Retirement planning secures your financial future
Planning for retirement means different things to different people. But for many Australians, it’s not all about savings and superannuation. They’re hoping for an inheritance windfall to take the pressure off their financial future. In the meantime, their commitment to a comfortable lifestyle is chewing up much, if not all, of their disposable income. For those hoping for an instant nest egg, the tendency of Baby Boomers to live longer, enjoy the good life, and their need for cash to fund their own retirement, significantly reduces the odds of them leaving behind substantial assets and makes financial planning for the future for almost every Australian a necessity.
Australians wait for a bequest to solve their retirement shortfall
A recent study by IPSOS, in conjunction with MLC, found 17% of Australians say they’re waiting for an inheritance, specifically to pay off their mortgage and secure their future. A further 14% considered an inheritance a possibility. In Melbourne the percentage of inheritance hopefuls was even higher at 22%. This expectation discouraged them from making concrete financial plans to fund their retirement. Instead, they counted on the potential cash windfall to clear their mortgage, and leave them with extra disposable income for superannuation payments and investments to fund their golden years.
Interestingly, the study also found that those who had a financial planner were less likely to be counting on an inheritance to solve their future for them. 77% of those with a financial planner said they were not relying on an inheritance to fund their future, as opposed to the general sample figure of 67%. It seems financial planners acts as a kind of reality check. They force people to honestly assess their financial position and prospects of cash injections, and make plans accordingly.
Comfortable living now is trumping planning for the future
Retirement planning was a long way from the minds of many respondents to the MLC survey. The majority was far more committed to a comfortable lifestyle now, than a secure retirement. A whopping 67% of respondents named maintaining their standard of living as their biggest financial priority.
A comfortable lifestyle was defined by 75% of respondents as ‘having the money to do what I want, when I want’. This included enjoying regular meals out, going on international holidays and sending kids to private schools. Such a lifestyle was clearly taking a toll on some families, 46% of whom admitted they were living from paycheck to paycheck. And while 78% admitted the mortgage has a big impact on their lifestyle, only 48% named paying off the mortgage as a key goal for the future.
Children of baby boomers might need to rethink their inheritance hopes
So, what is the true likelihood of an inheritance windfall for the children of baby boomers? The evidence would show that it’s not good. An Australian Financial Review (AFR) article from 2012 refers to a survey by the Melbourne Institute’s Household, Income and Labour Dynamics in Australia (HILDA). The truth of what the current senior generation, Baby Boomers and Silent Generation (b 1924-1945) have to give their children is probably going to disappoint many of their hopeful offspring. The mean inheritance in Australia peaked in 2006 at $109, 285. By 2010 it had dropped to $87,672.
It’s not that Baby Boomers don’t help their children, they do. Many have been assisting their children over their entire lives, via tertiary education, house deposits and other cash injections. Now, as they age, they need the proceeds from house sales and superannuation for themselves. They are living longer, and may need all that remains, leaving nothing behind for their kids.
In the AFR article, Anne Myers, Chief Operating Officer from ING direct indicated children of Baby Boomers should not presume they will get an inheritance. 10% of Baby Boomers have a median net wealth of $684,000 but 10% are actually in debt. Even for the lucky 10%, $684k divided by a few siblings won’t go very far. There is no guarantee.
The solution? Plan retirement for yourself, and get some expert help
A financial planner can teach you financial self-sufficiency and reduce your reliance on external factors, leaving your wealth and prosperity in your hands. Once you’ve set up your retirement goals, created a plan to save for retirement, adjusted your mortgage payments to reduce your interest and term as much as possible, you can view any potential windfall as a piece of luck, with none of the weight or worry of expectation.
And don’t ever forget that grief goes hand in hand with inheritance. You might receive cash you did or didn’t count on, but you’ve lost a loved one, the sadness of which will probably outweigh the pleasure of a cash injection. By relying on your own planning for your retirement savings, and retaining the advice of an expert to help you achieve your goals, you’re freeing yourself from financial and emotional dependence.
Planning beats procrastinating every time
The MLC study illustrated that Australians are showing high levels of denial about their real financial needs for retirement. It also found those with concrete financial plans were less likely to rely on outside factors to fund their retirement plans. Any Australians hoping for a retirement windfall need to think carefully about the likelihood of receiving an inheritance. Despite the purported richness of the Baby Boomer era, retirement savings will be required to fund longer lives and comfortable lifestyles, to the extent that the next generation are unlikely to benefit. The knowledge of a financial planner is more likely to secure a prosperous future than the uncertainty of waiting for an inheritance windfall, with its attendant grief and sadness.
This article is published by Modoras Pty Ltd ABN 86068034908 AFS and Credit License No. 233209. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.Read More >>
Since the Federal Budget on 3 May 2016, many superannuation strategies have carried a significant element of uncertainty.
As you may have heard, today (15 September 2016) the Government has announced some significant changes to the superannuation proposals previously announced on Budget night.
It’s important to be aware that we still don’t have any legislation released on these measures, which is essential in determining how the new measures will truly operate. The Government has indicated that legislation is expected to be introduced into Parliament before the end of 2016.
The following important changes have been announced:
- The proposed lifetime cap of $500,000 per person for non-concessional contributions will not go ahead.
- From 1 July 2017, those with a superannuation account balance below $1.6 million will be able to make non concessional contributions.
- If you are eligible to make non-concessional contributions from 1 July 2017, they will be limited to $100,000 per annum (or $300,000 using existing bring-forward rules).
- The Government will retain the existing requirement that you must meet a work test to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement).
- There are no changes to the proposals around concessional contributions (including lowering the limit to $25,000) other than delaying the “catch-up” opportunity for those with less than $500,000 in super by 12 months to a 1 July 2018 commencement.
Some of these changes may result in the opportunity to make additional contributions to super, particularly before the new proposals take effect on 1 July 2017. However, in the absence of legislation to give effect to these measures, we recommend you seek advice before acting.
If you have any questions on how these proposed changes will impact you or what opportunities they may create, please contact TNR Wealth Management on 02 6621 8544 or email email@example.comRead More >>
Hopes rate cuts will bolster growth
The Reserve Bank of Australia (RBA) cut the official cash rate by 0.25% to 1.5% at its August board meeting, having last cut rates by the same amount in May. As with the previous easing, it follows lower than expected inflation figures which show inflation at 1%, well below the Bank’s target of 2-3%. The RBA made specific reference to low wages growth and subdued inflation in Australia and the rest of the world, and the likelihood this would persist for some time.
With interest rates so low, an area of concern for the RBA has been housing construction and house prices. This concern appears to have receded with the statement accompanying the rate cut noting that “dwelling prices have been rising only moderately over the course of this year” and that bank lending has been more cautious in certain segments, namely multi-unit developments. As a result, the RBA does not believe the rate cut will increase risks in the housing market.
The Australian growth outlook remains constrained by still sluggish consumer spending and investment. Consumer sentiment has been lacklustre for some time with a lack of wages growth and a desire by households to control debt limiting spending, despite the extremely low interest rates. Nevertheless, GDP growth is likely to be maintained above 2.5%, with exports providing support.
Internationally, the most significant news of the past quarter was the UK vote to leave the European Union. While the logistics of the exit are likely to take up to 2 years, the economic impacts are expected to be felt sooner. The International Monetary Fund (IMF) believes UK growth is likely to be only 1.3% in 2017, compared to their previous forecast of 2.9%. In contrast, European growth was downgraded only slightly to 1.4%, while global growth was left largely unchanged at 3.4%.
Reflecting the heightened risks to UK economic growth and the need to support confidence, the Bank of England cut interest rates to 0.25% in early August – the lowest level in the Bank’s 300 year history. This is also the first rate decrease in seven years and follows expectations earlier in the year the Bank was actually on the verge of increasing interest rates. Clearly, Brexit has changed things significantly for the UK.
In the US, GDP growth for the June quarter was lower than expected showing the economy growing at little more than 1% compared to a year ago. This likely provides an overly pessimistic view of the underlying growth rate of the US and reflects the volatility seen over the past few years which has seen growth slump to around 1% a number of times before rebounding to 3%. Other economic data such as the ISM manufacturing survey, consumer confidence and employment suggest US growth of 2-2.5% in the immediate future. Expected interest rate increases in response to improving growth have been delayed, but it is still possible the US Federal Reserve will increase rates before the end of the year.
Source: BT Insights
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently v rified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any in formation or advice in this publication. Any taxation position described in this publication is general and should o nly be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
Do you know that the average person cancels their personal insurance about 1-2 years before a claimable illness strikes! The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years. (source TAL)
SMSF regulations now require Self Managed Superannuation Fund Trustees to consider Insurance as part of the SMSF Investment Strategy . The following applies to everyone regardless of the type of investor you are or the structure you use to save for retirement.
Many clients in their late 50’s who have cancelled their life and income protection insurances before seeing an adviser. Usually they say it is because they have paid off their mortgage and are debt free so they didn’t feel they needed cover any longer.
Their focus now was on expense reduction and saving via salary sacrifice to superannuation and even some after tax contributions from savings.
While it is great to see them focus on saving for retirement and budgeting, what they don’t realise is that in cancelling insurances it is their retirement lifestyle or that of their spouse they are no longer insuring and not just their current needs.
With 5-15 years of focused savings towards a retirement nest egg they can substantially improve their lifestyle after retirement. However those dreams of a happy retirement can all be taken away with a diagnosis of cancer or a stroke that inhibits them working for a prolonged period.
You don’t just find yourself financing time off work and medical expenses but also lose out on the employer super contributions and salary sacrifice as well or worse for a small business owner, you face the expense of a getting someone to cover for you to keep the business afloat.
To realistically assess if you need to maintain your Life, Trauma or Income Protection insurance, you need to think through the worst-case scenario. If you were unable to work for 3 years due to an illness today, how would you and your loved ones cope financially?
- Would you be able to meet ongoing living expenses like food, clothing, changing the car, pay for private health insurance premiums, etc? (this assumes mortgage paid off)
- Would you have the liquid funds to cover additional expenses or loss in income (e.g., gap in your medical fees, time off work for your spouse to take care of you,
- What would happen to your retirement plans and would you be able to save enough money to see the kids through the final college years or fund your retirement comfortably?
- What if you were actually permanently disabled and they had all the costs of rearranging
the home, medical care and transport options for you.
In all honesty, it is always a struggle when you lose your earning capacity. The last thing you need compounding the situation are financial concerns. Insurance helps make sure that you and the people you care about will be provided for financially, even if you’re not around to care for them yourself.
So whether you’re in retail, industry or a Self Managed Super Fund, take a moment to consider how insurance might fit into your retirement plans. We can look at ways to reduce the cover and costs to keep them affordable and provide that protection for you and your family.
If you think you may need to review your Insurances then you can contact us to offer you advice on your options. As well as offering advice on Insurances, Superannuation and SMSF’s our advisers can also offer you help in many other area’s you may be experiencing problems such as:
- Financial Planning,
- Wealth Creation
- Debt Consolidation,
- Investment Portfolios,
- Estate Planning,
Source: Liam Shorte B.Bus SSA™ AFP
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.