Overloaded with deadlines, information and responsibilities, it’s little wonder that we sometimes end up on autopilot. Mindfulness can help us overcome the struggle and improve our physical, emotional and even our financial wellbeing.
Have you noticed how busy everybody is nowadays?
It doesn’t make for a relaxing life and it isn’t healthy either. Stressed out and short of time, it’s easy to turn to quick fixes. It might be a couple of beers, some chocolate, zoning out on the couch or indulging in a little retail therapy.
Our minds wander to what we’d rather be doing. Sometimes, the last thing we want to do is think about the here and now.
But doing just that can have surprising benefits.
Mindfulness offers us a way to cope with the demands of our overloaded lives. It can reduce our tendency to worry, boost our confidence and help us make better decisions.
Have you been paying attention?
Being mindful involves paying deliberate attention to what we’re experiencing in that very moment, without judging it as good or bad. That includes concentrating on our thoughts, feelings and physical sensations.
When we focus on what’s going on right now, we develop greater awareness. And, just like regular physical exercise transforms the body, consistently practising mindfulness can change the brain.
Studies have found that mindfulness consistently affects the parts of the brain that are associated with self-regulation, learning, complex thought, and resilience.
Mindfulness does not only have a positive effect on health and wellbeing, but also… is likely to improve one’s ability to make high-quality judgments and decisions.
Everywhere from businesses to schools, sports arenas and even prisons, mindfulness is being used to reduce stress, improve performance and develop greater empathy.
In Australia, one of the first organisations to introduce widespread mindfulness training was leading law firm Herbert Smith Freehills. In a profession known for its long hours and high demands, the program has generated meaningful change, including a 45% increase in focus and a 35% reduction in stress among participants.
Get money minded
Applying mindfulness to how we manage and think about our money is useful in a variety of ways.
1. Better decisions:
Being mindful helps at each stage of the decision-making process, from initially framing it, to gathering information, making a conclusion, and finally learning from the experience. In particular, it helps combat the ‘sunk cost trap’, which is the strong bias to persist with a bad decision because of how much has already been invested.
Having the clarity to consider how the available options relate to personal goals and hone in on the most relevant facts, stands people in good stead when faced with major investment or borrowing decisions.
2. Reduced impulsiveness:
Bringing yourself back to the present moment curbs the instinct to act on impulse. That can reduce the tendency to overspend on items don’t really want or need. You can help with sticking to a budget.
3. Lower anxiety:
Personal finances are consistently rated as the number one source of stress, according to the Australian Psychological Society. Mindfulness is a valuable tool to reduce anxiety and feelings of being overwhelmed.
Developing greater awareness can help us make wise choices when faced with major investment or borrowing decisions, and change day-to-day patterns of behaviour that underpin financial wellbeing. And all without tearing our hair out.
Beyond the brain
Mindfulness does more than give us a mental boost. Studies have found it also leads to:
- Better sleep
- Improved digestion
- More physical and mental energy
- Lower blood pressure
- Increased immunity, including against the flu
Tips for getting started
Mindfulness is most effective when it’s part of a regular routine. The good news is it doesn’t have to take long or cost money – 10 minutes a day is enough to make a difference, and there are lots of ways to do it for free.
- Devote your complete attention to doing a single simple activity, like having a coffee. Notice everything about it: the heat of the cup, the aroma, the steam rising, the taste and how it changes, the warmth and energy as you drink, and how it makes you feel.
- Ask yourself a question and pause for a minute to reflect on what it means to you. It could be ‘What makes me happy?’ or ‘What does this moment require?’.
- Go for a walk in a park or your neighbourhood and concentrate on your surroundings – the people, nature, the weather and the sounds.
- Listen to a piece of music – a favourite song, or something new – and concentrate on the different sounds and rhythms.
- Take one minute when you start or finish something during the day to breathe deeply, identify your feelings, thoughts and physical sensations and let them pass.
- Try an app – there’s a range of mobile mindfulness training programs you can download. A great place to start is Smiling Mind, a free Australian app with a wide range of short programs for all ages.
It’s a known fact, Australians, on average, are living longer. Retirees commonly spend over twenty years in retirement and the need to accumulate savings while they are still working to fund this retirement period has never been greater.
Using a salary sacrificing strategy where your employer contributes some of your salary into superannuation before tax is deducted has proven to be an effective way for many to accumulate wealth for retirement. For the self-employed, this strategy has been achieved by claiming a tax deduction on super contributions.
There have been two recent changes to super rules which may impact those salary sacrificing or making tax deductible contributions – one positive and one negative.
Contribution limits reduce
From 1 July 2017, instead of a $30,000 cap on contributions for those under 50 or the higher $35,000 cap for those 50 plus, the concessional contributions cap will be $25,000 for everyone.
Concessional superannuation contributions are contributions made by your employer on your behalf or personal contributions where you claim a tax deduction. The following table provides examples of the types of contributions that will count towards your $25,000 cap.
If you exceed your concessional contributions cap of $25,000, the excess amount will be taxed at your marginal tax rate, instead of the concessional 15% that applies to most concessional contributions. Plus an additional interest charge will have to be paid to the Australian Taxation Office (ATO). So now is the perfect time to review your current contribution amounts to ensure that you don’t exceed the new limit.
Tax deduction available to more people
The second change that commenced from 1 July 2017 is that anyone eligible to make contributions to super now has the opportunity to claim a tax deduction for that contribution, irrespective of your employment situation. Previously, only the self-employed or those earning little or no income as an employee could make tax deductible contributions.
This is an important change for many workers as they will now have greater flexibility, especially if their employer places restrictions on their ability to salary sacrifice.
Consider these scenarios.
Oscar is 45 years of age and earns $110,000 a year designing software. After meeting his ongoing commitments, he has the capacity to invest an additional $14,000 per year for his retirement in 20 years time.
If Oscar was to make tax deductible contributions to superannuation of $14,000 in addition to the SG contributions his employer already makes, he could achieve a tax saving of $3,360 and that’s just in one year as shown in the following table.
Over a 20 year period, the financial benefit of Oscar making tax deductible contributions to super compared to investing outside the super environment is significant. At age 65, it is estimated that Oscar will have an extra $115,000 to invest for his retirement.
If you would like to know more about these changes and how they will impact you, please talk to us.
There’s more to managing your cash flow than skimming through your monthly bank statements. New technology is making it easier to track your spending, putting you back in the driver’s seat.
Historically low interest rates combined with the ongoing housing affordability crisis add up to Australians being in more debt than ever before. Whether you’re repaying a mortgage or trying to get a foothold in the property market, managing your cash flow has never been so important.
It affects not only you and your family – it has the potential to affect the whole economy, according to the Governor of the Reserve Bank of Australia, Philip Lowe.
“In terms of resilience, my overall assessment is that the recent increase in household debt relative to our incomes has made the economy less resilient to future shocks,” he told a recent Economic Society of Australia meeting.
Yet according to the latest research by the Australian Securities and Investments Commission, more than one-third of Australians either don’t have a budget, or don’t stick to one.
Tools to help manage your money
Managing your money begins with knowing where it comes from and, more significantly, where it’s going.
FinTech Australia CEO, Danielle Szetho, says the rise of cashless payments can help us by providing data that gives us valuable insights into our spending behaviour.
“From a consumer’s perspective, this means fintech companies like Moneysoft, Pocketbook, Acorns and MoneyBrilliant can access rich data streams to show customers how they are spending their money, and can help them budget accordingly,” she says.
This new wave of tools provides visual and interactive summaries of account balances and transactions from across multiple institutions. They can automate spending into categories, monitor trends over time, and project your expected future balances.
Make it easier for yourself
Below are five ways to help stay in control of your cash flow.
1. Embrace automation:
It’s increasingly quick and easy to set up automatic payments for bills and credit cards, and automatic transfers for regular savings. That means they’re taken care of every month.
2. Maximise your accounts:
Continued low interest rates mean there’s not much to be gained from money sitting in your transaction account. Using a mortgage offset account, or exploring a high interest savings account with a sweep facility to your daily account, can make the most of what’s on offer.
3. Set specific goals:
Having a tangible goal is a powerful motivator to change your financial behaviour and stick to a budget.
4. Get informed and get active:
Developing financial literacy is a lifelong journey. Keep building your knowledge and you’ll find it easier to make wise decisions. It also pays to take the time to shop around – new customers can often get big savings on anything from internet service to car insurance.
5. Small businesses may be small but their impact on the Australian economy belies their size:
The growth of the small business sector, which employs almost 5 million people, is held back by big businesses and government departments regularly paying their invoices late.
Sixty per cent of small businesses said late payments have increased over the past year while almost one in five report average payment delays of more than 60 days, according to the Australian Small Business and Family Enterprise Ombudsman (ASBFO).
The cash flow impact can be devastating with more than half of small businesses forced to borrow funds or use credit cards due to late payments to their business.
“Businesses are the most likely repeat offenders when it comes to late payments,” according to the ASBFO. “This makes sense since the practice of paying late allows a business to hold on to its money for its own use.”
The Business Council of Australia has proposed a voluntary code that would prompt its members to pay within 30 days. However, the ASBFO has made a range of stronger recommendations including that the government legislate a maximum payment time for business-to-business transactions.
Until then, technology such as new accounting platforms, mobile payment platforms and e-invoicing can provide an effective solution to encourage faster payments.
Take only photos and leave only footprints. It’s been the advice to travellers for decades. But as we navigate the digital landscape, both hold the potential to expose us to risk.
From paying bills to playing games, shopping to socialising, we’re online more than ever before. And this activity can leave a trail leading to our location, our money, our families and our identities.
But a few simple steps can help protect you – and your information – from unwelcome eyes.
Safety begins at home
Start with a strong foundation for your home internet. That means securing your wireless network – if you’re not using a password, there’s nothing to stop somebody accessing data you send or receive. That’s a sobering thought but it’s very easily preventable. A wifi password can also stop opportunists from sharing your internet connection and gobbling up your download limit.
Locking the front door isn’t much help if the back door is left wide open. It’s worth checking the settings on your modem router to make sure that data encryption is turned on, and that you’re not using the default password the device had when you got it.
We all know that it’s important to use antivirus software for our PC, but when it comes to keeping our systems up to date, many of us are slower to act. The recent highly publicised ‘WannaCry’ ransomware attack that affected businesses, governments and individuals worldwide, was largely preventable simply by installing a Microsoft Windows security patch.
Keep it under lock and key
You wouldn’t leave your PIN for your bank account lying on your desk, but are your online password choices compromising your safety?
Using a password that’s easy for other people to guess makes it easy for them to gain unauthorised access to your accounts. And when you use that same password across multiple accounts, the risk of being compromised increases. Add to that our reluctance to change passwords regularly, and it’s just asking for trouble.
Keeping track of the number of online accounts we end up with can be tricky, and with a different password for each account it becomes mind-boggling. This is where password manager tools can make a huge difference.
Password managers are online vaults or stand-alone software that keep all your login details and passwords safe from others, while putting them in easy reach for you. No more having to remember or continually reset your passwords – you just need a single, strong ‘master password’ to access the lot.
It’s worth completing the online security check included in your password manager. This will help you update weak or duplicated passwords with more effective, randomly generated ones, and will also highlight any sites that may have been compromised.
Double the security
Many sites and applications offer two-factor authentication, which provides another layer of protection to users. This usually involves entering a unique code as well as your password when logging in. The code can be suppliedthrough a mobile app, a security token, or by text message.
While this process does take a little longer, a few seconds are a relatively small price to pay when it comes to keeping personal photos, documents and credit card details safe.
It’s available across social media, email, Apple and Google accounts, document management platforms such as Dropbox, online payment and shopping sites including PayPal, and of course for password managers.
The latest smartphones and tablets also support verification using a fingerprint scanner. This is part of a growing trend to use biometric data for security, making it more effective as well as quicker and easier.
Don’t shout it from the rooftops
Social media is a great way to keep in touch with friends and family and connect with others about our shared interests in everything from football to philosophy. Oversharing can cause more than embarrassment though, if it allows our personal information to fall into the wrong hands.
Take a look at your privacy settings to make sure that you’re only sharing with your nearest and dearest and not the whole world wide web.
That includes avoiding publicly tagging your location, which can enable strangers to see exactly where you are, or showing that your home is currently unoccupied. Likewise, sharing details of fancy new purchases can put you at risk of theft if shared beyond your friends and family.
How much to share online can vary widely from person to person. As a minimum though, steer clear of posting your home address, personal phone number or your full date and place of birth. All of those details can be used to open the door to more information about you and, in the worst case, identity fraud. Even a photo of your airline boarding pass can be used to unlock your loyalty points and credit card details.
A moving target
Our love of smartphones means we can stay connected almost everywhere. Some things are better done in private, though – if you’re doing your banking on the wifi network at your local cafe, you might as well be sharing your account details at the top of your voice.
To stay safer, turn off wifi and bluetooth when you’re out and about, and be careful of the information you enter in public places.
Watch out for shared computers, too – avoid logging into your personal accounts wherever possible, and be careful of using portable USB drives that can pick up viruses or malware. Losing a phone can be a greater cost and a bigger inconvenience than losing a purse or wallet. There are apps that can help locate it, lock it, or wipe its data from afar: Apple has Find My iPhone, while Find My Device is available for Android devices linked to a Google account.
Wolves in sheep’s clothing
Online scams often cloak themselves in the familiarity of brands, businesses, and even government institutions we know and trust. Some of these can look very professional and be highly convincing.
But genuine correspondence normally won’t request that you update your personal details, claim that you’ve won a competition you’ve never heard about, or threaten that you’ve failed to lodge a tax return. Never fall for entering confidential information like your street address, bank details or tax file number on a site you’ve visited directly from an email or a social media link.
Technology can significantly boost your digital security, but for the best risk reduction you also need to think before you click.
Almost three centuries ago, Benjamin Franklin said “time is money”. Fast forward to today and digital payment technology has turned that advice squarely on its head.
Contactless and mobile payment technology speeds up our ability to spend money but with that convenience often comes temptation. Research suggests that the psychological and emotional impact of handing over cash dissipates when paying with digital formats.
The impact on society is only just beginning to play out, according to the OECD International Network on Financial Education, which is investigating the trend.
“While mobile banking with real-time account updates may help users keep an eye on, and better manage, their money, some technologies have also made it easier to carelessly tap or wave a smartphone/contactless card for quick spending, which can be a problem for those consumers who are struggling with, or vulnerable to, impulse buying,” the organisation wrote in a recent report on digital financial services.
Purchases made with credit already separate the pleasure of consumption from the pain of paying, while quick digital payments – even with our own money – created an even larger divide.
Australians were among the earliest adopters of contactless cards, but few are aware of the way it can also change behaviour.
“While the convenience of going cashless is undeniable, it comes with an inadvertent downside – we tend to value purchases less when using a card than when we pay via the more ‘painful’ methods of cash or cheque,” according to a study led by Professor Avni M. Shah and published in the Journal of Consumer Research.
One experiment, found that consumers who bought identical $2 mugs with cash valued their purchases by an average $3 more than those who paid with a credit or debit card.
But while technology has created some unforeseen problems, it is simultaneously creating a range of new solutions. Fintech apps are now using extensive digital data trails to turn manual budgeting with spreadsheets and receipts into a more accurate and automated process.
However, this may mark just the beginning of a new digital relationship people are forming with money.
The underlying algorithms in apps are becoming better at predicting whether, and by how much, people will overspend monthly based on certain triggers. Common events, such as shopping online or withdrawing money from an ATM, can then act as key moments when people are primed to learn and change their behaviours.
For example, the OECD report cited a start-up called RevolutionCredit, which is serving customers bitesized financial education videos at the point of transaction to improve their credit card use. Even traditional financial institutions are pushing the boundaries, such as British bank Santander. It offers customers a smartphone app that uses artificial intelligence to respond when asked questions like “how much did I spend last week?”
ASIC’s MoneySmart site offers a range of financial information including calculators and apps as well as strategies to tackle debt and build wealth.
ClearView investment analyst Jessica Schlosser looks at what happened in global markets in the June quarter and considers the outlook for Australian shares.
Global markets felt the impact of political uncertainty in the June quarter. In Europe, the election of French president Emmanuel Macron and the strong performance of Angela Merkel’s Christian Democratic Union in German elections helped ease concerns of a spreading populist antiglobalisation movement.
During the quarter, the MSCI Europe Index rose 7.4 per cent, supported by subsiding political risk, improved corporate earnings and a stronger economic backdrop.
Brazil’s economic recovery also hit a road bump with the country’s long running political corruption scandal embroiling President Temer.
In Asia, North Korea’s nuclear missile program continued to cause tension although it’s not expected to affect equity markets as long as the US and China continue to cooperate on the matter. While the Chinese share market rose 6 per cent in the quarter, China is increasingly conscious of its financial fragility due to the country’s high corporate debt and the government’s links to their corrupt shadow banking system.
In the United States, Congress’ inability to make meaning fiscal changes – demonstrated by its decision to push big infrastructure spending and tax reform out to 2018 – has led to support for the Trump administration declining. While the chance of a US stock market crash is minimal, US equities remained overvalued as at June 30, 2017 and face a potential correction.
Outlook for Australian shares
Fortunately, Australia hasn’t been affected by the global political uncertainty surrounding the Brexit fallout. However, questions about the direction of the Australian economy are emerging. The minor iron ore rally in the second half of the 2016 calendar year helped push the domestic share market higher but iron ore prices have since come down due to growing stockpiles in China. Furthermore, domestic construction activity is beginning to slow.
Weak wage growth continues to be a concern, especially given the increasing cost of essential services like electricity and gas. This, combined with rising interest rates and tighter credit conditions, leaves Australians at risk of a credit and cash flow crunch.
Still, Australia has an extremely resilient economy. It has recorded 103 consecutive quarters without a recession. Australia now holds the record for the longest run of uninterrupted growth in the developed world, according to the Australian Bureau of Statistics.
The economy’s adjustment to the end of the mining boom in 2013 is largely attributable to a weaker Australian dollar which supports exports and tourism, and makes Australia a more attractive destination for foreign students. New South Wales and Victoria have picked up some of the slack by increasing investment in non-mining industries by 10 per cent annually, while immigration has contributed to population growth and consumer demand.
That said, the Australian government and Reserve Bank of Australia appear to be running out of options to boost the economy. They managed to avoid the GFC by introducing various stimulus packages but these packages cost the government dearly and that burden is still evident. Further stimulus in the event of a downturn is unlikely. On top of that, taking the cash rate below 1.5 per cent will have minimal impact, evidenced by the impact in Europe which has had negative rates for some time.
While the Australian economy may be able to stave off a correction with continued immigration and expansion of non-mining industries, there are concerns it may be a case of delaying the inevitable.
When Aretha Franklin and Annie Lennox belted out the hit song, “Sisters are doing it for themselves”, it was a bold declaration of how far women had come in society, in terms of taking the initiative and fighting for equality.
Thirty years on, however, there are still many areas where women struggle for equality. Financial self-determination is perhaps one of the most significant areas where progress needs to be made.
The gender pay gap
The matter that perhaps gains the most attention in public discussion is the limitations in employment opportunity and the general discrepancy in incomes between men and women. While there has been progress in many career areas and women now appear in many leadership roles in business, public service, media and sport, the gap still exists.
To quantify the extent of the problem, we can look at a recent report that points out a 16.2% gap in incomes*. This figure has been stubbornly static over the last 20 years or so, indicating a need for more to be done to bridge the divide. Causal factors could be such things as lower paid job types being dominated by women, a lack of acceptance of women in certain career areas and a predominance of women leaving work to raise children.
Whatever the reason, however, we know that this phenomenon restricts women building their own financial independence.
Taking time off to care for children is still a role where women largely bear the burden. This naturally means that there is a greater dependence on their partners for financial support and less funding being dedicated to things that build financial independence, such as super and other wealth creation plans.
An interrupted career path and an ongoing need to care for children also makes it more likely that women will seek part time employment, which further limits financial development.
A longer retirement to be funded
One area where women continue to outdo men is in the longevity stakes. Once a male reaches age 65 their life expectancy is an average of 19.5 years. Women on average will exceed this average by nearly three years**. This positive is a double edged sword, given that women may need to fund a longer retirement.
Playing catch-up on super
The Association of Superannuation Funds of Australia have uncovered some sobering statistics on just how far behind most women are when it comes to super accumulation. Their research shows that women between ages 50 to 54 have an average of $84,228 built up in super, while men enjoy a much healthier $146,608. This gap widens in the 55 to 59 age range with $115,046 for women compared to $227,765 for men. It widens again in the 60 to 64 bracket with $138,154 vs $292,510***.
Such a profound shortfall cannot be remedied overnight, but it underscores the need for women to take a proactive role in gradually building their own super resources to create a platform for financial independence in the future.
A financial plan for freedom
Other areas of financial development, such as protecting income and livelihood with adequate insurance, budgeting, investments and an overall financial plan, are all critical to further strengthening this platform. Sisters certainly do need to ‘do it for themselves’ by taking the initiative, educating themselves and forging their own financial path in life.
Your adviser can be a key ally in helping you get there, so take advantage of their expertise in planning your future.
* Workplace Gender Equality Agency: Gender pay gap statistics August 2016
** Australian Bureau of Statistics: Life tables, States, Territories and Australia – 2013-2015
*** The Association of Superannuation Funds of Australia Limited: Superannuation account balances by age and gender December 2015
The concept of ethical investing is on the rise and is now an important option for many personal investors.
There is a growing awareness in society about the impacts our lifestyle and our consumption have on environmental and social welfare. This concern now extends to personal investment and many investors are keen to explore ethical investing.
What is it?
Ethical investing relates to the scrutiny that a managed fund manager places on the selection of assets, in relation to environmental and social aspects. This has resulted in a new sub-class of managed funds known as ethical funds.
These funds employ a sophisticated review process to screen investments and decide whether they qualify to be included in an ethical fund.
Positive and negative screening
In general, there are two methods applied to ethical investment selection.
- Positive screening – where the fund manager is proactive in sourcing companies that abide by high ethical standards.
- Negative screening – which takes a more passive approach based on excluding companies with poor ethical practices.
Beyond these general categories, each fund manager may implement more specific criteria for making selections.
The popularity of the ethical investing movement has led to the formation of an industry body known as the Responsible Investment Association Australasia. This body sets out standards for fund managers to apply in their investment selection process, so that personal investors can have confidence in a fund’s ethical bona fides.
Would an ethical fund suit you?
Despite the layer of extra scrutiny involved, ethical fund performance can generally be comparable to funds without ethical screening, so they can be a worthwhile fund category for many investors to consider.
Your adviser is well equipped to discuss the ethical fund options with you and how they can be incorporated into your portfolio.
The colder months are nearly upon us and for many of us this can be a real downer for our mood and our general health.
Rather than just resigning yourself to a season of hibernation, there are some simple things you can do to stay happier and healthier. Why not take the initiative now and give these ideas a try. They could be just what you need to warm up your winter.
The temptation to sleep in is much greater on cold mornings, but this can dampen your mood and make you feel more sluggish. Keep your sleep patterns consistent to combat this by aiming for a regular bedtime and around eight hours per night. Avoid late evening sugary snacks and get up early to maximise your daylight hours, which can have a positive effect on mood.
It’s natural to want to indulge a little more when it’s cold and dark as a way of cheering ourselves up. The usual suspects are simple processed carbs and sugary foods like chocolate, but these can produce a spike in blood sugar followed by a slump in mood.
Plan your snacks ahead to replace these foods with healthier options like nuts and crunchy vegetables, which have much greater health and weight management benefits.
Make some soup
Replace the usual heavy winter fare with some soup instead. The process of making soup in itself is therapeutic, the aromas that fill the home are divine and the health benefits can be positive. Use lots of vegetables, legumes and a good bone broth as a base.
Why not cheer yourself and a loved one up by taking the occasional brief getaway to a favourite winter spot. Visit some winery or craft regions, for example, where you can enjoy some indulgence, a bit of retail therapy and finish the day in front of an open fireplace to warm the toes and the heart.
Imagine owning an asset that is more valuable than your house, car and other possessions put together. Wouldn’t such an asset be worth insuring?
Remember buying your first car or some other object that excited you? The sense of achievement and the pride of owning something of great value is a feeling that few would forget.
Later on you have the thrill of purchasing your first home, which brings with it a great sense of establishing your own future and providing a foundation for life for you and your family.
Taking on the responsibility of owning major assets like these is usually followed by a strong urge to protect their value by insuring against mishaps, such as loss, fire, storm or other calamitous events. Insurance makes emotional sense through the peace of mind it provides and logical sense through the security it may provide to replace or repair the asset if the worst happens.
But what is your greatest asset?
Physical assets, such as cars, homes and other possessions may amount to substantial value measured in tens or hundreds of thousands of dollars.
However, these may not be your greatest assets. Your greatest asset is arguably the thing that underpins all of your other purchases and assets and, indeed, your very lifestyle. Put simply, your capacity to earn an income.
Consider your lifetime earning potential
To illustrate how your income earning capacity may be your greatest asset, let’s project some simple figures.
Imagine a 20 year old earning $30,000 per year. Even if that person never experienced a pay rise for their entire life, they will have earned $1.35 million by the time they retire at 65.
Scale that up to a 30 year old earning $100,000. With no inflation their lifetime earnings amount to $3.5 million by 65.
There’s a lot at risk
If you had any other asset that was valued at those sorts of figures you would probably not hesitate to insure it, due to the sheer scale of the cost to replace it. The fact that income is not a tangible asset like a house or car, however, means that many people fail to consider it as an asset at all and leave it exposed to risks.
Even though it is not a tangible asset, income is subject to a range of risks that could temporarily or permanently stop it from flowing. An accident could leave you off work for weeks or months, or in some extreme cases could leave you incapacitated permanently. An illness could similarly affect you for an extended period. In the very worst scenario, premature death could occur and leave a dependent family totally exposed to having no income at all.
Income replacement protects your future
To protect against the risks of income loss and the impact it would have on loved ones, an effective solution is to insure one’s income and one’s life. Income protection provides a monthly income stream for temporary or permanent income loss due to illness or accident. Life insurance can provide lump sum cover to replace a lifetime of income. TPD cover can also provide lump sum cover in case you become totally and permanently disabled. Finally, trauma cover can give you lump sum cover if certain serious medical events occur.
Your adviser can tailor a personal insurance package to suit your situation and help secure your family’s future against the loss of a significant asset.
Most share markets experienced strong performance over the March quarter. Investors remain positive about prospects for stronger global economic growth, particularly in the US. Fixed interest markets by contrast have experienced fairly subdued returns. We see the outlook as being balanced between a continued positive economic picture, and the risks of more increases in interest rates in the US. Rising interest rates have, at times in the past, led to some instability in share markets. Accordingly, we continue to believe that maintaining a balanced approach with a diverse mix of investments remains appropriate. That is, some investments that will do well under the positive scenario; and others that will help to mitigate risks should rising interest rates lead to rising volatility.
President Trump has been well received by the share market in the United States. The market has priced in expectations that tax cuts (now probably delayed until 2018) will boost both the economy and company profits. Emerging markets, which are the share markets in less developed economies, have also experienced very strong performances as fears of trade protectionism have faded.
In Australia, the share market continues to do well. There are warning signs emerging that banks may start to experience a few headwinds, as concerns grow about expensive and overvalued residential property markets. It’s clear that the regulators are signalling to the banks that a more considered and cautious approach to mortgage lending is appropriate in this environment. In time this will probably mean slower lending growth however, the banks have been able to counter this by boosting their profits through raising the interest rates they charge, particularly on investor loans.
Bonds and cash
In Australia, the RBA held rates at 1.5%. In the statement accompanying the decision the central bank took a balanced view towards the outlook. A few concerns were expressed about both the economy and the frothy nature of the residential property market. Balancing this the RBA noted that a stronger global economy was a positive. We think the RBA is on hold for the foreseeable future, and would expect cash rates to be fairly stable in the coming months.
Feeling stressed about not having enough hours in the day to get things done? Try these tips to get in control.
Many of us never bother to plan the day ahead and wait until the day is upon us before deciding what they will do. Inevitably ‘stuff’ happens and we end up being reactive, rather than allocating time effectively. Planning the day ahead the night before will allow you to be objective about time use and eliminate time wastage.
Get in control of your social media
The great modern day time guzzlers of Facebook and Twitter can sap our energy and brain space, so allocate specific time for its use. Email can also chew up unnecessary hours, so allocate time to attend to it during the day, rather than making it your first port of call.
Whether it is walking the dog, taking a nap or playing a musical instrument, find out what it is that “refuels” your energy levels and gives you mental breathing space and then make sure you schedule that “me time” as a priority in every day.
Consolidate housekeeping tasks
Busy lifestyles can often mean that tasks such as shopping, cooking and cleaning happen in an ad hoc fashion. Consolidating such activities can reap you hours every week, so why not shop once a week instead of daily, cook meals that can be batched and frozen and set aside a specific time of the week for all the cleaning.
While no two people will have identical life experiences, it is possible to follow some general guidelines on how our financial lives will progress through different stages.
Setting out the characteristics of various life stages can be a useful way to help highlight financial issues and priorities. Of course this will vary from person to person, but the general foundation this provides is something we can all build upon.
During our twenties and into our thirties most of us will experience many firsts, which will all have a profound impact on our financial future and will require a planned response if we are to take full advantage. Our early employment brings with it the chance to establish some sound savings habits that can last a lifetime and can fuel wealth creation.
Finding a life partner brings greater responsibilities and expenses along with increased income and assets. This requires a higher level of financial planning so that life, income protection and disability insurances are put in place to help protect each other’s livelihoods and savings plans are put in place to build toward major goals, such as buying a home or travelling.
Starting a family and buying a home in this phase will also require protection plans to be well established as a priority.
From an investment standpoint, your early years are an opportunity to incorporate growth assets such as shares and property into your wealth creation strategy, given the amount of time you will have to take advantage of their greater long term growth potential (assuming this also fits your personal risk profile).
Middle aged consolidation
Hopefully your income will be increasing, but your expenses may also be burgeoning as children grow, education costs escalate and perhaps the family home is upscaled. This puts an increased emphasis on budgeting so that debts and expenses are kept in check and a longer term savings and investment plan is in place.
Superannuation needs to be given adequate attention too, as your super assets will likely be growing and thus giving you more scope to diversify the way they are invested.
Protection needs during this stage will peak, to cover the growing family expenses and mortgage commitments. Neglecting this important aspect of financial planning could result in financial catastrophe if breadwinners and homemakers are not adequately insured.
Cresting the hill
Assumedly, the nest will begin to empty, mortgage expenses will reduce and insurance needs will begin to taper. These factors can create an increase in discretionary income and an opportunity to supercharge important investments. This could include loading your superannuation to maximise concessional limits and expanding your property, share and managed fund portfolios, so that dreams of financial independence can start to become reality.
This is also a time when we should be looking at positioning our assets to take full advantage of the tax opportunities that present themselves in the run up to retirement.
Stepping into retirement should hopefully be stress-free if you’ve planned carefully. You should ideally enjoy the well-earned fruits of your labour but this requires careful structuring of your portfolio, using a combination of growth and income based investments and income stream plans, as well as planning the liquidity needed for major purchases and lifestyle experiences. At the same time your social security position needs to be considered, so that you can take full advantage of entitlements.
Passing on your estate to beneficiaries needs due consideration too, so that the wealth you have built is preserved in accordance with your wishes and for the maximum benefit of those who will inherit it.
Why advice is so important
Each life stage has its challenges and complexities and this is where some experienced, professional advice can make all the difference. Your financial adviser is ready to guide, coach and support you on every twist and turn, so that you can be confident and secure along every stage of the journey.
Taking out cover can be a difficult and confusing experience given the plethora of products available. Here are some tips on how to avoid common traps and pitfalls.
Whether it’s home, car, health or life insurance, ‘one size doesn’t fit all’. Matching your needs to the right type of cover can be a complex business, so it pays to go in with eyes wide open and seek professional advice.
How do you know how much coverage you need?
Before you begin to compare policy benefits and costs, first make a realistic assessment of how much coverage you need. Underestimating cover is a common mistake that leaves many people in a lot of trouble in the unfortunate event of a claim.
In the case of home insurance, underestimating the right amount of cover to replace your belongings or the building may actually mean that you are unable to claim for the full value of any loss. For example, if your home value is $500,000 and you’re only insured for $250,000 (ie 50% of real value), then your insurer can only pay out a maximum of 50% of the amount you potentially need.
Making a proper assessment is particularly vital when it comes to your personal life and disability insurance, since the amounts of cover required can often be a lot higher than you think and the risks of leaving yourself short can have disastrous consequences on the livelihood and financial security of your family. Some may think that a couple of hundred thousand in life cover sounds like a lot, but if there is a $300,000 mortgage, two kids in school and $3,000 in monthly living expenses involved, then $200,000 could be inadequate if the breadwinner can no longer provide income.
Questions to ask before buying a policy?
Do you really know what you are purchasing when you buy insurance? A few simple questions can be very revealing. You should reconsider buying a policy if the answers to these questions do not satisfy you.
- What are the exact circumstances that will qualify for a claim?
- What events are specifically excluded from making a claim?
- What are the specifics on definitions – for example, on an income protection policy, how is “Total Disability” defined?
- Is renewability guaranteed, or does the insurer have discretion to arbitrarily withdraw cover at any time?
- What additional benefits are available apart from the main benefit? To use the example of income protection again – are there additional benefits paid for rehabilitation expenses, hospitalisation, specific injuries or waiver of premiums during claim?
- Are cover increases offered regularly or are benefits indexed to inflation?
Never shop on price alone
As the list above may suggest, the old adage that ‘you get what you pay for’ is especially true when it comes to insurance. A ‘too good to be true’ price may mean there are limitations and exclusions on cover that may only be discovered when you come to claim. There is a big difference between comparing the cost of a policy and its actual value.
A classic example can be found in the area of income protection where policies often known as “sickness and accident” or “personal accident” may have low premiums, but will have no guarantee of renewability if your health or occupation changes. Beware also of a limitation of perhaps two years on benefit payments and severely restrictive claim definitions.
Professional help removes the worry
When it comes to your personal life and disability insurances, enlisting an adviser to help assess your cover requirements and the relative merits and costs of different policies can be an invaluable advantage. The experience and research capability of a financial adviser can take all the worry out of the process and ensure you achieve the dual goals of maximising quality of cover, while minimising costs.
Superannuation is often a part of our financial planning that is left in the background, but certain life events may mean you need to make some fundamental decisions about it. Here are some key tips on what you may need to consider.
Tying the knot can change a lot of things in our finances. Budgeting, saving, spending and buying insurance are all issues that we will tend to reappraise as a couple, but super is often left out of calculations. Issues such as the amount of insurance cover you both have in super and beneficiary nominations are critical to avoid surprises later on.
While it is not possible to combine your super funds, it is important that you discuss and coordinate your investment strategies and consider your retirement goals as a couple. This ensures you are on the same page in terms of your expectations of retirement lifestyle and can fund it appropriately.
If one partner eventually decides to leave work to raise children then this may cause a significant interruption to your super accumulation that should be dealt with. Extra expenses and less income may mean you need to cut back on contributions for a while, but you should plan how this shortfall will be made up by boosting contributions in future years when circumstances allow.
You should also take advantage of any government assistance available on your super, such as the spouse contribution scheme. If your spouse is earning very little or nothing at all, then you may qualify for a rebate of up to $540 p.a. on any contributions you make to their super.
Talk to your adviser for further information.
Redundancy is something that many people will unfortunately deal with in an increasingly economically rational world. How you plan your spending and make decisions, regarding employment will likely be top of mind when this occurs, but super should not be left out of the decision making process.
Payments made to you on redundancy can be quite complex to deal with and can have serious taxation consequences. There may be opportunities in relation to using part of your redundancy payment to make super contributions and there may also be issues to deal with in relation to any insurance cover you had in your employer’s super fund.
The Reserve Bank of Australia (RBA) left the overnight cash rate at 1.5% at its final meeting for 2016 in December and did the same in the February 2017 meeting. Market expectations are that the RBA continues to sit pat throughout 2017.
A sharp move in bond yields in November was moderated in December.
2016 was remarkable as yields defied expectations and continued to get even lower in the first half of the year. The Australian 10 year government bond got to a low of 1.8% in early August, before rocketing to 2.9% just before Christmas, primarily on the back of the US market.
The US 10 year hit a low of 1.4% in early August and then climbed to a year high of 2.6% in mid-December. Having said this, the spread (that is the extra yield investors demand to hold Australian bonds over US bonds) continued to tighten, reflecting the contrast between Australia’s post-mining boom economy and a US economy at full employment with the prospect of pro cyclical fiscal stimulus.
Australian equities jumped by over 4% in December, giving a healthy 11.6% return for 2016. As well as the general revival of Keynesian “animal spirits”, Australian shares were driven by developments in China, where authorities, spooked by a sharp slowdown in growth, hit the stimulus lever in late 2015. This revived infrastructure and residential property construction in 2016, which flowed on to our commodity exports.
In addition, an environmentally driven clampdown on domestic coal producers saw the two coals (coking and thermal) rally. Much of the extreme move in iron ore prices, (from USD39.51 a tonne USD 83.58), cannot be explained by fundamentals. Indeed, iron ore stockpiles in China by year end were back to 2014 levels and new supply sources are coming online in Australia, which will add to seaborne iron ore supply in the first half of 2017.
Developed market equities continued their push upwards, adding another 4.5% in December. The US dollar continued to strengthen against the Australian dollar and even moreso against other currencies due to the elevated price of hard commodities, resulting in currency hedged international shares underperforming unhedged. Emerging markets stocks recovered over the December quarter, following the initial post Trump sell off on fears of protectionism and rising US interest rates. Brazilian shares gave up -3% in December, but still remained one of the best performing markets globally for the year with 37% in local currency terms and an eye watering 67% in USD.
When it comes to personal insurances and protecting the family unit financially, most of the focus is usually on the value of the breadwinner. A deeper analysis, however, shows that a homemaker’s contribution is sometimes undervalued and consequently left underinsured.
A significant proportion of families still choose to have one partner remain as a full time homemaker. While they may not be generating income, it is important to recognise their value when planning financial security strategies.
Defining the homemaker’s role is the first step
To understand just how valuable a homemaker is in practical, emotional and financial terms, just think of the all the functions that they perform.
Children tend to be a major focus for many homemakers, whether it is driving them to school and other activities, helping with homework, or providing a listening ear and a source of guidance and encouragement.
Beyond the children, the homemaker often fulfils many practical functions in running the home, such as shopping, cleaning, washing, gardening and home maintenance. There is also the need to provide food for the family.
Managing the household budget is also often left to the homemaker and this requires time and attention to ensure bills are paid, banking is done and spending is kept in check.
What if they are not around to do it all?
It is relatively simple to calculate the financial worth of a breadwinner, based on their income earning potential. The impact of a losing homemaker, however, is not quite as easy to quantify in dollars and cents.
The reality is that a homemaker also faces risks of misfortune. Illness may strike at any time, a car accident or fall could cause injury and there is also the possibility of premature death. If such an event occurs then the family could be left with very real and significant challenges in trying to replace what the homemaker was doing.
What would the family do to adjust?
There are different options for how the family can cope with the loss of a homemaker’s contribution. One scenario is for the breadwinner to leave work or work part-time so that they can take on the homemaker’s role. This may be the most desirable option if there are young children involved. Another approach may be to employ hired help, such as a housekeeper.
A combination of both these options may also work, perhaps with the help of family and friends.
Whatever choice is made, it may cost a significant amount of money, either in foregone income or in hiring help, to replace the homemaker.
What can be done?
While homemakers are not eligible to take out income protection, there are other protection options that have the potential to offer substantial financial security.
Trauma insurance can offer a cash lump sum payment that is available on diagnosis of a range of specified major health conditions. Depending on the policy this may include heart attack, stroke and cancer. These funds could be used to allow the breadwinner to reduce working hours, leave work altogether or to pay out debts.
Life insurance may provide lump sum cover in the case of premature death or terminal illness, as defined in the relevant policy and the sum insured can be as much as is needed to give the surviving partner the freedom to make their own choices about how children will be cared for and how the home will be managed.
Total and permanent disability (TPD) insurance can be added to the life cover to provide a similar lump sum of cash in certain specified circumstances if the homemaker suffers an injury or illness that prevents them from ever being able to carry out their role.
If you want to properly quantify and insure the value of the homemaker in your situation, your adviser is ready to help.
Many people who reach middle age will often discover a hunger for a new challenge in their career direction, but is it too late to take the plunge?
In days gone by, having the same job for life was quite commonplace. Not so today. Career flexibility and job hopping are the new norm for those who are starting out on their working life. But that doesn’t mean that those who are not so young are excluded.
Potentially, there is nothing stopping you from revitalising your skills and knowledge in a new area and making the switch to a new career. Mature aged students often have the advantage of a broader world view, a clearer sense of purpose and a more stable lifestyle and these can be big pluses when it comes to excelling in a new field of study.
Universities and TAFE colleges are now quite attuned to the needs and aspirations of mature age students and many will offer the flexibility you need to fit study around your existing work and family commitments, such as online study options, weekend or summer intensive programs and evening classes.
They also offer support services to help mature age students make the transition back into the classroom.
Of course it is not just the career changers who can benefit from rekindling their learning abilities. If you are simply looking for a new challenge and some mental stimulation, embarking on a course on a topic that interests you may be the solution.
You only live once, so if you have the urge for a new direction, consider giving mature age study a try.
A range of superannuation changes are proposed to commence from 1 July 2017. While at the time of writing they are yet to be passed into law and may still change, you may want to discuss concerns on these issues with your adviser.
Non-concessional (after tax) contributions
Under current rules, an annual cap of $180,000 (or up to $540,000 for those under 65) applies to non-concessional contributions, such as personal super contributions made from after-tax income and your own savings.
From 1 July 2017, this may reduce to $100,000 per year, with the ability to bring forward future year contributions still available for those under 65. Non- concessional contributions will not be allowed if your total superannuation balance exceeds $1.6million.
Any excess non-concessional contributions over these limits will need to be refunded or harsh penalty tax rates of up to 47% plus Medicare Levy may apply.
Concessional (before-tax) contributions
For concessional contributions, (such as Super Guarantee contributions, tax deductible contributions and pre-tax salary sacrifice contributions), the contributions cap will reduce to $25,000 per year for everyone from 1 July 2017. There will no longer be a higher cap for those 50 and over. Commencing from 1 July 2018, if your superannuation balance is less than $500,000, you will have the ability to carry forward any unused concessional contribution cap over a rolling five year period.
Currently, if you earn over $300,000 per year (total income plus non-excessive concessional contributions), you are required to pay a tax of 30% on concessional contributions. This income threshold will reduce to $250,000 from 1 July 2017 resulting in more high income earners being required to pay the 30% rate.
Restrictions lifted on who can claim super tax deduction
From 1 July 2017, there will be no employment restriction placed on who can claim a tax deduction for personal superannuation contributions, (so this opportunity is no longer restricted to the self- employed).
$1.6 million limit on transferring superannuation to a retirement income account
From 1 July 2017, a cap of $1.6 million will be placed on the amount of superannuation that you can transfer to a superannuation income stream (e.g. account based pension) where there is no tax on the earnings. The balance of your superannuation will be required to remain in an accumulation account where earnings are taxed at a maximum rate of 15% or must be withdrawn.
If you already own a superannuation pension with a balance greater than $1.6 million, you will be required to transfer the excess amount back to superannuation or withdraw the funds by 1 July 2017.
Transition to retirement pension changes
A Transition to Retirement (TTR) pension can be commenced with preserved superannuation funds once you reach preservation age even if you are still working. From 1 July 2017, the current tax exemption on earnings generated within a TTR pension will be removed. Instead, the tax rate on earnings will be 15%.
The tax treatment of income payments received from a TTR pension will not change (e.g. tax free income for those 60 and over).
Income threshold increases for spouse contributions
The tax offset for contributions to superannuation on behalf of your spouse earning less than $13,800 p.a. is proposed to increase to $40,000. The maximum tax offset of $540 per year will be available where the spouse’s income is less than $37,000 p.a.
Super tax offset available for low income earners
A Low Income Superannuation Tax Offset will apply from 1 July 2017 which will replace the existing Low Income Superannuation Contribution. This tax offset (up to a maximum of $500), will be used to reduce the contributions tax on concessional contributions and is available if your adjusted taxable income is less than $37,000.
Additional death benefit payment abolished
From 1 July 2017, the additional payment that is sometimes available when a death benefit lump sum is received (known as the anti-detriment payment), will be abolished.
Members of Defined Benefit Schemes
The Government has announced that they will also make changes for members of defined benefit schemes and constitutionally protected funds to ensure that the new super reforms broadly apply to these groups as well.
Work test to still apply for those 65 to 74
There was a proposal to abolish the work test that currently applies to those between 65 and 74, which required them to be gainfully employed for at least 40 hours in a 30 day period to make personal contributions to superannuation. This proposal has now been withdrawn.
Your adviser is ready to answer any queries you may have on any of these issues.
A financial plan should never be a ‘set and forget’ exercise, but rather a dynamic and flexible tool that adapts to your changing circumstances and goals. The start of a new year is a great opportunity to refresh your goals, so here are some tips to get you inspired.
Revisit your bucket list
Start by re-examining what it is that motivates you and what dreams and wishes you have for the future? This could include travel goals, leisure pursuits, family activities, lifestyle assets or retirement income. These things are what drives your financial plan, so it is important to re-appraise them regularly.
Make each goal concrete
The next step is to make sure you are clear on the dollar amounts, timeframes and priority of each objective. Setting these parameters ensures that the things you desire are tangible goals and not just idle wishes.
Your adviser can really add value to this process, so it may help to get them involved to help you articulate each goal and offer objective counsel on structuring the financial aspects to reach them.
Reviewing the context of your plan
It is important that the financial context of your plan is also reviewed to make sure you are maximising opportunities and taking into account external issues. This could include factors such as:
- how you are managing debts;
- your monthly budgeting;
- how well you are savings;
- maximising tax saving opportunities, such as salary sacrificing;
- legislative changes; and
- reviewing your insurance risk exposure.
Meshing the plan together
Your financial plan is unique to you, so you want to ensure it grows and develops along with your evolving perspectives and aspirations and remains a true reflection of your personality.
Your financial planner is ready to work alongside you in this process. Think of them as a financial coach that helps you ‘read the game’, point out opportunities and ensure that you play to your strengths.
Their experience and know-how can make a critical difference to the effectiveness of your plan and that can translate into a major difference in final outcomes.
Cash rates have stabilised at low levels. The RBA has lowered overall cash rates in order to support the post mining boom adjustment of the Australian economy. The RBA has cut the target cash rate twice this year by 0.25%, in May and then in August, bringing it to a new historical low of 1.5%. The RBA then left the rate unchanged at its September and October meetings. The market is expecting the RBA to continue to sit pat over the coming months with another cut possible later in 2017.
Bonds did well in the first half of this year as investors fretted about a slowing Chinese economy overwhelming the tepid recoveries in Europe and the US; and dragging the world into recession. With the help of Chinese fiscal and monetary stimulus these fears receded and the demand for safe haven assets like government bonds lessened.
Meanwhile the US economy continued to move towards full employment, causing increased speculation that the US central bank would begin to raise interest rates. These two factors saw very low bond yields around the world creep up slightly recently and the bond rally flatten out over recent months. However, returns over a longer time periods still look very respectable for a defensive asset class.
Chinese stimulus has led to a lift in construction activity and a resulting increased demand for commodities like iron ore. This has helped the mining company heavy Australian share market to outdo international shares over the 12 months to the end of September.
The rebound in commodity markets has driven an appreciation of the Australian dollar this year. This has meant currency hedged international shares investors have done better than unhedged. Infrastructure and property stocks experienced a mild correction over the September quarter. With central banks around the world pushing bond yields to extreme lows investors have sought out alternatives.
Defensive high dividend stocks like infrastructure and property are prime examples of these “bond proxies”. With some of the heat coming out of the bond rally over the September quarter, the bond proxies also gave up some ground. Emerging markets were the best performing asset class over the September quarter, with compelling valuations attracting interest.
Creating an investment portfolio with the potential to build some genuine financial independence can be a stimulating journey, but your personal insurance must be part of your strategy.
The idea of creating financial independence and a comfortable lifestyle through a successful investment portfolio is a compelling one. The missing link in many financial plans, however, is a contingency strategy that will help you protect the lifestyle you have now and the financial freedom you are trying to build for the future. Most importantly, a solid risk strategy is essential for helping to protect the welfare of those closest to you.
The self-completing financial plan
When you start creating a financial plan the fundamental first step is to be clear about your goals. The lifestyle you want to enjoy, the places you want to go and the things you want to own. These goals are what gives your plan direction and motivates you to take the steps to get there.
The fundamental purpose of a risk protection strategy is to make sure that your plan is instantly self-completing if the income that feeds your financial plan is suddenly cut off. In other words, if your ability to fund your investment strategy is taken away by a temporary or permanent illness or injury, then you still have the independent resources to fund your goals using a combination of the right types of personal insurances.
Setting up your risk contingency strategy
In the same way that you set up an investment strategy by defining financial goals and quantifying the money you need to achieve them, your insurance planning also needs to be based goals for the lifestyle you want for you and your family if the worst happens. The home you want to live in, the lifestyle items you want to own, the ongoing income you want to ensure a comfortable life and the experiences you want your family to enjoy.
Once the dollar amounts are identified you can then create an insurance strategy that may include a combination of:
- life cover that will pay a lump sum on premature death or terminal illness
- total and permanent disability cover that will pay a lump sum if an injury or illness permanently prevents you from working again
- trauma insurance that pays a lump sum upon diagnosis of a range of major medical conditions, and
- income protection that pays an ongoing monthly income for short or long term periods of illness or injury.
Integrating into your financial plan
When setting up a financial plan and deciding on what savings allocations you will be making toward your financial growth, for a lot of people it simply makes good sense to have a proportion of that amount diverted toward funding your insurance strategy. The investment and insurance components will go hand in hand to create an integrated plan that helps ensure your goals are achieved.
Your adviser has the skills and research capabilities to assess your insurance needs and recommend the most effective and economical options to put your plan into practice.
Thanks to concerted public campaigns, the awareness of mental health in our society has increased greatly in the last decade or so. This change is also being reflected in the way life insurers are dealing with the assessment of applicants who have a history of mental health issues.
The personal and financial cost of mental illness in our community is staggering, but fortunately it is now receiving the recognition it deserves. The statistics paint a sobering picture:
- on average, 1 in 5 women and 1 in 8 men will experience some level of depression*
- an estimated 45 per cent of people will experience a mental health condition in their lifetime*
Greater awareness and acceptance also means that sufferers are more likely to seek treatment for their condition and the stigma surrounding mental health is gradually dissipating.
Changes in the insurance industry
The positive developments in mental health awareness over the last decade or so have also extended to the way mental illness is treated in the life insurance industry. In days gone by, anyone disclosing a mental health condition on their personal statement was given a wide berth by insurers. The difficulties in assessing and quantifying the risks meant that insurers generally opted to play it safe and decline cover.
These days, there is a much more open attitude toward mental illness and insurers are seeking to underwrite mental illness in the same way as they would for other health conditions. Rather than taking a blanket approach of declining cover based on a history of mental health issues, there is a willingness to treat each case on its merits and insurers are now far more likely to offer cover at standard rates.
Insurers have a responsibility to both their policyholders and shareholders to ensure that they are careful in what risks they take on. This is essential for the viability of their business. Having said that, it is equally important that they honour the Disability Discrimination Act, which compels them to assess risk without prejudice. This means that if they do decline to take on risk it must be justified by a reasonable and relevant assessment of all information and based on statistical and actuarial data.
Insurers will, therefore, take several factors into consideration, including the seriousness of a person’s mental health condition, its impact on their lifestyle, the success of any treatment, management strategies and any ongoing symptoms. The terms offered by different insurers may still vary depending on each company’s premium rates, product features and underwriting philosophy, but acceptance at standard rates is now quite common. If standard rates cannot be offered, then cover may still be available with increased premiums or with certain medical conditions excluded from cover.
Full disclosure helps ensures reliable cover
The law requires an applicant to disclose all the information that may affect their application for life insurance. It is essential that this is done to avoid issues down the track with claims. If the applicant has complied with full disclosure and the insurer decides to accept the application, the insurer is then bound to honour the insurance regardless of any change in health that may subsequently occur.
Growing mental health awareness
The change in attitude within the insurance industry is one part of the continuing effort to give mental health the attention that it deserves. Thanks to the advocacy of organisations such as Beyond Blue and Mental Health Australia, attitudes and perceptions on mental health are changing for the better. Mental Health Week, which runs from 8th to 15th October this year, also plays a major role in raising the profile of mental health, promoting awareness and equipping people with helpful assistance. For more information visit the National Mental Health Commission.
* Australian Bureau of Statistics. (2008). National Survey of Mental Health and Wellbeing: Summary of Results, 2007.
Cash rates keep falling in Australia, with another interest rate cut in May. It seems likely that this will not be the last rate cut with the RBA widely expected to cut again possibly in August.
Fixed interest markets recorded strong returns for the year. The economic environment remains supportive of bonds, with modest levels of economic growth and low inflation. Fixed interest yields around the world are very low, in some cases negative, and it would seem likely that future returns will be more muted.
Australian shares end the financial year fairly flat but certainly experienced some volatility over the prior 12 months. A strong rally in the last quarter helped Australian shares recover after the falls experienced in the first few months of the year.
For the full year market returns have been fairly flat.
Valuations in the share market are not overly demanding, but the economy and share market face some headwinds from a slowdown in the Chinese economy, Australia’s largest trading partner.
International shares end the financial fairly flat but certainly experienced some volatility over the prior 12 months. A strong rally in the last quarter helped international shares recover up after the falls experienced in the first few months of the year. The US share market was one of the better performers,
European and some Asian share markets experienced negative returns. Emerging markets struggled but look very attractively valued.
Stroke and other cerebrovascular diseases account for 1 in 18 deaths in males and 1 in 12 deaths in females, making it one of the most significant diseases in Australia*.
In 2013 there were 51,000 strokes causing about a $5 billion loss to the economy, $3 billion in lost productivity and $1 billion in lost wages**. Almost 440,000 Australians now live with the effects of stroke and this number is predicted to rise rapidly***.
What is it and what causes it?
Stroke occurs as a result of an interruption of blood supply to the brain, due to a blocked or burst artery. The lack of oxygen to the brain causes brain cells to die, which can affect the function of various parts of the body.
High blood pressure is the most important known risk factor for stroke and this can be addressed by improving diet, regular exercise and keeping weight under control.
Be aware of the signs
The signs that someone is having a stroke are neatly summed up in the acronym; F.A.S.T.
- Facial drooping – usually on one side.
- Arm weakness – an inability to raise the arms fully
- Speech difficulties – slurring
- Time – if stroke is suspected call emergency services or go to the hospital immediately.
Some additional symptoms can also occur in women, including loss of consciousness, weakness, shortness of breath, disorientation, nausea and even hiccups. These symptoms are often not recognised as being caused by stroke, which may delay treatment and increase the damage done.
Stroke week raises awareness
National Stroke Week runs from 12 – 18 September to raise awareness and encourage preventative action. The theme “Speed Saves” underlines the importance of swift action. For more information, visit the Stroke Foundation’s site at www.strokefoundation.com.au.
* Australian Bureau of Statistics: Causes of Death, Australia, 2014
** Deloitte Access Economics 2013, The economic impact of stroke in Australia.
*** Deloitte Access Economics 2014, Impact of stroke across Australia.
How can you access extra cash in retirement beyond your super and pension?
Once we finally cease work and earned income stops, most of us will be reliant on our super and investments to fund our retirement income, with some help from a full or partial age pension. But what if we have an unexpected need or opportunity arise and need some extra cash beyond our budget? It could be for a new car, a special holiday, medical emergency or just spoiling the grandchildren.
Accessing home equity
If you are over 60, one possibility for obtaining a cash boost is to access the equity you may have in your home via a reverse mortgage. This financial instrument allows you to borrow money using the equity in your home or investment property as security. There are no income requirements to qualify, although lenders must still take a responsible approach and assess the borrower’s situation before offering the loan.
Interest is payable just like a normal mortgage, although repayments are optional and can be left to compound until you eventually decide to sell, at which time the loan and interest must then be repaid.
Proceeds of the loan can be taken as a lump sum, a regular income stream, or a line of credit, depending on what suits your purposes.
While reverse mortgages have some attractions, they do represent a significant long term commitment and you need to consider the impact may have on your family relationships and stress levels. There may also be impacts on your pension entitlements to be considered.
Pension loans scheme
If you only have a relatively small need for extra income, another option may be to apply for the Pension Loan Scheme. These are offered via the Department of Human Services and the Department of Veterans’ Affairs and offer an economical way to top up your age or veteran’s pension. The interest rate is generally significantly lower than commercial equity release loans.
Proceed with caution
Before entering into any arrangements like this, it is wise to seek advice from your adviser to help assess if it is right for you and to ensure that you are fully aware of the risks and responsibilities involved.
Men’s Health Week runs from June 13 to 19 and offers a unique opportunity for communities across Australia to put a renewed focus on male health issues and positive actions that men and boys can take to better their health.
Health issues specific to men
Australian men are more likely to get sick from serious health problems than women. This is due to a range of factors, including a tendency for men to be more reluctant to get simple health checks and to ask for help.
This imbalance can be seen in the male to female ratio of causes of death*:
- Heart disease: 119 to 100
- Lung cancer: 150 to 100
- Colon and rectum cancer: 124 to 100
- Diabetes: 108 to 100
- Suicide: 300 to 100
It’s about wellness, not just illness
Prevention is always better than a cure, so it is vital that men take steps to better their health. Making radical changes to lifestyle can be difficult, due to the business of life, but making incremental changes is achievable and can have genuine positive impacts.
So what are the key actions to take?
Be physically active
Simple activities that fit easily into your schedule, such as a brisk daily walk, mowing the lawn and biking are a great way to make a start. Try to work up to 30 minutes a day of moderate physical activity for most days of the week.
Eat a healthy diet
Increase the proportion of fruits, vegetables and whole grains in your diet, use fat-free or low-fat dairy and include lean meats, poultry, fish, beans, eggs, and nuts. Lower your salt, sugar and alcohol intake too.
Stay at a healthy weight
The equation is simple; balance the calories you take in with the calories you burn. As you age, eat fewer calories and increase your physical activity. Small consistent changes will prevent gradual weight gain over time.
More details on Men’s Health Week can be found at www.menshealthweek.org.au
* The Australian Bureau of Statistics Leading Causes of Death by Gender (2012)