning services in Australia aren’t always the same. Many give blanket advice or try to fit every client into the same system of investing without first assessing their needs.

At Approved Financial Planners, we know that everyone’s situation is as different as their fingerprints and we go to great lengths to get all of the information we need to help you formulate a plan to get you where you want to be when you want to be there.

We strongly suggest advice from a Perth professional, but here are five DIY mistakes that we think it would be wise to avoid.

Not Doing Your Homework

Whatever you plan to use as an investment vehicle, your chances of success are usually proportionate with the knowledge you have amassed concerning that investment vehicle. If you don’t, you might as well be a welder trying to do heart surgery.

How to ease the transition to retirement pension by maximising what you already have.

Although we can’t give specific advice due to the individual nature of investing, we can provide some tips for easing the transition to retirement pension. As more Australians born during the baby boomer era reach retirement age, it is becoming more important to maximise your retirement opportunities. Here are some helpful tips.

Send Your Tax File Number (TFN) to Your Superannuation Fund

This is a fundamental, but failure to execute it can cost you thousands. If you fail to supply your super fund with your TFN, you pay a penalty tax on your concessional or before-tax contributions and you won’t be allowed to make non-concessional or after-tax contributions. Additionally, you won’t be eligible for the co-contribution scheme.

Combine Your Super Accounts

If you have different super accounts, you may be paying fees on each of them. Combining them into one fund could save a lot of money.

How to protect your family from the prospect of long term disability.

When we are planning our financial futures, we often focus on our income, our own lives and our retirement. But what about the lives of your children? Do you have an adult child who has just started a family or just bought a home? You have done your job well. You have raised children who are now adults. Maybe you have done well with investments and are winding down your career in anticipation of retirement.

Congratulations. We know your “job” as a parent is finished when your children become adults. However, we strongly suggest doing one more thing to help them protect their futures: ask them if they have protected their income yet.

If your adult child sustained an illness or injury that caused them long term disability and made them unable to produce income, would they be able to get by? It may be time to have a talk with your adult child and make sure their assets are protected.

Young families are often struggling to get by with mortgage repayments, rising costs of living and student loan repayments. Often, the last thing they are thinking of is insurance. This can be a huge mistake.

A financial planner’s role is to provide expert financial advice. While many people think that all a financial planner does is invest money, it’s more than that. A financial planner is there to help you devise a strategy for your present and future financial health. In other words, as opposed to just investing money, we want to help you use it to determine your future.

One of the reasons that ethical firms only provide general information on blog posts and brochures is because everyone’s financial situation is different. If someone just asks us for investment advice, we always tell them that we need more information first. One of the most important things we need to know is what goals you are trying to achieve.

We will want to know how much you plan to spend in the future and what you would like to spend it on. We want to know whether you enjoy your current line of work or if you want to retire as early as you can possibly make it happen.

For example, many people are very happy in their chosen profession and plan to work as long as they are physically able. On the other hand, some walk into work every day dreaming about retirement. It is our job to help you turn your dreams into reality. Many people, for example, make the shift from their profession to being successful property investors.

Superannuation reforms have generated a lot of inquiries in our Perth office. We want to take this time to thank you all for your inquiries and to provide a short guide to the more important parts of the reform and how they will affect you. Remember that our information is general in scope and that we can’t provide blanket advice because every investor’s situation is different.

Any new Superannuation Fund started as of 1 January 2015 will be subject to the new deeming rules. The rules have changed the Age Pension income test, effectively double-counting any superannuation assets when assessing income. Since many Australians will still be depending on their Age Pensions as a significant part of their retirement income, the changes could potentially be devastating to many retirees.

The mechanics of the assessment are complicated and explaining them here is not the purpose of this piece. The net effect is that a lot of Australians could collect less money during retirement due to the changes.

Who Will Be Affected?

It is important to know whether or not your superannuation fund will affect your Age Pension income test in the future. If you are already receiving the Age Pension now or begin receiving it before 1 January 2015, you will be exempt from the changes and your Age Pension income test will continue under the old rules.

The ins and outs of SMSF borrowing to fund your property investments.

Under the right circumstances, you can now use your SMSF to invest in most forms of real property, including industrial, commercial, residential and farm property. Before September 2007, it was much more difficult; that month marked the first easing of SMSF regulations in regard to real assets.

In July 2010, the rules were relaxed yet again. Now, with the exception of two specific situations designed for short term cash flow, you are allowed to formulate a limited recourse borrowing arrangement, or LRBA, which limits the lender’s recourse to the specific asset for which the money was borrowed.

The LRBA is now extremely popular as an SMSF investment strategy, so popular that on 14 September 2011, the ATO felt it was necessary to draft a clarification of the rules for LRBAs. In May 2012, this would be finalised as “SMSFR, 2012/1,” which discusses the key concepts that are consistent with the application of the limited recourse borrowing arrangement provisions.

What is trauma insurance and how does a recent change in regulations affect your Self Managed Super Fund (SMSF)?

Trauma insurance is a form of cover that pays a lump sum if the insured receives a diagnosis of any of the critical injuries or illnesses specifically mentioned in the policy. Conditions most commonly covered are coronary bypass, heart attack, stroke or cancer. The lump sum is paid out whether or not the insured is unable to work; the diagnosis is the only factor.

Ever since the Superannuation Industry Supervision Act (SISA) in 1993, trustees of SMSFs have been allowed to purchase trauma cover for any member of the fund as long as a long list of requirements were met. However, this situation changed on 1 July 2014. Members who join an SMSF after 1 July 2014 are no longer eligible to have the SMSF purchase trauma insurance for them.

The SMSF can only insure a member for the following conditions