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We are now a COVID-19 safe registered workplace!

All / 13.08.2020

We are now a COVID-19 safe registered workplace!

Since March we have implemented strict cleaning regimes and work practices to ensure the safety of our staff, clients and the community. We are pleased to let you know that our practice has now been recognised through the accreditation process and we are proud to offer you a COVID safe space for all your financial planning, insurance and wealth management needs.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

Disclaimer
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.
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Preparing for retirement in uncertain times

All / 13.08.2020

Preparing for retirement in uncertain times

As most long-term investors know, investment markets have their ups and downs. The downs are usually associated with periods of uncertainty, perhaps due to political or economic factors, or even natural disasters. Uncertainty leads to volatility – more extreme movements in asset prices – which can have a big impact on portfolio values. This can be of particular concern if you are close to retirement and preparing for your last payday. So what can you do about it?

If you are building wealth in preparation for retirement in wobbly times, there are some options:

  1. Save more. The 9.5% Super Guarantee will not be enough. Savings of at least 15% of salary over your working life are required to produce a sufficiently large retirement investment.
  2. Spend less now and in retirement. Review your budget and review your plans about how you will live in retirement.
  3. Work longer. Put off retirement until later; maybe consider working part-time in the first few years of “retirement”.
  4. Seek higher investment returns.
  5. Implement a gearing strategy to accelerate returns.

This last solution will involve taking on more risk. Investors have always accepted that the higher the return, the higher the risk. It is often easier to see the good investment opportunities after the event but the challenge is to identify where consistent higher returns can be found.

Don’t abandon shares

Over the long term, shares have produced higher returns than fixed interest though with greater volatility. The difference in returns between shares and fixed interest is called the “equity risk premium” – the reward for taking on the extra risk. In the past, the difference has been 5-7%.

When investment volatility is high, shares tend to be the hardest hit. But while it is tempting to sell shares in a falling market, this robs investors of the opportunity to ride the upswing when markets recover.

It is possible that better returns may be found amongst the ‘boutique’ managers who are not constrained by huge fund size and/or manage their funds on an ‘absolute return’ basis rather than simply trying to beat the investment sector benchmark. This requires smart investing, not just following the pack.

Allocate more to riskier assets

Fund managers have traditionally held a significant proportion of investments in blue chip company shares. Whilst they tend to pay consistent dividends, there may be other opportunities for faster growth. These include smaller companies (or small caps), unlisted shares (private companies) and overseas shares in less developed countries (emerging markets).
Apart from shares, higher yielding debt instruments offer the potential for even higher returns but at higher risk.
The key to investing in these areas is good research – identifying sound opportunities and eliminating those with unacceptable levels of risk. Of course, the supply of “good quality, relatively safe” investment opportunities may appear to be limited when things are uncertain. Some fund managers offer products specialising in a wide variety of assets.

Active asset management

Good investment management requires talented people and sophisticated systems and strategies. Organisations with these attributes have a better chance of identifying under- and over-priced securities and markets. By moving money between countries, currencies, sectors, and asset classes, these managers aim to produce higher returns. Funds managed according to an “absolute return” philosophy is an example of where managers aim to produce above average returns in rising and falling markets.

When selecting a fund manager always pay attention to the fees charged as these can impact on the overall return on your investment. Sometimes they may even offset the larger returns made on the investment itself.

Implement a gearing strategy

Borrowing (or gearing) gives you a larger sum of money to invest. This magnifies any growth you achieve on your investments especially over the long term. Careful thought should be given regarding the method of gearing as some strategies may be more suitable to your particular circumstances than others. You should always bear in mind that gearing may not only increase your gains, it can also magnify any losses.

If none of these latter strategies appeal to you, then you may have to revisit options 1, 2 and 3 above, but before you make any rash decisions, talk to your financial adviser first to develop a plan specifically to suit your needs.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

Disclaimer
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.
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You CAN save one million dollars!

All / 06.08.2020

One of the most common questions I’m asked as a financial adviser is “will I have enough to retire?” It truly is the sixty-four thousand dollar question and if $64,000 was the answer, we’d all be on easy street!

With so many variables involved, there is no set answer, but these days with many of us expecting to live longer, at least one million dollars is the minimum required to fund a comfortable retirement.

This might come as a shock to many and a lot of people might think that figure is only achievable by winning the lottery, but I can assure you that it is achievable. All it takes is some planning and commitment… and a little bit of magic called compounding.

Below I have outlined some key tips that I would talk to you about if you were sitting in front of me:

Start with your focus. For this example, it’s one million bucks.

Frequency – Regular deposits are recommended straight from your pay. What you don’t see you don’t miss.

Amount – Minimum 10% of monthly net income is recommended.

Rate – Choose investments that provide at least a 6-8%pa rate of return.

Type – High interest savings account to get started, then perhaps managed funds once you have saved enough for the minimum investment. As your balance grows, we will look at other assets to spread your investment. If you’re taking advantage of the low tax applied to super, in addition to the superannuation guarantee, you may want to salary sacrifice to your super fund – as long as you don’t exceed the concessional contributions cap.

Risk – Remember: high returns generally mean high risk. On the other hand, being too careful can slow progress. Everyone has a different risk tolerance which depends on age, personality and circumstances.

Age – Obviously it’s best to begin as early as possible, but you can still save a substantial amount even if you start in your mid-late thirties.

Emergencies – Emergencies mean just that. If you withdraw money for a new car or big holiday, you’re only undermining yourself. (That doesn’t mean you miss out on these enjoyable lifestyle events. Fun is an important part of your savings plan.)

Goal – The figures I’ve quoted here are based upon a $1 million target, however, depending on your lifestyle and expectations, you can revise that amount to suit your circumstances.

How many years to save $1 million

Let’s start with a savings balance of $5,000. This is how long it will take to reach the million dollar mark at different contribution amounts and earnings rates:

Monthly
Contribution
Years @ 4%pa interestYears @ 6%pa interestYears @ 8%pa interest
$400554336
$500504033
$800413328
$1,000363026

Obviously, the earlier you start saving, the smaller the contribution is needed. You can accelerate your contribution rate as your income increases. Savvy savers who pay a mortgage off early can accelerate their program considerably by directing the amount formerly devoted to the mortgage payment into savings.

And what about money you receive along the way? If you receive an inheritance of say, $100,000 (assuming an annual return of 6%), the $1 million mark can be reached in just 30 years contributing only $400 per month.

Regular investing is likened to building a “saving muscle.” You grow accustomed to putting away this money over the years and are able to increase the amount as you would increase an exercise regimen. Eventually, it becomes habit, you don’t notice the pain anymore, and the payoff can be enormous at the end. Like achieving a fit and healthy body, building your saving muscle results in a healthy financial outlook.

Being a millionaire may seem like an unattainable dream, but with the right amount of planning and diligence you can join the Millionaires’ Club sooner than you think.

Notes: taxation and inflation have not been taken into account in these calculations. Calculation based on achieving $1 million in today’s dollars.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.
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Five financial tips from an older generation

All / 30.07.2020

Five financial tips from an older generation

Back in my day…


If I had a dollar for every time I’ve heard that over the years! More interesting, I caught myself saying those words only last week as though channelling my father!

The younger generation is so tech-savvy these days that I can’t keep up although we had technology too! Our ‘information revolution’ produced gems like floppy-disks, dial-up internet and entire families sharing a single land-line telephone. Quickly superseded and gone forever, thankfully!

When it comes to money, some things stay relevant regardless of your generation.

So here, although you didn’t ask, are my five tips for getting, and keeping, control of your finances – for life!

  1. Living within your means seems obvious, but surprisingly, many people don’t. It’s why credit like store/bank cards and shop-now-pay-later facilities are so popular. Unmanageable debt has the power to keep you awake at night – and not in a good way. But you really can survive without the latest device or _______ (insert item here). In short, don’t be a slave to possessions; why lock yourself into debt more durable than the item?
  2. Save. The world is full of opportunities: travel and socialising, etc., but don’t underestimate the security of a stash of cash. With a small, regular commitment, you can have a life and save too.
    Consider this example: An initial $500, plus $50 per week over five years, could accumulate almost $15,000! (Assuming no withdrawals and 2.5% interest over the period). Additionally, developing a savings habit will help create a good credit score for, say, a future home loan.
  3. Buy quality, pre-loved items like clothing or furniture. Pieces in good condition will generally last longer, and with care, can become classics you won’t need to replace..
  4. Learn to cook. Stay with me! Nothing beats a home-cooked meal for cost-savings and old-fashioned job-satisfaction. Find a recipe, make a list, shop and cook. Not sure what you’re doing? YouTube is your best friend. For $30, you could cook yourself and a friend a similar meal costing around $80 in a restaurant. (There’s the week’s $50 for your savings account!)
  5. Make a budget and stick to it. Record income, then expenses beginning with non-negotiable ones like rent/mortgage, loan payments, insurance, transport, groceries, etc.

If you can’t account for some of your money, a budget will help you identify areas of overspending so you can reallocate funds to savings and discretionary expenses.

The government’s MoneySmart website provides a budget planner to get you started, or create your own using a spreadsheet.

Every generation believes there’s nothing to learn from the other, but the truth is we’re all learning, all the time.

In fact, I was recently introduced to online video chatting. Now my grandchildren will benefit from even more of my advice!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.

 

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The benefits of using a mortgage broker

All / 23.07.2020

The benefits of using a mortgage broker

Buying a home is likely one of the biggest financial decisions you’ll make in your life. While the process can be exciting, it can also be daunting, especially when it comes to financing your dream home.

What is the role of a mortgage broker?

A mortgage broker is a professional who will liaise with banks and other lenders or financial institutions to organise your home loan. They will have access to a range of loans and financial products and will save you the time of going to a handful of lenders yourself. After the broker has contacted banks and other lenders, they’ll come back to you with a selection of loans and explain how each product works. The key things they’ll cover include interest rates, features of the loan (e.g. offset accounts or no fee for early payout of the loan or extra repayments), and other fees.

How can a mortgage broker help?

A mortgage broker can help you by taking all of the time-consuming leg work that goes into securing a home loan. As experts in home loan products, they also have a thorough understanding of the different fees associated with a mortgage and they can find a loan even if your current lender is no longer suitable for your needs.

When should you see a mortgage broker?

If you’re looking to buy a property or refinance your current mortgage, prepare all of your questions and important documents and organise an appointment with a mortgage broker. You’ll need to take several documents to your appointment including recent payslips or proof of income, bank statements, a current form of photo ID, recent tax returns and recent statements for your other credit facilities.

Some questions you may want to ask at your appointment include:

  • Which lenders do you work with?
  • How does your payment work for giving me a loan? Does your payment change based on the lender?
  • What fees are associated with this loan?
  • Why are you recommending this loan?
  • What other options are available? Can you show me the lowest cost loan on the market as a comparison?
  • How can I avoid lender’s mortgage insurance (LMI)?
  • Can I have a written quote for the loan including type of loan, loan amount, loan duration, interest rate and fees?

What is the cost of using a mortgage broker?

The lender typically pays mortgage brokers a fee, so you don’t pay anything, so you don’t pay anything. The current revenue model is generally an upfront payment upon settlement of the property (usually around 0.6% of the loan amount). Your broker may also potentially receive smaller annual payments (0.1 to 0.15% of the loan amount) for as long as you’re a customer of the lender. Some mortgage brokers, however, will charge a fee upfront for their services. Make sure you get written confirmation of what fees your broker may charge and how they’re paid for finding you a loan.

Get the right advice before you move ahead

Whether you’re a first-home buyer, looking to refinance, or building an investment portfolio, a mortgage broker can help you get access to the best home loan for your goals. Make sure you speak to a qualified financial professional before you make any big decisions to ensure the transaction is structured effectively for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.
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There’s more to shares than numbers on a screen

All / 16.07.2020

There’s more to shares than numbers on a screen

Whether it’s by direct purchase, via a managed fund or through superannuation, most Australians hold some form of share investment. Many of us are aware that if the numbers in the finance report on the evening news are mostly green that’s good and if they’re red that’s bad, but beyond that we give little thought to what shares are and why we should take an interest in them.

What’s a share?

When you buy shares you aren’t just buying a piece of paper or a digital entry on an electronic register. You are actually buying a physical part of a company. It might be a tiny fraction of the total value, but it still provides you with certain rights and responsibilities, including the opportunity to participate in the direction of the company. Shares are real assets, and depending on the size and stability of the company, you can even borrow against them.

The benefits

For most people, the most important aspect to share ownership is being able to share in the profits and growth of the company. For ordinary shares, a portion of the profit is usually paid out via twice-yearly dividends. Some profits may be retained to fund the growth of the company, and this should be reflected in an increase is share price over time. These capital gains can be realised by selling the shares. The downside is that, if the company does poorly, investors may see a fall in the value of their shares.

Getting involved

Beyond receiving dividends and (hopefully) watching the share price increase, many investors take little interest in their shares. But shareholders also enjoy the right to have a say in the running of the business, by voting for or against the appointment of specific directors and on resolutions at the Annual General Meeting. One share equals one vote, so large institutional investors such as superannuation funds usually have the greatest say, but even small investors can turn up at the AGM and potentially ask questions of the board. And groups of shareholders may get together to influence a company’s direction on a range of business or governance issues.

Buying shares in up and coming companies is also a way of putting one’s money where one’s values and interests are, for example in renewable energy, recycling, medical technologies, batteries or emerging markets.

The rewards of investing in shares can be enormous, and they’re not just financial. There’s real pride to be gained from looking at a company that has achieved great things and to know that you’ve played a part in its success.

However, there is a financial risk associated with owning shares, so if you want to treat your share portfolio as more than just numbers on a screen, talk to your financial planner.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.

 

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Investing 101

All / 09.07.2020

Investing 101

Whether it’s taking a more active interest in our superannuation, starting to build an investment portfolio, or even trying our hands at playing the stock market, we can all benefit by understanding the language and key concepts of investing. Here’s a quick introduction.

Asset classes

There is a huge range of potential investments out there, and these can be grouped together in asset classes that are based on shared characteristics. There are many asset classes, however the major ones that most mainstream investors focus on are shares (or equities), property, fixed interest and cash.

  • Shares give investors part ownership (usually a very small part) in specific companies. The share market sets the value of each share and prices can fluctuate significantly, even from day to day. This price volatility means that, relative to other asset classes, shares are higher risk, particularly in the short term. However, investors expect to be rewarded for taking on this risk by the potential for shares to deliver higher long-term gains than the other asset classes. Shares may also provide regular income in the form of dividends. It’s common to split this asset class into Australian and international shares.
  • Property also provides investors with full or partial ownership of growth assets. Income is received in the form of rent and property also has a strong history of providing capital growth. It is common to further subdivide this asset class into residential and commercial property, as these subclasses can have their own property cycles. As property can, at times, fall in value, it is considered a medium to high-risk asset class.
  • Fixed interest refers to investment in government or corporate bonds. Bonds are a type of loan, and each bond has a maturity date (the date the loan is repaid), a face value or maturity value (the amount returned at the maturity date), a coupon rate (the interest rate paid on the face value), and a market value. The coupon rate is fixed for the life of the bond (hence the term ‘fixed interest’), but the market value can fluctuate depending on movements in interest rates.

Fixed interest can be high or low risk. At one end of the spectrum are so-called junk bonds, which may offer a high interest rate, but come with a high likelihood that they won’t be repaid. At the other extreme are bonds issued by large and stable governments. These bonds have such a high likelihood that they will deliver the exact return expected by an investor that they are considered, for practical purposes, to be risk-free.

  • Cash covers bank accounts and term deposits. Returns are in the form of interest payments, and cash is generally considered to be a low risk asset class.

Why are asset classes important?

One of the golden rules of investment is that when seeking higher returns, investors must take on a greater degree of risk. As it relates to investment, risk can be thought of as volatility or uncertainty. Quality fixed interest investments provide a high certainty of a particular return. They are low risk, and the returns they offer reflect this. However, for any given share, we don’t know what its price will be in a week, a month or a year. Prices may be volatile, the return is uncertain, so a share is a higher risk investment. However, that risk can be a positive thing – upside risk – which is the potential for the share to generate a higher than expected return.

Asset classes bundle together investments with similar risk and return profiles. By blending these asset classes together in different proportions – a process called asset allocation – investors can construct portfolios that provide levels of risk and return that suit specific needs. Typically, a retiree may want a portfolio that minimises their risk and provides more stable returns. A 30 year old with an investment time horizon of decades may be happy to take more risk, in the knowledge that, over the long term, growth assets (shares and property) have delivered the highest returns.

This blending of different asset classes results in diversification, which is a critical risk management tool. As different asset classes over and under perform at different times, mixing different asset classes lowers the volatility, and hence the risk, of a portfolio.

As far as returns are concerned, studies have shown that over 90% of a portfolio’s performance is determined by the asset allocation. It’s vastly more important than individual investment selection or the timing of purchases and sales.

Indexing

There are many different indices that track the performance of each asset class and its subclasses. The Australian All Ordinaries Index, for example, follows the fortunes of Australia’s 500 largest companies. The Australian Fixed Income Index Series tracks the performance of higher quality Australian bonds.

Given the importance of asset allocation and the difficulty of picking winning and losing shares or other assets, many investors are content to accept the performance delivered by each asset class. An easy way to achieve this is to invest in index funds. With a small number of these funds, it’s possible to deliver diversification both across and within asset classes, along with any desired asset allocation.

Help is at hand

Of course, there’s more to investing than can be conveyed in a short article, but that’s no reason to delay putting the various markets to work. Your licensed financial adviser can help you understand your risk comfort level, and design an investment strategy that’s right for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.
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5 tips to survive a decline in income

All / 02.07.2020

5 tips to survive a decline in income

Since precautionary measures were heightened to slow the spread of COVID-19, almost 1 million Australians have lost their jobs. According to the Australian Bureau of Statistics, Australia lost 7.5 per cent of its jobs between 14 March and 18 April. If you’re one of the many Australians who has lost their job, it’s understandable that you may be feeling stressed about managing your finances.

Put together a new budget

The first thing you need to do if your income has fallen is put together a new budget. With a reduction in your income, you’ll likely be looking to reduce your fixed and discretionary expenses. Put together a budget that includes your essential expenses such as your mortgage or rent payments, bills, and groceries. This is also a good time to assess which expenses you can do without until your income rises again.

Set up payment plans

Losing your source of income can be stressful, especially when you have ongoing payments to meet. If you’ve put together your new budget and you’re not sure you’ll be able to meet your regular payments, speak to your mortgage lender and other providers about setting up a payment plan. The important thing is that you do this proactively and keep communication open as having these conversations now will put you in a much better place to negotiate.

See what support you may be entitled to

The government has announced a range of support packages available to people who have lost their source of income or have had their income significantly reduced. Check which support you may be eligible to receive and organise all of the details you need to apply. Full details about the Federal Government’s measures to support individuals and businesses are available on the Treasury website.

If you’ve lost your income due to illness or injury and you have income protection insurance, check what claims you are eligible to make and what payments may be available to you.

Identify potential savings

When you put together your new budget, you probably identified expenses you could do without such as gym memberships and other discretionary expenses. To identify further savings, check if you can switch to cheaper providers for your utilities such as electricity, gas and internet and consider winding back your mortgage payments if you have been paying extra.

Seek advice from financial professionals

In stressful times, it can be hard to look beyond the current period of financial stress. However, this is also an opportune time to reset your financial plan for the future. Take this opportunity to speak with your financial professionals, including your mortgage lender or broker, accountant, and a financial adviser to manage your finances now and into the future effectively.

Moving forward

At a stressful time for people, it’s important that you don’t feel like you need to weather financial challenges alone. Taking the time to see what support may be available through the government’s support packages is a good place to start. And to set up a financial plan for the future that also addresses your current financial challenges, make sure you speak to a qualified financial professional for tailored advice.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.
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What to consider when withdrawing your super early

All / 25.06.2020

What to consider when withdrawing your super early

As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.

One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.

For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.

Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.

Taking the max

Much depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.

At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.

But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.

Reducing the risk

On the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.

There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.

COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, talk to your financial adviser.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.
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Make tax deductible super contributions

All / 18.06.2020

Make tax deductible super contributions

By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay less tax and invest more in super.

How does the strategy work?

If you make a personal super contribution, you may be able to claim the contribution as a tax deduction and reduce your assessable income.

The contribution will generally be taxed in the fund at the concessional rate of up to 15% ¹, instead of your marginal tax rate which could be up to 47% ².

Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super.

How do you claim the deduction?

To be eligible to claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form. You will also need to receive an acknowledgement from the super fund before you complete your tax return, start a pension or withdraw or rollover money from the fund to which you made your personal contribution.

Make sure you can utilise the deduction

It is generally not tax-effective to claim a tax deduction for an amount that reduces your assessable income below the threshold at which the 19% marginal tax rate is payable. This is because you would end up paying more tax on the super contribution than you would save from claiming the deduction.

Other key considerations

  • Personal deductible contributions count towards the ‘concessional contribution’ cap. This cap is $25,000 in 2019/20, or higher if you didn’t contribute the full $25,000 in 2018/19 and are eligible to make ‘catch-up’ contributions. Penalties apply if you exceed the cap.
  • You can’t access super until you meet certain conditions.
  • If you are an employee, another way you may be able to grow your super tax-effectively is to make salary sacrifice contributions (see opposite page).

Seek advice

To find out whether you could benefit from this strategy, you should speak to a financial adviser and a registered tax agent.

Case study

Bob, aged 55, is self-employed, earns $80,000 pa and pays tax at a marginal rate of 34.5% (including the Medicare levy).

He’s paid off most of his mortgage, plans to retire in 10 years and wants to boost his retirement savings.

After speaking to a financial adviser, he decides to make a personal super contribution of $10,000 and claim the amount as a tax deduction.

By using this strategy, he’ll increase his super balance. Also, by claiming the contribution as a tax deduction, the net tax saving will be $1,950.

DetailsMake personal contributionMake personal contribution and claim deduction
Personal super contribution$10,000$10,000
Assessable income$80,000$80,000
Less super deductionNil($10,000)
Taxable income$80,000$70,000
Income tax and
Medicare payable 4
$19,147$15,697
Income tax and
Medicare Levy saving
$3,450
Less 15% fund tax on deductible contribution($1,500)
Net tax saving$1,950
4 Based on 2019/20 tax rates

Salary sacrifice contributions

If you are an employee, you may want to arrange with your employer to contribute some of your pre-tax salary into super. This is known as ‘salary sacrifice’.

Like making personal deductible contributions, salary sacrifice may enable you to boost your super tax-effectively. There are, however, a range of issues you should consider before deciding to use this strategy.

Your financial adviser can help you determine whether you should consider salary sacrifice instead of (or in addition to) making personal deductible contributions.

You may also want to ask your financial adviser for a copy of our super concept card, called ‘Sacrifice pre-tax salary into super’.

¹ Individuals with income above $250,000 in 2019/20 will pay an additional 15% tax on personal deductible and other concessional super contributions.
² Includes Medicare Levy.
Important information and disclaimer
This document has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (GWMAS), part of the National Australia Bank group of companies. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 1 March 2020. While care has been taken in its preparation, no liability is accepted by GWMAS or its related entities, agents or employees for any loss arising from reliance on this document. Any opinions expressed constitute our views as at 1 March 2020. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice.
GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’). A member of the National Australia Bank Limited (‘NAB’) group of companies.
NAB does not guarantee or otherwise accept any liability in respect of GWMAS or these services.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
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.
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