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The fast way to a life supported by passive income

All / 11.03.2021

The fast way to a life supported by passive income

Imagine that, without any effort on your part, enough money regularly pours into your bank account to meet (or exceed) all your living expenses. Suddenly, work becomes optional and a world of opportunities opens up. That’s the ultimate in passive income – all your financial needs met without lifting a finger.

The fast way to a life supported by passive income is to win the lottery or receive a large inheritance. Invested wisely, large lump sums can generate rental income, interest, share dividends and capital growth, all of which can replace an earned income but without the hard work.

Other forms of passive income include royalties on book sales, licensing fees on patents and, increasingly, income associated with creation of Internet content, such as YouTube videos. However, while these passive income streams may become geese that lay golden eggs, it takes a lot of effort to write a book, develop an invention, or create popular Internet content.

And the unfortunate reality is that we can’t all be lottery winners or best-selling authors, genius inventors or Internet sensations. We can, however, start to build a passive income stream that will grow over time, replacing an increasing proportion of our active income. In fact, if you’re working and receiving employer superannuation contributions, you’re already on the path to generating a passive income. You may just have to wait awhile until you can enjoy it.

With its generous tax breaks superannuation is likely to play a leading role in most passive income strategies. However, with its restrictions on access, if you are some years away from retirement age you may want to pursue a more flexible approach to developing a passive income stream. How? It all begins with a savings plan.

This simply involves making regular contributions to a suitable investment vehicle. To begin with this might be an interest-paying bank account, but as your nest egg grows you can diversify into potentially higher performing investments such as managed funds, direct shares and eventually direct property.

Importantly, by reinvesting the income produced by your savings plan you’ll tap into the power of compound interest. Over the long term, compounding is the powerhouse that will contribute the most to your future passive income stream. As the income produced by your portfolio increases, so do your options. For example, you might want to cut back to working part time.

One other form of passive income worth mentioning is the age pension. If you’re over age pension age it may be a good idea to investigate strategies to maximise your pension entitlement. Just make sure the overall result is positive.

Ready to pursue the potential of passive income? Your financial adviser will be happy to help you take that first step.

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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Separation Planning: An adviser’s perspective

All / 04.03.2021

Separation Planning: An adviser’s perspective

Few client meetings have been as challenging. After years of being happily married, Sarah and her husband decided to separate, and the story of her acrimonious divorce was certainly distressing.

It started with a chance meeting, where in passing, Sarah mentioned the divorce. She assured me she’d had enough of advisers for a while and just wanted some time out. I insisted we meet as quickly as possible.

The first step was to sort out her will. Again, Sarah said she never wanted to speak to another solicitor again, but this quickly changed when I explained that if something happened to her today, all her assets would go to her ex-husband.

We also needed to update her superannuation. The binding nomination she had put in place, again leaving everything to her ex, needed to be changed to stop this flow of money, which would otherwise bypass her will and go directly to her husband.

I suggested Sarah think about putting in place a power of attorney so someone could step in and handle her affairs if she could suddenly no longer do this herself as well as think about appointing a medical power of attorney.

She needed to make provisions for her three children. While her ex-husband insisted, he’d continue in their lives, this could easily change in the future, particularly if he were to meet someone new.

Sarah had retained the family home but needed to re-mortgage it to buy out her ex-husband. As a successful professional in her own right, she could afford to do this but only just. A new family budget was needed, and she would have to stick to it, at least for the next few years.

So far, Sarah had been agreeable to my suggestions, but then I turned the conversation to two other key areas. To retain the family home, Sarah had agreed to give part of her superannuation to her ex-husband.

This was a disappointing outcome, and it was too late to mention that as her financial adviser, I should have been involved with these discussions about the settlement before she had agreed to it. But it was too late now to go back.

While the next few years would be tough living on one income, it was important that Sarah focused on her superannuation and did not let it lapse. I urged her to remember that in a few short years, she would be thinking of retirement.

She needed, more than ever, to ensure her superannuation was on track and would be sufficient to provide for her when she stopped working.

Our final conversation was the most difficult, but I thought, the most important. Sarah needed to do a stocktake of the insurances she held on her house, her car and her health, but most importantly, she needed to review her risk insurance.

No, she said. She had never understood risk insurance and particularly now when money was tight, she wanted to let these lapse. She thought she could boost her superannuation savings by stopping the life insurance within it.

I understood Sarah’s concerns, but explained now was when it was most important for her to keep, and probably increase her personal insurance.

We arranged a second meeting, and this gave me time to source the best policies that would provide Sarah with the peace of mind she needed while keeping within her already tight budget.

We agreed to increase her life insurance and total and permanent disability insurance, which were both held within superannuation. We decided if something happened to her, there should be enough money to re-pay the mortgage and support her children, at least until they turned 18.

While it all took time, Sarah left the second meeting happy. She was well prepared to face her new future, and I was pleased she could now take some well-deserved time to herself.

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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Beat the scammers at their own game

All / 25.02.2021

Beat the scammers at their own game

We’ve all seen media reports about ordinary Australians losing their entire savings after responding to a phone, email or mail offer that was impossible to resist. While some people may be naïve, scammers are also getting smarter.

Financial stings have become a serious threat to Australian consumers and businesses. According to the ACCC’s Scamwatch website, there were 167,796 reports of scam in 2019, for a total loss of more than $140 million!

All shapes and sizes

Identity theft scams involve someone stealing another person’s identity and can do anything with it from cleaning out bank accounts to taking out fake mortgages. But scams can come in many guises, including, but not limited to:

  • Online account and money transfer scams;
  • Health and medical scams;
  • Superannuation scams;
  • Get-rich-quick scams;
  • Lottery and competition scams.

If it sounds too good to be true…

Let’s look at the most damaging of all – investment scams.

Scammers know and use all sorts of tricks to entice the vulnerable but there are steps you can take to protect yourself.

Scammers usually make contact “out of the blue” with a blanket offer and use tactics to pressure you into the deal. These “professionals” try to make their offer look as genuine as possible and most will have any or all of the following features:

  • Quick, high returns and sometimes tax-free;
  • No risk for the investor;
  • Mention well-known companies or people (that are actually not involved);
  • Discounts for “early-bird” investors or special allocations not available through anyone else.

Investment scams can appear very professional on the surface. By the time the victim realises the offer was too good to be true, the scammer has disappeared with their money.

What should you do?

If you receive a call or email always check the validity of the offer and provider, by asking:

  1. What is your name and what company do you represent?
  2. Does your company have an Australian Financial Services licence and what is the licence number?
  3. What is your physical address?

If the caller can’t or won’t provide these details, it will be a scam. If they do answer, take down the details and check the Australian Securities and Investment Commission list on its MoneySmart website (www.moneysmart.gov.au) or the Australian Competition and Consumer Commission (ACCC) ‘Scamwatch’ site (www.scamwatch.gov.au).

Be proactive

Some scams aren’t as obvious so always protect your personal information. Never give out bank details or transfer money to anyone you don’t know or trust.

Always check your statements and report any suspicious transactions to your financial institutions. Make sure your computer and mobile devices are protected with strong passwords, anti-virus software and firewalls.

And beat the scammers at their own game – if you are contacted by one of these fraudsters, immediately report it to the ACCC via www.scamwatch.gov.au or phone 1300 795 995. Hopefully the scammer will end up the victim instead.

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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The tips, traps and costs of retirement villages

All / 18.02.2021

The tips, traps and costs of retirement villages

With an aging population, an increasing number of Australians are opting to live in retirement villages. While pitched at the ‘over-55s’, the average age of entry is 75, and average age of residents is 81. Depending on the retirement villages, attractions include having home maintenance issues taken care of, more social contact, access to recreational facilities and on call assistance in case of medical emergency. Moving to a retirement village can also free up capital to support living costs in retirement.

These benefits all come at a cost, of course, and the type and amount of fees can vary enormously from village to village. There are also several different types of ownership or occupation rights or ‘tenure’. Most commonly, residents pay the market price of a unit in exchange for a long-term lease, or pay an upfront fee for a licence to occupy. Straight rental arrangements, often for serviced apartment-style accommodation, are also available in some villages.

Lots of fees

While there are many ways in which retirement villages structure their fees, the most commonly encountered include:

  • Waiting list fees.
  • Ingoing contribution. This may be referred to as a refundable deposit, purchase price or a loan, and will be the largest upfront payment.
  • A regular (e.g. monthly) maintenance fee to cover upkeep of facilities, pay staff and cover a range of services.
  • Personal services fees for things like meals, laundry and personal care.
  • Utilities.
  • Deferred management fee, or departure or exit fee, on leaving the village.
  • A refurbishment fee.
  • Share of any capital gain.

On the other hand, when you leave the village you will receive the proceeds of selling your unit less any exit fees. However, depending on the prevailing market it can be many months before the final payment is received.

Some of these fees can better understood by way of an example.

John and Wendy’s experience

John and Wendy are in their late 70s when they decide to downsize from the family home. They are attracted to the retirement village lifestyle by the recreational facilities and social opportunities, plus the availability of personal care should they require it in the future.

  • They pay $400,000 for the right to occupy a unit. The monthly maintenance fee is $600. Eight years later they both need to move to aged care so need to sell their unit. It is now worth $600,000.
  • Their exit fee (deferred management fee) is 4% of their purchase price for each year of occupancy (capped at 40%). In this case it amounts to 32% of the purchase price, or $128,000.
  • In their village the resident’s share of any capital gains is 50%, so the village operator takes a further $100,000.
  • John and Wendy therefore come away with a total of $372,000 ($600,000 – $128,000 – $100,000).

This is just one simplified example, and even slightly different circumstances can lead to a very different result.

While it may seem a poor result for John and Wendy to pocket less than the purchase price after eight years, the decision to enter a retirement village is more about lifestyle and services rather than just about financial returns.

Centrelink considerations

If your entry contribution is more than the extra allowable amount (the difference between non-home owner and home owner assets test threshold) Centrelink will classify you as a home owner. This applies to most people. Anyone assessed as a non-home owner may be eligible for rent assistance, with the amount based on the ongoing fees.

Major event

Moving house is a major and stressful life event at the best of times. With their varying fees and ownership structures, a move into a retirement village may be even more complicated. That’s no reason to dismiss the idea – many retirement village residents report an increase in their happiness as a result of making the move. However, entering a village has major financial consequences, so talk to your financial advisor about they assistance they may be able to offer you.

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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Retirees cash flow drought

All / 11.02.2021

Retirees cash flow drought

While cuts in interest rates are greeted with glee by homebuyers and other borrowers, for the millions of retirees and others who depend on interest payments for their income, falling interest rates can be a disaster. For them, a drop in interest rates from 4% to 3% equates to a 25% drop in income. If rates fall from 2% to 1%, income falls by a massive 50%. Add in even a modest level of inflation, and many retirees are going backwards financially. And while the RBA has indicated it doesn’t want to go down the strange path of negative interest rates, this has happened in several European countries and Japan. Imagine: depositors pay banks a fee to store their money, and borrowers receive interest payments rather than make them.

The idea behind negative interest rates is to encourage lending for productive purposes, and to head off deflation. If prices of goods start to fall, consumers delay spending in anticipation of lower prices in the future, further weakening economic activity. However, negative interest rates carry the risk that depositors will withdraw cash and hide it under the bed or in safes. Aside from the risks of fire and theft, which could lead to a total loss of funds, withdrawal of cash on a large scale could lead to liquidity issues for the banks and less economic stimulus.

What are the alternatives?

Aside from the term deposits favoured by many retirees, annuities are worth considering. An annuity effectively exchanges an up-front lump sum for regular income payments. They are generally considered to be low risk. However, as an interest-producing investment, returns are low when interest rates are down.

High dividend yielding shares have also been a traditional source of income for retirees, offering not just income but also the prospect of capital growth. However, shares can also fall in value, and the economic uncertainty precipitated by COVID-19 saw many companies cut or cancel their dividends as their profits fell.

Hybrids such as converting shares, preference shares and capital notes have elements of debt and equity investments. Their pricing is usually more stable than ordinary shares, and they pay either a fixed or floating rate of interest, often as a fully-franked dividend, above a particular benchmark, usually the Bank Bill Swap Rate.

For retirees with a less hands-on approach to managing their portfolios, a vast range of managed funds are available that suit all risk tolerance levels, and that can provide regular income.

With interest rates at unprecedented lows, many retirees will have no choice but to dip into their capital to meet their cash flow needs. If the portfolio contains a reasonable allocation to growth assets and depending on market conditions, then capital growth may be sufficient to cover cash withdrawals.

A long-term perspective

In abnormal economic times it’s important to keep some perspective. Economic upheavals are often short term. Retirement, on the other hand, can last for decades.

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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Traps to avoid in retirement – ignoring estate planning

All / 04.02.2021

Traps to avoid in retirement – ignoring estate planning

Don’t have a Will? You’re in good company. Less than half of Australian adults do. Even then, many Wills are out of date or invalid. The upshot is that hard earned wealth may be fought over by family or distributed by government formula, and not end up with the preferred beneficiaries.

It’s also important to remember that Wills are just one component of estate planning, so here’s a quick checklist to help you get your estate planning on the right track.

  • If you don’t have a Will, make one. Consult a specialist estate planning lawyer.
  • If you do have a Will, ensure it is up to date and reflects your current wishes. Is your executor willing to take on the role and likely to outlive you?
  • Have enduring and medical powers of attorney drawn up so someone you trust can act on your behalf and make decisions if you are no longer able to do so.
  • Review your superannuation death benefit nomination. Super death benefits can be directed to your estate and distributed under your Will, or they can be paid directly to nominated beneficiaries.
  • Look into pre-paid funerals or funeral bonds. Aside from relieving your family of one burden at a time of great stress, you may see an increase in your age pension payments.

Depending on business and financial structures, family dynamics, pension rules and legal requirements, estate planning can be complex. Your financial adviser can help you identify the estate planning issues you need to address, and the professionals you may need to consult, to ensure your assets are distributed according to your wishes and to provide the best outcome for your beneficiaries.

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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Unlocking the mysteries of your super statement

All / 28.01.2021

Unlocking the mysteries of your super statement

Superannuation statements. Boring, right? But if, like many people, you toss your annual super statement in a drawer or hit delete, you could be depriving yourself of many thousands of dollars just when you need it. So it’s worth the small effort to take a closer look at your superannuation statement. If everything is in order, you’ll get a warm glow from watching your nest egg grow. Conversely, a quick check of your statement may reveal some of the common problems that occur with super; and the sooner these are fixed the quicker your savings can increase.

What to look for

The layouts of statements vary between super funds, but there is standard information that must be provided. Some items may appear in summary form, with a detailed breakdown shown elsewhere. Here are the key things to look for:

  • Contributions or funds in. This will cover employer and personal contributions, government contributions and rebates, plus any rollovers. If you’re an employee earning more than $450 per month, your employer should be paying 9.5% of your ordinary time earnings to your super fund. Payments can be made either quarterly or monthly. Calculate the contributions shown on your pay slip are at the right rate and that they match the contributions received by your super fund.
  • Funds out. Most commonly this comprises administration and investment management fees, and any insurance premiums. Excessive fees can place a real drag on the performance of your savings, so check that they are competitive with other funds.
  • Investment earnings. This covers interest and share dividends, along with any capital growth in the value of your investments. Be aware that depending on your specific investment mix and the performance of markets, this figure may sometimes be negative.
  • Insurance cover. Your super fund may provide death and/or disability insurance. If so, check that it is appropriate and adequate for your needs. Maybe you are paying for insurance cover you don’t need, or are inadequately insured.
  • Investment options. This will show what your money is invested in, and in many cases the performance of each investment. Your investment choices will be one of the main influences on the ultimate value of your retirement savings. Professional advice in this area is strongly recommended.

Other things to check

  • Have you provided your tax file number? If not, the fund will be deducting too much tax from your contributions and earnings.
  • Have you made a binding death benefit nomination? This allows you to choose, within applicable rules, who your superannuation is paid to upon your death.
  • Is your name and address up to date? Is it possible you have ‘lost super’? This occurs when a super fund can no longer contact you. The Australian Tax Office can help you find lost super. Start here https://www.ato.gov.au/forms/searching-for-lost-super/.
  • More than one statement? Ideally, you should consolidate all your superannuation into one fund. This will avoid duplication of fees and insurance premiums, and make your super much easier to manage.

It may not rival the latest video game or binge-able TV series for entertainment value, but delving into your super statement can be way more rewarding.

Invaluable advice

Super is one area in life where professional advice can really pay off. If you need help with understanding investment options, consolidating multiple super funds, finding lost super, or ensuring you have the right insurance cover, talk to your financial adviser. The sooner you do, the sooner you’ll be on track to growing your super pot of gold.

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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Market crashes: The good, the bad and the ugly

All / 21.01.2021

Market crashes: The good, the bad and the ugly

Just as night follows day, it seems part of the regular cycle of the world’s share markets that downturns and falling prices follow good times and rising prices.

The impact of the COVID-19 Global Pandemic was typical of such downturns, prompting a 35 per cent sell off in world share markets and a dramatic fall in economic activity. Tourism and hospitality industries, in particular, were brought to their knees by sudden and prolonged closures.

For many, it has prompted memories of other equally, and sometimes more devastating, downturns in the world’s share markets.

The most famous was “Black Thursday” in 1929, which led to an 80 per cent collapse in share prices and sparked the Great Depression, lasting for more than 10 years. It created widespread misery and sustained world-wide unemployment rates in excess of 30 per cent.

What caused it? The wild excesses of the roaring twenties when consumer confidence was at a record high and the introduction of margin loans, where people could borrow up to 80 per cent of the value of shares.

This created a classic investment bubble, where optimism overwhelmed caution, and people started buying shares in the mistaken belief they would always increase in value. A drop in agricultural production due to droughts and a fall in economic production caused a sudden reversal in sentiment.

A similar situation played out 60 years later, when in 1987, panic selling on Black Monday, wiped some 30 per cent from the value of the key US market index, the Dow Jones – its biggest one-day fall.

It put an end to the ‘Greed is Good’ mentality of the eighties and prompted a review of the relatively new, computerised share trading systems. It also led to the introduction of circuit breakers to stop panic selling and exaggerated market movements caused by sudden sell-downs.

Yet it seems investor’s memories are short.

Not long after this, markets got caught up with a new investment bubble prompted by the development and growth of the Internet. Companies raced to find their place online, and suddenly, all Internet companies were considered a sure bet.

This speculative buying ran out of steam when the Dot Com Bubble finally burst in 2000, wiping 45 per cent off the value of shares. It’s believed 130 internet-based companies went broke in the United States that year, creating widespread unemployment.

While much the same as the earlier market falls, the Global Financial Crisis of 2008, was also in many ways unique. It was the direct result of dodgy lending practices in the US housing market, which created a toxic class of home loans, commonly referred to as ‘sub-prime loans’.

Typically, these lenders ignored the individual’s ability to repay the loans and instead focused on the belief property prices would continue to rise, and there would always be people prepared to rent these properties.

It created a typical investment bubble in the US housing market, where greed and optimism overrode common sense. Eventually, people found they could not meet their repayments and as the bubble burst, nor could they sell the properties held as securities.

The sudden realisation that many mortgages were not worth the paper they were written on, caused enormous problems within the US banking system and saw the collapse of several international banks.

It took a prolonged economic downturn and the introduction of tighter lending practices to correct these difficulties.

The lesson to be learnt from all these devastating crashes is that while no two were the same, they were all similar in nature. All were created by exaggerated investor beliefs that prices would never fall and saw greed outpacing fear.

It is therefore essential to think carefully before investing, ensuring each investment is made with a long-term mindset, and that sudden market corrections do not lead to panic selling.

As history has shown, market downturns follow upturns, but as long as the investment is fundamentally sound, it will fully recover any lost value.

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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How does Australia’s pensions plan stack up?

All / 14.01.2021

How does Australia’s pensions plan stack up?

One in six people will be over 65 years old by 2050. With the world’s population ageing quickly, it is natural to think about how pension systems around the world will cope, particularly in Australia. Fortunately, Australia’s three-component retirement income system means our age pension system is well-equipped to support older Australians now and well into the future.

Is Australia’s age pension adequate for retirement?

Comparisons of age pensions around the world are generally made based on three key factors — adequacy, sustainability and integrity. The balancing act is tough, but essential for countries to get right. It is no use having an overly generous age pension if the current funding measures (typically tax revenue) aren’t adequate to maintain the system long-term. Integrity is also critical, ensuring an age pension system adequately protects a country’s older people.

What payment types are included in Australia’s age pension?

Age pension rates in Australia are based on an income test, assets test and your relationship status. For example, the normal maximum fortnightly rates for an eligible single person are:

Maximum basic rate $860.60
Maximum Pension Supplement $69.60
Energy Supplement $14.10
Total $944.30

The Pension Supplement is an extra payment to help eligible retirees pay their utilities, phone, internet and medical expenses. Similarly, the energy supplement is an additional payment which assists pensioners with their household energy costs.

What are the means tests for Australia’s age pension?

There are two tests to determine age pension eligibility in Australia — the income test and the asset test. The income test assesses all sources of you and your partner’s (if applicable) income, including financial assets. The asset test assesses the value of you and your partner’s assets (excluding your principal home).

How does Australia’s age pension stack up against other countries?

Australia is typically ranked amongst the best in the world for age pensions, trailing just behind the Netherlands and Denmark. In the Netherlands, for example, the maximum age pension is 50 per cent of the minimum wage for couples, and 70 per cent of the minimum wage for single people. Denmark differs slightly, though their system is still adequate, providing pensioners with a minimum of 40 per cent of a person’s average earnings along with support through the country’s universal healthcare and housing benefits.

Despite the Netherlands and Denmark consistently holding the top spots for their respective age pension systems, Australia’s age pension comes quite close. Australia is fortunate to have a stable, well-funded age pension system, with the maximum age pension equating to around 60 per cent of the national minimum wage.

Is Australia’s age pension adequate for your desired retirement lifestyle? 

When planning for your retirement, it is important to consider your desired retirement lifestyle and what this will cost. Your ongoing costs in retirement will be impacted not only by your day-to-day living expenses but also by the value of your assets and any outstanding debt, such as a mortgage.

Seeking tailored advice from a financial professional as you plan your retirement will ensure you have adequate income to fund your desired lifestyle.

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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4 Financial Resolutions to Kick Start the New Year

All / 06.01.2021

4 Financial Resolutions to Kick Start the New Year

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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