Money Matters Autumn Issue #25
Staying In Touch Welcome to the first edition of Money Matters 2011. Do you really need life insurance? We need to remember that life insurance isn’t for the benefit of the person who is insured, but for the insured’s loved ones. Your family needs the guarantee of a comfortable financial future in the event that something should happen to you. A good life insurance policy can help you meet that goal. Read our front page article to find out more. For many of us, the rules and regulations around superannuation are confusing. In this issue we look at some of the important things you should know to help you to better understand your superannuation and the importance of planning for your retirement. What does wealth mean to you? Making as much money as possible, or is money simply a means to an end that allows you to achieve your goals, which may not all necessarily be financial? For those who believe that wealth is much more than just money, seeking advice from a financial adviser might be the right first step. Qualified financial advisers are not just numbers men and women; they are trained to consider your full range of goals and objectives, whatever they may be. We will assist you in developing a personal strategy to take you from where you are, to where you want to be. Please read our article, Maximise or Optimise, to learn more. Do you worry about becoming addicted to Technology and the Internet? There is little doubt that technology and the internet can provide hours of entertainment and connectivity for users. But when does our time watching TV, playing video games or surfing the web become too much? Read our lifestyle article to ensure you and your family have a healthy balance between the real world and the online one! Please contact us if you have any questions or would like to discuss your financial position. Regards,
Frances Magill
Authorised Representative
Brian Magill
Authorised Representative
Authorised Representatives of Matrix Planning Solutions Limited Contact Details: 250 Wright Street, Adelaide SA 5000 PO Box 6359 Halifax Street, Adelaide SA 5000 Telephone: 08 8231 8100 Facsimile: 08 8231 0155 Email: frances.magill@fmfinancialstrategists.com.au
Do you really need life insurance? W
ho needs life insurance? Well, if you are completely healthy and will remain so for all your life, if your children are all grown up and moved from your house and you have saved up enough money to pay off all of your debts, and can produce an income for your partner to look after costs should you die today, then you can probably get away without having life insurance. Everyone else should consider it.
You need to remember that life insurance isn’t for the benefit of the person who is insured, it’s for the people left behind. Ask yourself: “What would their day to day lifestyle be if I was removed from the picture?” Your family needs the guarantee of a comfortable financial future in the event that something should happen to you. A good life insurance policy can help you meet that goal. The primary purpose of a life insurance policy is to provide peace of mind and enable your family to continue their current lifestyle when you’re no longer around. It is also designed to help meet specific financial needs that your family will have in the future. The proceeds of a well structured life insurance policy could pay off your mortgage and provide your family with a debt-free home. Credit card and other debts could be liquidated. An adequate life insurance policy could also fund a quality education for your children. Funeral expenses can be paid from your life insurance proceeds, preventing the need for your spouse and children to have to deal with them at the worst possible time.
The real question isn’t who needs life insurance, but how much life insurance do they need? An experienced financial adviser will assess the gap between your current assets and liabilities along with the amount of money that is needed to generate the ongoing income needs of your family. The benefit from an insurance policy should ideally cover your debts (including funeral expenses) and provide an ongoing income for the future. You will need to think about what debts your family would like extinguished and how much you would like to leave your family to meet their future financial needs if you were to die prematurely – remember, your debts won’t die with you. An easy way to look at this is to add your current and future financial obligations to your existing resources – savings, investments and existing policies. Then work out whether (after extinguishing debts) the remaining capital amount will generate sufficient income to meet your family’s daily living expenses. Whilst most Australians who work have some kind of life insurance included as part of their superannuation, more often than not, this may be inadequate to cover those that depend on them, in the event the worst happens. Don’t fall prey to the common mentality of ‘it won’t happen to me’. Finally, there is the question of cost. Surprisingly, the cost of obtaining cover to meet your needs as outlined here is far less than any other way of funding your family’s future. And the younger and healthier you are when you take out life insurance, the cheaper it is – a good reason not to put off making these arrangements. Life insurance is insurance for your family’s peace of mind. Their future standard of living may well depend on the life insurance decisions that you make today. Make it your priority to consider their needs and the peace of mind that adequate insurance would bring. Speak to us about making sure you and your family are protected today.
Money Matters
Getting to know your super
A
ustralia’s world class retirement savings system means every Australian needs to become conversant with their superannuation. For many of us, the rules and regulations around superannuation are confusing and the changes that occur can make it hard to keep up. Here are some important things you should know to help you to better understand your superannuation and the importance of planning for your retirement.
Superannuation is not an investment - Superannuation is not
itself an investment - rather, it is a vehicle designed to make investing for retirement more attractive by the use of tax concessions. Most super funds offer members a choice of how they invest. These can range from conservative options invested mostly in cash and fixed interest to highly aggressive options invested exclusively in shares. The media often add to the confusion about super fund performance results with headlines such as ‘Super gets returns of 15%’ or ‘Your super goes backwards’. The inference is that all super funds are the same, which is not the case. Usually, the media is talking about balanced funds in super, often the default investment option when members make no choice themselves. However, even balanced funds are not all the same. The balanced option in one fund may have 70% invested in growth assets, whereas the balanced option in another fund may have only 50% invested in growth assets.
Up to age 65, anyone can have super - In the past,
superannuation was only for the employed. The restrictions on who can contribute to super have been relaxed over the years and from 2004, anyone under 65 (whether they are employed or not) has been able to put money into super. This provides good opportunities for members who are no longer working to put extra money into super before starting an income stream, as well as for people without super to save inheritances or other windfalls in a tax advantaged structure.
Super is tax free from age 60, but retirement comes first - When the
major super changes came into effect from 1 July 2007, the headlines said ’Super is free from age 60’. Some members misinterpreted this to mean that they could claim their super tax free at age 60. To be able to access super as a lump sum, a member must satisfy a ‘condition of release’. Usually this will mean they have satisfied a Superannuation Industry (Supervision) Act 1993 (SIS Act) retirement definition. The three definitions are: • To have reached age 65. • To have left a job after age 60. This can be any genuine position of gainful employment. It does not have to be the person’s main job. • To have reached preservation age (currently 55) and have declared an intention to never work again. The member can change their mind and return to work but if they abuse the rule there may be tax penalties.
Super will not automatically be dealt with by a Will - Many people
think that estate planning means having a Will. While a Will is very important, super will not automatically be paid into the member’s estate. Superannuation fund trustees are required to pay death benefits to a member’s dependants. The trustees will make enquiries into the deceased’s circumstances and will pay the money to the member’s estate only where they cannot identify any dependants.
Some funds allow a member to nominate a ‘preferred’ beneficiary to receive their benefit on death. They can nominate for the money to go to their estate but the trustees are not bound by this preference. Some funds allow a member to make a ‘binding’ nomination where you can nominate a beneficiary. The super fund trustee is then bound to pay the proceeds to the nominated person. Depending on the member’s circumstances, there can be advantages and disadvantages of having super paid to their estate. A key role for an adviser is to help the member make the appropriate decision as part of a comprehensive estate plan.
Insurance in super can carry on between jobs - One of the traps of
having life and TPD insurance in a super fund occurs when the employee changes jobs. The cover may continue for a limited period (say 30 or 60 days) and then cease or cover may cease if contributions are not paid into the fund. Many funds offer a ‘continuation option’ that allows the member to continue the same level of insurance cover in a personal policy without going through the normal underwriting process - medicals, blood tests and so on. Funds may have different rules but often: • The continuation of the life cover will require just a short health statement. • The continuation of the TPD cover will require a short health statement and an employment declaration. The continuation option will only be valid for a limited time - 60 or 90 days after leaving employment so it pays to see an adviser promptly. These are just some of the things you should know about your superannuation. Your Matrix adviser is happy to help with any questions you may have.
Maximise or Optimise? I
f attitudes to financial planning were placed on a spectrum, at one end might be those who believe the goal is to make as much money as possible. At the other end might be those who believe that money is simply a means to an end, and if it allows them to achieve their goals, then planning has been successful. Your financial adviser can work with you to match your financial plan to your own views of the importance of money. It’s important to get a clear perspective – and this can be difficult when the media, and governments, base so much of their measurement of economic success purely on growth. It is commonplace these days to see news articles pointing to economic growth as a sign of the successful development of emerging countries. Economic growth generally measured by Gross Domestic Product (GDP) is used as a gauge of the success of an economy. It is also used as a comparison tool between countries, as currently demonstrated by the emergence of the developing countries (with their higher levels of GDP, compared to the developed countries) who are held up as leading the world out of the global recession. Many governments also use economic growth to demonstrate the dominance of their economic management, compared to their political rivals. Undoubtedly, economic growth, especially in the past half century, has lifted millions of people, particularly in the developing world, out of poverty. Economic growth can also be credited for many of the benefits we enjoy in modern life, including longer and healthier lives through the advancements in medical technology. However it is also important to question whether the continuing pursuit of maximising economic growth is in our best interests. What is the impact of this pursuit on our lives, our society, and our environment?
Unfortunately it appears some of these questions are already being answered. There have been many studies concluding that although we increasingly lead materially wealthier lives we are no happier than we were half a century ago. A clear example of this would be the increased incidence of mental health issues, especially depression, within our society. Another example has been the rise, especially in the developed world, of the incidence of obesity. Decreased physical activity at work, the increased participation of women in the workforce, increasing levels of stress and job insecurity, longer working hours for some jobs, and the increased availability of convenience foods, are all factors that directly or indirectly contribute to the lifestyle changes which cause obesity. It is also true that many of these factors have an impact on the nature of our society. As people spend longer hours at work (many couples now believe that it is essential that they both work to service increasingly larger mortgages), the ability to allocate time to their children’s upbringing and participate in their communities (through volunteering, for example) is reduced. Clearly, we need to balance economic growth with lifestyle and community objectives for our overall well being. Ask yourself: What are you hoping to achieve from managing your own economic growth, your own ‘personal economy’? - Are you pursuing maximisation or optimisation? Your financial adviser is more than a numbers man (or woman). A financial adviser can help you answer questions like:
Can I use my money more efficiently to free up time to spend with my family? Can I afford to do some of the things I’ve always dreamed of, now? When can I afford to stop working (or working as much)?
How can I leave a legacy or make a charitable contribution to help others? Your adviser can help you with many of these questions by considering: • Your current cash flow and how it is
meeting your day to day expenses. Are you efficiently allocating your income to meet what is important in life? Distinguish between needs and wants.
• Whether you are properly insured. We all recognise the importance of insuring our homes and motor vehicles, but what if you are unable to work, or continue to run your business, due to sickness, or death? How will your family cope in this situation? • Whether you are entitled to any
government assistance due to your circumstances.
• Whether insurance might fund
provisions for your family and any charities or bequests when you pass away. Have you considered a will, and a power of attorney?
In helping you to answer these, and similar, types of questions, financial advice that considers the full spectrum of your financial affairs and what is important to you is invaluable. Don’t fall into the trap of thinking a good financial adviser is all about picking investment markets, red hot stocks and performance of funds. A good financial adviser will make sure your plan meets your needs, and help you find balance in what you want to achieve. Contact our office today to make an appointment if you would like to discuss your financial position.
Are you addicted to Technology & the Internet? T
here is little doubt that technology and the internet can provide hours of entertainment and connectivity for users. But when does our time watching TV, playing video games or surfing the web become too much? With the ever growing popularity of technology such as video games, TV/movies, Mobile phones, IPods / IPads, Email, online services and social networking sites like Twitter and Facebook, there is no denying that we are spending more time than ever using and relying on these modern day inventions. Although some mental health professionals have recognised that using certain technologies can be addictive and can become serious, it is still difficult to separate the idea of an ‘addiction’ from simple overuse or temporary obsession. One might say we have had an undiagnosed addiction to televisions, telephones or other entertaining technologies for years as we have evolved to rely on them so heavily every day. To bring you and your family back down to earth we have listed a few points for you to consider to make sure you have a healthy
balance between the real world and your use of technology. • Time management: Allocate a certain amount of time you would like to spend online or watching TV each day and stick to it, this will allow you not to get too carried away or waste time. You could even set a timer to keep you on track. This is also something you can adopt with your children; you could allow them 1 - 2hrs a day of technology whether that is video games, TV or internet - let them choose and manage the time but make sure they stick to their limit. • Go outside: Replace your Internet usage or TV watching with healthy activities. If you are bored or lonely, resist the urge to go online or turn the telly on. Have a plan for other ways to fill the time, such as going to lunch with a friend, taking a walk or simply reading a book. • Write a letter: Remember the days when the only way to keep in touch was to post a letter via snail-mail to a friend or loved one? ...and how fun it was to receive something in your letterbox (as opposed to all the bills we now receive). Instead of sending an instant message or an email to a friend, sit down and pen them a letter or pick up the phone and have a chat to them. You will find that
having this personal contact will strengthen your relationship and make you feel good about yourself. Doing this will take away the restrictions of a short text message or the emotionless email. • Go Cold Turkey: To find out just how addicted you and your family are to technology, try to go cold turkey for a whole night or even a weekend. Give yourself a technology time-out and take a break from it all. Turn off your phone, your computer and the TV and spend some quality time with your loved ones. If you need to start small, try leaving your mobile phone at home one day and see how you go. By managing your technology and internet usage you will improve your health and relationships with friends and family and not become reliant on the ‘virtual word!’.
Market Update International shares:
A high $A vs $US provides opportunities for international shares over the coming months and a benchmark weighting is now appropriate for the sector. The favoured areas are Asia and emerging markets, although should these markets become overvalued profits should be taken. Stock and country selection is going to be much more important over the coming year as volatility remains high.
Australian shares:
Market valuations remain attractive and the generally strong state of the large corporates should be supportive for the coming year. Investors should continue to focus on quality in this environment.
We consider a slight overweight appropriate on a three-year outlook. Also, managers with strong stock picking skills are expected to out perform. The focus should be on quality companies with strong income streams. Funding and liquidity still remain key issues.
Listed Property Trust:
Global Listed Property: Property is likely to under perform equities on a three year outlook and suggest under weighting the sector. Quality direct property valuations are starting to show signs of recovery although likely to be slow as access to funding remains difficult. The listed property sector continues to slowly recover and opportunities are likely to emerge over the coming year.
Fixed Interest:
With the direction of interest rates in Australia likely to be up, opportunities for fixed interest may be limited over the coming year. A benchmark weight for the sector is appropriate. The credit market should provide selected opportunities over the coming year as credit spreads contract further and investment grade credit become more attractive. A cautious approach to sovereign debt is required with safe haven sovereigns preferred. Please contact our office to discuss any queries you may have on your investment portfolio.
Disclaimer: Money Matters is a private communication to clients and contains general information and advice only. It is provided by Matrix Planning Solutions Limited (ABN 45 087 470 200. AFSL No. 238256). As the particular circumstances and needs of individual investors may vary greatly, the information herein should not be used as a substitute for personalised advice. You should read the product disclosure statement before investing in any product Whilst every effort has been made to ensure the information is correct, its accuracy and completeness cannot be guaranteed, thus Matrix Planning Solutions Limited cannot be held responsible for any loss suffered by any party due to their reliance on the information or arising from any error or omission. Privacy Statement: This newsletter is provided as an information service for you and your family. If you do not wish to receive information of this kind in the future, please contact us by mail, email or phone and we will remove you from our mailing list.