Rising bond yields and inflation. What does this mean for your investments?

Rising bond yields and inflation. What does this mean for your investments?

Bond yields have risen sharply since the start of 2021. There's deep concern in the markets at the spectre of inflation caused by massive government spending programs across the globe. But what does this mean for your investments?

US 10-year government bond yields touched 1.61 per cent in early March after starting the year at 0.9 per cent.i Australian 10-year bonds followed suit, jumping from 0.97 per cent at the start of the year to a recent high of 1.81 per cent.ii

That may not seem like much, but to bond watchers it’s significant. Rates have since settled a little lower, but the market is still jittery.

Why are bond yields rising?

Bond yields have been rising due to concerns that global economic growth, and inflation, may bounce back faster and higher than previously expected.

While a return to more ‘normal’ business activity after the pandemic is a good thing, there are fears that massive government stimulus and central bank bond buying programs may reinflate national economies too quickly.

The risk of inflation

Despite short-term interest rates languishing close to zero, a sharp rise in long-term interest rates indicates investors are readjusting their expectations of future inflation. Australia’s inflation rate currently sits at 0.9 per cent, half the long bond yield.

To quash inflation fears, Reserve Bank of Australia (RBA) Governor Philip Lowe recently repeated his intention to keep interest rates low until 2024. The RBA cut official rates to a record low of 0.1 per cent last year and launched a $200 billion program to buy government bonds with the aim of keeping yields on these bonds at record lows.iii

Governor Lowe said inflation (currently 0.9 per cent) would not be anywhere near the RBA’s target of between 2 and 3 per cent until annual wages growth rises above 3 per cent from 1.4 per cent now. This would require unemployment falling closer to 4 per cent from the current 6.4 per cent.

In other words, there’s some arm wrestling going on between central banks and the market over whose view of inflation and interest rates will prevail, with no clear winner.

What does this mean for investors?

Bond prices have been falling because investors are concerned that rising inflation will erode the value of the yields on their existing bond holdings, so they sell.

For income investors, falling bond prices could mean capital losses as the value of their existing bond holdings is eroded by rising rates, but healthier income in future.

The prospect of higher interest rates also has implications for other investments.

Shares shaken but not stirred

In recent years, low interest rates have sent investors flocking to shares for their dividend yields and capital growth. In 2020, US shares led the charge with the tech-heavy Nasdaq index up 43.6%.iv

It’s these high growth stocks that are most sensitive to rate change. As the debate over inflation raged, the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google - fell nearly 17 per cent from mid to late February and remain volatile.v

That doesn’t mean all shares are vulnerable. Instead, market analysts expect a shift to ‘value’ stocks. These include traditional industrial companies and banks which were sold off during the pandemic but stand to gain from economic recovery.

Property market resilient

Against expectations, the Australian residential property market has also performed strongly despite the pandemic, fuelled by low interest rates.

National housing values rose 4 per cent in the year to February, while total returns including rental yields rose 7.6 per cent. But averages hide a patchy performance, with Darwin leading the pack (up 13.8 per cent) and Melbourne dragging up the rear (down 1.3 per cent).vi

There are concerns that ultra-low interest rates risk fuelling a house price bubble and worsening housing affordability. In answer to these fears, Governor Lowe said he was prepared to tighten lending standards quickly if the market gets out of hand.

Only time will tell who wins the tussle between those who think inflation is a threat and those who think it’s under control. As always, patient investors with a well-diversified portfolio are best placed to weather any short-term market fluctuations.

If you would like to discuss your overall investment strategy, give us a call.

i Trading economics, viewed 11 March 2021, https://tradingeconomics.com/united-states/government-bond-yield

ii Trading economics, viewed 11 March 2021, https://tradingeconomics.com/australia/government-bond-yield

iii https://www.reuters.com/article/us-oecd-economy-idUSKBN2B112G

iv https://www.smh.com.au/politics/federal/growth-prospects-for-australia-and-world-upgraded-by-oecd-20210309-p57973.html

v https://rba.gov.au/speeches/2021/sp-gov-2021-03-10.html

vi https://www.washingtonpost.com/business/2020/12/31/stock-market-record-2020/

vii https://www.corelogic.com.au/sites/default/files/2021-03/210301_CoreLogic_HVI.pdf

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


What are the pros and cons of an SMSF?

What are the pros and cons of an SMSF?

Many Australians like the idea of managing and investing their own super. It can make a lot of sense too, but it's definitely not for everyone. We take a look at the arguments for and against setting up your own Self Managed Super Fund (SMSF).

Taking control of your super

People choose to run their own SMSF for many reasons. From a desire for flexible investment choices through to dissatisfaction with their existing super fund, tax and estate planning concerns.

According to a recent SMSF Association survey, many people’s desire for control over their personal retirement income goals and the ability to take control of their financial future are key motivators in the decision to run an SMSF.

For small business owners, the ability to invest in assets related to their business – such as their business premises – is also very appealing.

All these reasons are valid and may make it worth considering an SMSF for your retirement savings.

Benefits of your own super fund

Key benefits are having control over your investment plan and selection of the assets in which your retirement savings are invested.

As an SMSF trustee, you are responsible for developing your fund’s investment strategy, so you get to choose which investment approach to use to grow your money.

There may also be cost savings compared to using a traditional, large super fund.

An SMSF can also give you more flexibility when it comes to tax management and estate planning.

SMSFs can be time consuming

On the other hand, running an SMSF can require significant amounts of time to complete and lodge the necessary paperwork and to meet the strict compliance requirements for super funds.

We can help take a lot of the hard work out of running an SMSF for you and ensure you comply with all the rules. Failing to comply can result in significant penalties.

Although many people enjoy being accountable for their own retirement and tailoring their investments, achieving strong returns requires investment knowledge and skills, plus sufficient time to actively research and manage your investments.

It’s also worth keeping in mind the ATO is the main regulator for SMSFs, so you will have the tax man looking over shoulder.

Are SMSFs cost competitive?

There is no hard and fast rule about the amount of super you need in order for your SMSF to be cost competitive with a large public super fund. Generally, an SMSF is less cost effective if your fund has low member balances.

Smaller balance SMSFs are also less able to achieve sufficient diversification with their assets compared with larger funds, making it harder to spread your investment risk.

Aside from the establishment costs, running your own SMSF incurs annual costs such as the annual ATO supervisory levy, auditing and legal fees, any administrative tasks and any investment-related expenses.

SMSFs can be cheaper

Despite these costs, running your own SMSF can actually be cheaper than using an APRA-regulated super fund to save for retirement.

The SMSF Association’s Cost of Operating SMSFs 2020 report found an SMSF can be cost-competitive with industry and retail super funds when it has an asset balance of $200,000 or more, even for a fund paying for a full administration service. An SMSF with accumulation accounts and a total asset balance of $200,000 using this type of service generally has annual running costs ranging from $1,518 to $3,078.

SMSFs are even more attractive for large asset balances. In fact, the study found an SMSF with a total asset balance of $500,000 or more is generally the cheapest alternative when it comes to a super fund.

For people interested in running their own SMSF but with a balance of only $100,000 to $200,000, you will need to keep an eye on your administration costs and consider what you may be able to manage yourself.

SMSFs with less than $100,000 are not cost-competitive.

If you are interested in controlling your retirement savings, make an appointment to talk to us about us about whether and SMSF is right for you and how we can assist.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Watch out for these scams involving tax, the ATO and COVID payouts

Watch out for these scams involving tax, the ATO and COVID payouts

Nowadays, tax season means it's scam season too. It's a time when scammers ramp up their activities with an arsenal of increasingly sophisticated scams. Here are some of the most common scams you're likely to encounter. Most of them are tax and ATO related.

Scammers are becoming increasingly sophisticated, so it pays to be aware of what is real and what is fake. Because unfortunately they’re not going away any time soon, with over 216,000 scams reported to Scamwatch during 2020, resulting in total financial losses of around $1.75 million dollars.i

Here are some recent scams to be aware of:

COVID-19 phishing

With increased communications being sent out due to the COVID-19 pandemic, this has also created ample opportunity for scammers. By pretending to be from official organisations, scammers aim to find out your personal information (such as your usernames, passwords, bank details, etc.) – this is known as phishing.

There have been emails and SMS messages impersonating the Department of Health and the ATO, providing links to what are purported to be information pages. One example is an SMS which says that you are due to receive a support payment and asks for your bank details.

To know what is real and what’s fake, don’t click on links in messages – instead visit the organisation’s website directly, or call them if in doubt.

Verifying your myGov details

Another common example of a phishing scam is receiving an email or SMS asking you to verify your myGov details. Often the message will have time pressure, saying that your account will be locked if you don’t do so within 24 hours.

You will get email or SMS notifications from myGov whenever there are new messages in your myGov inbox, however these messages will never include a link to log into your myGov account.

Automated calls regarding a suspended TFN

Your tax file number (TFN) is important for both you and/or your business’ tax and superannuation purposes, which is why hearing it has been suspended can be alarming. Linked to your name and date of birth, this piece of personal information should generally only be shared with the ATO, banks, your superannuation fund, the Department of Human Services and your employer.

Under law, any individual, organisation or agency that is allowed to ask for your TFN information must not record, collect, use or pass on your TFN (unless allowed under taxation, personal assistance or superannuation law).ii

A common scam involves an automated phone message advising you that your TFN has been suspended. The purpose of this is to convince you to pay a fine or transfer money to reactivate it.

The ATO do not suspend TFNs or need you to pay for reactivation, nor will they send unsolicited pre-recorded messages to your phone. So if you hear this scam message, hang up.

Tax debt

Another worrying message to receive is that you have tax debt that needs to be paid off. This scam is often done through SMS, voicemail and direct calls, whereby the scammer pretends to be from the ATO. They then will ask you for payment, which is often through methods such as cryptocurrency or gift cards.

Suffice to say this isn’t regular procedure from the ATO, so if you receive a call or message like this, ignore or hang up.

Scams are ever-evolving but are often based on similar concepts, as shown above. A helpful resource to keep up-to-date with current scams is the Scam Alerts page on the ATO website.

While scammers can be conniving and convincing, it’s important to err on the side of caution whenever you receive an unexpected message or call, or whenever your personal details are requested. Never give out any personal information unless you can independently verify the identity of the person or organisation you are providing it to.

Should you ever be unsure whether someone requesting your financial details is a trusted source, don’t hesitate to get in touch for our advice.

i https://www.scamwatch.gov.au/scam-statistics?scamid=all&date=2020

ii https://www.oaic.gov.au/privacy/your-privacy-rights/your-personal-information/your-tax-file-number/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Worried about an ATO Audit? Read this before submitting your tax return

Worried about an ATO Audit? Read this before submitting your tax return

As the Australian Taxation Office (ATO) turns its attention to businesses and individuals who've used COVID-related support programs, many taxpayers are likely to find themselves on the tax man’s radar. Here are a few important points to consider before submitting your return.

There are a number of red flags that can spark the ATO’s interest in your business or personal tax affairs. At present though, having applied for early release of your super, or receiving government support through JobKeeper, definitely puts you at a higher chance of an audit.

The ATO has identified a number of concerning and fraudulent behaviours with both these programs and is auditing taxpayer applications, so it’s worth understanding the regulator’s powers and the importance of good records when it comes to your tax.

ATO’s authority to audit

When it comes to the tax audit process, the ATO has significant powers. It has the authority to gather information about you and your personal circumstances from a range of sources, including other government agencies such as Services Australia. The ATO can also seek information about your business from financial institutions including your bank and insurers.

Generally, the ATO’s preferred strategy is to request information from you using a cooperative approach. If you fail to respond appropriately, however, the tax office may decide to use its statutory or ‘coercive powers’. This involves issuing legal notices seeking information from you and your advisers.

It’s sensible to act cooperatively with the ATO from the outset, rather than force the regulator into coercing you into compliance.

If you do receive an ATO request for information, we can help prepare the necessary documents and your initial responses. We can also be a useful guide through the process if you receive notification of an upcoming audit.

Why good records matter

As a taxpayer, if you want to object to a tax assessment or question an audit decision made by the ATO, you need to prove the decision was incorrect or excessive.

In the event of an Administrative Appeals Tribunal review or Federal Court appeal about your tax assessment or audit, the statutory burden of proof rests with you. This means you must prove the assessment is excessive or otherwise incorrect.

There is a legal presumption the ATO’s assessment is correct, unless you can produce evidence to prove what the assessment should have been. That’s why it’s essential to keep good records to substantiate your overall tax affairs and any deductions you claim in your annual return.

Tips for good recordkeeping

The golden rule of good recordkeeping is that you must keep records that are relevant to your tax and super affairs for five years.

For businesses, your records must be safely stored in a way that protects them from being changed or damaged, and you must be able to show them to the ATO if requested. The records must be kept in English or be easily converted into English.

Your business records need to include the quarterly Super Guarantee (SG) contributions paid to your employees and how they were calculated, wages records (including directors’ fees), a list of creditors and debtors, stocktake records, tax invoices for purchases over $82.50, and your BPAY or PayPal records.

Common record-keeping errors

According to the ATO, common business recordkeeping errors are failing to keep accurate records of all your cash and electronic transactions, and not regularly reconciling sales into your business accounting software.

Many businesses and individuals also fail to accurately split the private and business portions of an expense and don’t ensure they have sufficient records to substantiate their claims for tax deductions.

The ATO can seek information or documents at any time – either before starting a compliance activity or during a review or audit – so it’s best to be prepared. An easy first step to assessing if your business records are up to scratch could be checking out the ATO’s online Recordkeeping Evaluation Tool.

If you would like help with an information request or audit notification from the ATO, call our office today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Taking a break - good for you and the Australian economy

Taking a break - good for you and the Australian economy

2021 is shaping up to be a much more positive year than 2020 in so many ways. For people who put holiday plans on hold or those with itchy feet because they haven’t had much of a break for a while, this year is the year to get out and about.

While overseas jaunts are off the table for some time to come, Australia’s management of the pandemic means we are able to head off and explore the local sights, while helping local communities and industries hit hard by 2020.

Recently the Australian Government announced their latest stimulus package for these industries, with $1.2 billion allocated to help our domestic tourism and aviation sectors.i

From 1 April 2021, there will be 800,000 half-priced flights available to 13 key regions which includes the Gold Coast, Cairns, the Whitsundays and Mackay region, the Sunshine Coast, Lasseter and Alice Springs, Launceston, Devonport and Burnie, Broome, Avalon, Merimbula and Kangaroo Island.

It’s also worth keeping your eye out for state run initiatives in the form of travel voucher schemes. While the amounts offered and conditions vary from state to state, they generally enable you to wine, dine or stay the night in a location with part of your bill subsidised.

The importance of R&R

There’s nothing like a holiday to help us feel more relaxed and give us a break from our everyday lives, something we very much need after the year that was.

We know that having a break, whether it be from work or just our regular routines, tends to improve our wellbeing. It can offer a circuit breaker from some of your stressors, give you a new perspective as you take in new surroundings, lighten your mood as you do things you enjoy, give you a chance to spend some quality time with loved ones and simply recharge your batteries by sleeping in and taking it easy.

Supporting local

Perhaps you had to cancel that trip to Paris or have to let go the idea of relaxing on a beach in Bali. Fortunately, we are spoiled for choice when it comes to travelling in Australia, whether it’s a beach holiday you are after, a hike in the mountains, a trip to the snow, a tour of the outback or a foray into a rainforest. We are blessed with a myriad of natural wonders as well as vibrant cities with world class restaurants, attractions and nightlife. Not only will you have a wonderful time, you can also feel good about supporting businesses who need a hand getting back on their feet.

While it can seem like a distant memory due to the COVID-19 outbreak, 2020 was also a hard time for many Australians due to the bushfires that ravaged many parts of the country. As a result, the locations affected are needing to rebuild and welcome tourists back, so why not give them a visit.

Planning your trip

Whether you take advantage of the flight specials or instead travel by bus, train or car, seeing another part of the country will give you something to look forward to.

While we may have become nervous about forward planning due to the uncertainty of 2020, being organised will enable you to make the most of travel deals and plan your itinerary so you can fit in everything you want to do.

If you’re concerned about travelling at the present time, why not take the road less travelled and head to a private spot (perhaps an Airbnb rather than a busy hotel) in a destination that isn’t as well-known. By avoiding popular travel periods such as the school holidays, you will also avoid the crowds.

Wherever you travel in Australia, whether it’s to the other side of the country or just down the road, we hope you enjoy your well-deserved break and are able to recharge your batteries for what is shaping up to be an exciting year ahead.

i https://www.nestegg.com.au/invest-money/economy/government-launches-half-price-flights-to-kickstart-tourism

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Splitting your super when you split up - what you should know

Splitting your super when you split up - what you should know

Is separation or divorce is leading you to think about divvying up your super? There's a lot to consider when doing so — not least the tax implications. Here are a few things you need to know.

In years gone by, superannuation was not treated as matrimonial property, so divorce settlements typically saw the woman keeping the house as she generally had the children and the man keeping his super. In a sense, neither party won. She ended up with a house but no money for her retirement while he had nowhere to live but money for his later years.

To remedy this situation, since 2002 super can be included when valuing a couple’s combined assets for a divorce settlement. After all, these days super is probably your second largest asset after your family home.

While super is counted in the calculation of the total property, that does not mean it is mandatory to split the super – the choice is yours.

Unlike the early 2000s, both partners are likely to have superannuation these days although traditionally women will still tend to have lower balances.i On average, women retire with just over half the super balance of men and 23 per cent of women retire with no super at all.

As a result, many divorcing couples may end up splitting super along with their other property.

How to split your super

If you decide to split your super, then you have three avenues, but keep in mind that all require legal advice.

The three ways to split your super are:

A formal written agreement that both you and your partner instruct a lawyer stating you have sought independent advice,

A consent order, or

A court order.
A court order is the last resort if you can’t agree on a property settlement.

You can split your super as you choose both in terms of the amount and the timing. You can split it as a percentage or as an agreed figure and you can choose to split it immediately or at some time in the future. Much will depend on each of your life stages.

But whatever you decide, you MUST comply with the superannuation laws. Money received from your partner’s super must be kept in super unless you satisfy a condition of release. You also need to be mindful of taxable and non-taxable components and divide them equally.

How does it work?

Say the superannuation balances of a couple is $500,000 with John having $400,000 and Susie $100,000. If the property settlement on divorce was decided as a straight 50:50 split and it included the super, then John would need to give $150,000 of his super to Susie.

Susie would nominate a fund and the money would be transferred.

If you have a binding financial agreement or a court order, this transfer of assets from one fund to another will not trigger a CGT event. But if you don’t have such an agreement, then John would trigger a CGT event on the $150,000 he transferred. Susie, meanwhile, would have the advantage of resetting the cost base on her received $150,000. So, a win for Susie, but not for John.

If John happened to be in the pension phase but Susie was still too young, the money that is transferred from his super to Susie will be treated according to his situation. As a result, Susie would be able to access the money before she reached preservation age.

What about SMSFs?

If you have a self-managed super fund, the situation could get a little more complicated as you have to deal with the issue of trusteeship.

If there are only two members/trustees in the fund and Susie chose to leave, then John would either have to find a new trustee within six months or change to a corporate trustee where he could be the sole director.

Assets within an SMSF can also prove an issue, particularly if a sizeable proportion of the fund was tied up in a single asset such as commercial premises. How easy would it be to actually sell the premises? What if the property was John’s business premises and the means by which John was in a position to pay Susie child support? These are questions that need addressing.

If you are in the process of divorce or considering it, why not call us to help you plan your finances before and after the event.

i https://www.afr.com/companies/financial-services/women-less-than-equal-in-retirement-20201203-p56khb#

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tame your inbox for greater productivity

Tame your inbox for greater productivity

While the way we work and communicate with each other for business is constantly evolving, one element has remained pretty constant for many years now: email. Our dependence on email and similar messaging apps to run our businesses and carry out our jobs is pretty entrenched. This is even more true of late as working remotely and more flexible working arrangements have become a lot more common.

However, although email remains a critical business tool, it has the potential to be a big drain on our productivity and a source of anxiety if not carefully managed. Just think about how often your train of thought gets interrupted by incoming notifications and the dread in the pit of your stomach when you log back in to see an intimidating number of unread emails sitting in your inbox.

Email and messaging apps are not going away anytime soon, particularly as we move to more flexible working arrangements, so here are a few tips to tame the beast.

Understanding the impact of your inbox

Our inboxes are heaving – it was estimated that in 2019 the average office worker would be dealing with 126 emails every day, a number you’d expect to be even bigger given more of us are working remotely and are expected to be connected beyond the usual 9 – 5.i

And it’s not just the volume of emails that is the issue, 42% of survey respondents admitted to checking emails in the bathroom, with 50% doing so from their beds. It’s clear that our inboxes are on our minds even away from the office, as they infiltrate other parts of our lives.ii

Setting up a system

Searching for and following up emails is one of the most common inefficiencies associated with email. To make things easier, create labels and rules to direct certain emails into folders – for instance, emails relating to a certain project so they won’t be lost amongst spam or general messages.

You can also send out auto replies so that senders get an instant response acknowledging the receipt of the email, which puts less pressure on you to reply immediately. Templates can also save you time; these are especially handy if you get many of the same type of enquiries.

Create email-free zones

If you’re one of the bedroom email checkers, put boundaries in place as to when and where you view your inbox. Attending to emails during a set period, such as when you start work, after lunch and an hour before you clock off, for example, doesn’t just make you more productive. A study in the Computers in Human Behaviour journal found that checking email less frequently reduced stress.iii

Reconsider what is essential

Not all emails need a response – how often do you reply just with a ‘thanks’ or ‘okay’ when it’d be fine to not reply? Recognise that not every response is urgently needed. Give yourself a realistic timeframe, such as replying within 48 hours to business enquiries, so that you don’t feel pressured to reply straight away.

Call rather than email where possible

While this can be a generational preference (millennials are not the biggest fans of phone calls), it’s fair to say many different generations have got into the habit of emailing rather than speaking with someone directly.iv Yet a quick phone call can address many points in real time so you’re not left waiting for a response. This will improve your productivity as well as not add to the clutter of your inbox.

Rather than being ruled by your inbox, make email work better for you with a few tweaks to the way you use it. So take back control and revel in your new found sense of accomplishment, while enjoying the additional time you now have for the tasks that really matter.

i https://www.campaignmonitor.com/resources/knowledge-base/how-many-emails-does-the-average-person-receive-per-day/

ii https://www.lifewire.com/how-many-emails-are-sent-every-day-1171210

iii https://www.sciencedirect.com/science/article/abs/pii/S0747563214005810

iv https://www.bankmycell.com/blog/why-millennials-ignore-calls

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Achieving financial harmony with loved ones

Love and money: achieving financial harmony

Regardless of whether your finances were impacted the pandemic, if you're in a relationship, your own attitude and your partner's towards finances may have shifted over the last year. Given money's potential to be such a source of conflict in relationships, now is a good time to take stock. It's in both your best interests to ensure you're in sync and on track to maintain or achieve financial harmony.

It's fair to say, COVID-19 has had a far-reaching impact on many aspects of our lives. Fortunately, the Australian economy is proving remarkably resilient. But, personal finances have been affected in different ways by lockdowns and government initiatives.

Check in and see where you stand financially

The first step is knowing where you stand financially. This involves looking through your shared and individual accounts and being open with each other about your saving and spending habits.

This is unlikely to make for a romantic date night given the potential for uncomfortable conversations, which is why one in three Australians admit having kept a financial secret from their partner.i However, by being transparent with your partner, you’ll be working through issues before they snowball into a source of greater financial and relationship stress.

Discuss or re-evaluate your goals

We can all lose track of our end goals, especially when life becomes unpredictable and we need to shift focus. So that you don’t move too far away from your financial goals, re-evaluate your priorities. These may have changed in the past year – maybe you’ve had to halt those travel plans or realised you no longer need or can’t afford that new car.

As you and your partner are two individuals, you might not always be aligned in terms of your approaches to saving and spending. We all have different deeply entrenched views and beliefs around money and it’s one area that you may never completely see eye to eye on. That also goes for goals – we all have our own dreams and ambitions. Maybe one of you sees a need to renovate the bathroom, while the other thinks the money would be better spent on a holiday. Discuss the goals you both have and be prepared for compromise to find a plan that suits the family as a whole.

Re-evaluate your priorities and how you spend

Priorities and spending habits can change over time and more recently, in response to a changed world. In 2020, 56% of Australian households surveyed believed their financial situation was vulnerable or worse due to the pandemic.ii You may have less disposable income and needed to tap into savings or your superannuation or access credit as a result.

It’s important to acknowledge if your financial position has changed, reassess your priorities and make any necessary adjustments. This may involve taking a look at your spending and saving habits and making changes so that your dollars go towards supporting what’s most important to your family. Again, it’s important to discuss this with your partner and work through it together.

Develop a budget

Budgeting is an obvious step, but you’ll need to ensure that the budget works for both of you and supports your shared goals. There are great budgeting apps you can use, but what you’ll both need to bring to the table is a commitment to sticking with the agreed upon budget. Discuss your household needs, such as mortgage or rent payments, utilities, etc, as well as your individual needs and what your shared goals are.

Try to agree on a system that keeps you both accountable. It can be as formal as filling out a spreadsheet every week, or perhaps having a monthly family meeting around how things are tracking and if there’s any room for improvement.

Money talk in relationships can be tricky as it’s often a loaded and emotive topic that can bring up other issues. This is why an adviser can help with these conversations, facilitating discussions in a safe and neutral environment and providing expert advice, tailored to your situation.

Please reach out if we can be of assistance.

i https://www.moneymag.com.au/talk-money-relationships

ii https://www.bt.com.au/insights/perspectives/2020/australian-consumer-spending-changes.html

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Declutter and tidy up your finances this Autumn

Declutter and tidy up your finances thiis Autumn

Like trees losing their leaves in autumn, why not take a leaf out of their book and choose this time of year to shed some of your own financial baggage.

Taking stock of your accounts and holdings and eliminating what you no longer need will simplify your life and could save you quite a bit in the process.

Here are a few things to put on your check list....

In the style of Marie Kondo, the Japanese organising whizz who has inspired millions to clean out their cupboards, decluttering your finances can bring many benefits.

While you work through all your contracts, investments and commitments, you will no doubt discover many that no longer fit your lifestyle or are simply costing you in unnecessary fees.

And if that is the case, then it is likely that such commitments will not be sparking any joy. And joy is the key criteria Kondo uses to determine whether you hold on to something or let it go.

So how does decluttering work with your finances and where do you start?

Where are you?

The first step is probably to assess where you are right now. That means working out your income and your expenses.

There are many ways to monitor your spending including online apps and the good old-fashioned pen-and-paper method.

Make sure you capture all your expenditure as some can be hidden these days with buy now pay later, credit card and online shopping purchases.

The next step is to organise your expenditure in order of necessity. At the top of the list would be housing, then utilities, transport, food, health and education. After that, you move on to those discretionary items such as clothes, hairdressing and entertainment.

Work through the list determining what you can keep, what you can discard and what you can adapt to your changed needs. Remember, if it doesn’t spark joy then you should probably get rid of it.

Weed out excess accounts

Now you need to look at the methods you use when spending. Decluttering can include cancelling multiple credit cards and consolidating your purchases into the one card. This has a twofold impact: firstly, you will be able to control your spending better; and secondly, it may well cut your costs by shedding multiple fees.

Another area where multiple accounts can take their toll is super. Consider consolidating your accounts into one. Not only can this make it easier to keep track of, but it will save money on duplicate fees and insurance. If you think you may have long forgotten super accounts, search for them on the Australian Tax Office’s lost super website. Since July 2019, super providers must transfer inactive accounts to the tax office.

Once you have reviewed your superannuation, the next step is to check that your investments match your risk profile and your retirement plans. If they aren’t aligned, then it’s likely they will not spark much joy in the future when you start drawing down your retirement savings.

If you have many years before retirement and can tolerate some risk, you may consider being reasonably aggressive in your investment choice as you will have sufficient time to ride investment cycles. You can gradually reduce risk in the years leading up to and following retirement.

Sort through your insurances

Another area to check is insurance. While insurance, whether in or out of super, may not spark much joy, you will be over the moon should you ever need to make a claim and have the right cover in place.

When it comes to insurance, make sure your cover reflects your life stage. For instance, if you have recently bought a home or had a child, you may need to increase your life insurance cover to protect your family. Or if your mortgage is paid off and the kids have left home, you might decide to reduce your cover.

Prune your investments

If you also have investments outside your super, they too might benefit from some decluttering. As the end of the financial year approaches, now is a good time to look at your portfolio, sell underperforming assets and generally rebalance your investments.

Many people who have applied Marie Kondo’s decluttering rules to their possessions talk about the feeling of freedom and release it engenders. It may well be that applying the same logic to your finances gets you one step closer to financial freedom.

If you would like to review or make changes to your finances, why not call us to discuss.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Need to boost retirement income? There's more than one way to do it...

There's more than one way to boost your retirement income

Retirees are often reluctant to eat into their “nest egg” too quickly. This is understandable, given we're living longer than ever and may need to pay for aged care and health costs later in life. But this cautious approach also means many retirees are living more frugally than they need to according to the Government's recent Retirement Income Review.

One of its key findings was that most people die with the bulk of the wealth they had at retirement intact.i.

One of the benefits of advice is that we can help you plan your retirement income so you know how much you can afford to spend today, secure in the knowledge that your future needs are covered.

Minimum super pension withdrawals

Under superannuation legislation, once you retire and transfer your super into a pension account, you must withdraw a minimum amount each year. This amount increases from 4 per cent of your account balance for retirees aged under 65 to 14 per cent for those aged 95 and over. (These rates have been halved temporarily for the 2020 and 2021 financial years due to COVID-19.)

One of the common misconceptions about our retirement system, according to the Retirement Income Review, is that these minimum drawdowns are what the Government recommends. Instead, they are there to ensure retirees use their super to fund their retirement, rather than as a store of tax-advantaged wealth to pass down the generations.

In practice, super is unlikely to be your only source of retirement income.

The three pillars

Most retirees live on a combination of Age Pension topped up with income from super and other investments – the so-called three pillars of our retirement system. Yet despite compulsory super being around for almost 30 years, over 70 per cent of people aged 66 and over still receive a full or part-Age Pension.

While the Retirement Income Review found most of today’s retirees have adequate retirement income, it argued they could do better. Not by saving more, but by using what they have more efficiently.

Withdrawing more of your super nest egg is one way of improving retirement outcomes, but for those who could still do with extra income the answer could lie in your nest.

Unlocking housing wealth

Australian retirees are some of the wealthiest in the world, with median household wealth of around $1.4 million. Yet close to $1 million of this wealth is tied up in the family home.

That’s a lot of money to leave to the kids, especially when many retirees end up living in homes that are too large while they struggle to afford the retirement lifestyle they had hoped for.

For these reasons there is growing interest in ways that allow retirees to tap into their home equity. Of course, not everyone will want or need to take advantage of these options. But if you are looking for ways to use your home to generate retirement income, but don’t relish the thought of welcoming Airbnb guests, here are some options:

Downsizer contributions to your super. If you are aged 65 or older and sell your home, perhaps to buy something smaller, you may be able to put up to $300,000 of the proceeds into super (up to $600,000 for couples).

The Pension Loans Scheme (PLS). Offered by the government via Centrelink, the PLS allows older Australians to receive tax-free fortnightly income by taking out a loan against the equity in their home. The loan plus interest (currently 4.5 per cent per year) is repaid when you sell or after your death.

Reverse Mortgages (also called equity release or home equity schemes). Similar to the PLS but offered by commercial providers. Unlike the PLS, drawdowns can be taken as a lump sum, income stream or line of credit but this flexibility comes at the cost of higher interest rates.

The big picture

While super is important, for most people it’s not the only source of retirement income.

If you would like to discuss your retirement income needs and how to make the most of your assets, give us a call.

i Retirement Income Review, https://treasury.gov.au/sites/default/files/2020-11/p2020-100554-complete-report.pdf

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.