What the future holds
It’s a shame money doesn’t buy happiness, because from a financial perspective the future looks bright.
Treasury released its latest intergenerational report this month and it makes for fascinating reading. With the luxury of a 40-year outlook, the report lifts above the distraction of day-to-day noise. Instead, it analyses the macrotrends that will drive the economy and the retirement income system in the long-term.
SKI club: Why it’s losing its members
Spending the Kids’ Inheritance (SKI). Every retiree jokes about it. But in our recent experience, Australian retirees are turning their minds to helping family members financially. They are more concerned about the impact of the rising cost of living on their families than themselves.
Waste not want not
Minimum pension drawdowns limits doubled on 1 July; are you ready?
Account based pensions are flexible retirement income streams. When you stop and think about it, there are very few restrictions on what you can do with them. If you are retired, you can access your money whenever you like, you can switch providers, you can choose how you invest, you can choose the level of income you desire and there is no maximum drawdown imposed.
Man in the Mirror: How community will transform financial planning
A tourist is travelling through Ireland. He stops a local and asked for directions to Dublin. The local earnestly responds: “Well, Sir, if I was going to Dublin, I wouldn’t want to be starting from here”.
Global banking turmoil and your super
It all started a couple of weeks ago with the collapse of mid-tier US institution Silicon Valley Bank. Soon another mid-tier bank in the US, Signature Bank, collapsed.
If you have been brave enough to look at your super balance in the past few days you will know that the share market has since fallen more than 5% and is now trading at four months lows. In that two weeks markets have fallen because the recent turmoil in banking has spooked investors who remember the pain of the Global Financial Crisis 13 years ago.
Bad Medicine
Bad medicine: Why the RBA is right to increase rates
In February the Reserve Bank of Australia (RBA) increased official interest rates again, this time another 25 basis points. The official interest rates are now 3.35% pa, up from 0.1% pa in May last year, an increase that is sure to be causing mortgage stress and rental increases amongst the most vulnerable.
But, as bad as high interest rates are, they are better than the alternative; high long-term inflation. That’s why the RBA is right to keep increasing interest rates.
The best and worst super funds in 2022
Most people don’t engage with their super until they’re about to retire. But APRA’s annual performance report on super funds shows why it’s important that you do. Not all super funds are equal and there is a big difference between the best and worst funds.
Who you gonna call?
The financial advice industry is in the process of transforming into a profession. It hasn’t been a painless process. Financial planners are leaving the advice industry in droves. Since December 2018, the number of advisers registered with ASIC has almost halved, falling from 28,000 to fewer than 16,000 in less than four years.
Stay the course: Five things to remember during uncertain times
Stay the course: Five things to remember during uncertain times
It’s tough being an investor right now. It’s even harder to be a retiree investor because retirees are generally more conservative than their younger selves. Let’s face it, most of us are feeling significantly poorer than we were 12 months ago. With the US share market off 16 percent since the start of the year, house prices falling for six consecutive months, and with the cost of living rising at levels not seen for 30 years, it’s no wonder that retirees might be losing confidence.
But this is not the first economic slowdown we have seen and it’s not the first market correction. Here are the five most important things for retiree investors to remember during uncertain times.
Inflation and your retirement
Inflation and your retirement
With the property market cooling, Australians have finally stopped talking about real estate prices. At dinner parties everywhere, there’s a new conversation.
The bad news? The new conversation is about the rising costs of living. It’s understandable. In the year to July 2022, the costs of consumer goods and services rose 7 per cent.
While the media focus has been on the plight of young families with mortgages, rising inflation presents unique challenges and risks to retirees as well. Especially in low growth economic conditions.
But there are things retirees can do to manage inflation risk and make sure their money lasts.
Five Questions
Five questions you should ask your financial planner right now
If you haven’t already, you will soon receive your annual statement from your super fund. When you open your email, you will probably see that over the past 12 months your super fund has provided a negative return.
Let’s be clear, a negative return over 12 months means you have less money invested at the end of the financial year than you had invested at the start of the financial year. That’s before accounting for your withdrawals.
In a year when the cost of living rose by more than six percent, it’s a challenging outcome.
Negative returns should be expected from time to time, but that doesn’t make them any easier when they happen. And it’s certainly not helpful when super funds patronise their members with cliches and platitudes.
Representing you, not your super fund
That’s why it’s important to get beneath the surface and hold your super fund accountable for their returns. Holding super funds accountable for their performance is a vital role that independent financial planners play.
It works because independent financial advisers work for you, not your super fund.
Here are the five questions you should be asking an independent financial planner:
1. Why have my retirement investments performed poorly?
Your super fund will know its exposure to markets and individual assets. It will have done what the experts call an “attribution analysis” to understand which sectors and investments underperformed.
It’s your money, so you deserve to know the results of the attribution analysis. What did your super fund get right and what did it get wrong?
2. How has my super fund responded?
The Nobel prize winning economist Paul Samuelson once quipped “When the facts change, I change my mind”.
What has your super fund learned over the past year and what has it done in response? Has it modified its approach in any way and what underlying holdings have changed?
3. Am I still on track?
It’s unlikely that your long-term plans have been skittled by the recent downturn.
But for peace of mind ask your financial planner for an up-to-date cash flow projection. Has the combined impact of recent inflation and the market downturn impacted on how much you can spend in retirement?
4. Have any opportunities arisen?
There’s a reason market falls of 10 percent are called market "corrections". Assets are repriced and what was once expensive might now be good value. Have the recent market falls created any opportunities to buy? Is your super fund scouting around for these opportunities?
5. What should I be doing next?
During periods of the uncertainty, it’s essential to get personal advice, specific to your unique situation. Rules of thumb or general advice aren’t helpful at times like this.
So, check in on your progress by reviewing your retirement strategy. As independent financial planners, we sit on your side of the desk, making sure your super fund is held accountable and giving you confidence you’re doing everything you can to make the most of your financial circumstances.
Daniel Crump is the founder of Daniel Crump Financial Planning. This article is general and does not consider your personal circumstances. If you would like advice specific to you, give us a call on 0418 148 622.
Inheritance tax: Is the tax office a beneficiary of your super?
Officially, it has been 40 years since Australia abolished the formal Inheritance Tax, or death tax. But we think that’s bunkum. There is tax payable on super when you die and leave your money to your adult children.
Fortunately, a rule change that came into effect in July can help. But only if you engage and act.
120 Days of War
The war in Ukraine has now entered its fifth month and the ripple effects are increasing right around the globe. In Australia we have seen significant increases in the cost of living, rising interest rates, falling house prices and negative returns from both the share market and the bond market.
Not a time to set and forget
Markets have been volatile recently. In the last month alone the Australian share market has fallen around 6%. There’s so much uncertainty now; the Ukraine war, the ongoing Covid pandemic, and now systemic global inflation and rising interest rates.
Markets hate this uncertainty. So, what should retirees be doing to protect their retirement incomes?
Spending Confidence
One of life’s biggest mysteries is knowing how much we can afford to spend day-to-day in retirement. It’s hard because there’s just so much we don’t know.
We don’t know how long we are going to live, so we don’t know how long our money needs to last. We don’t know what emergencies and life challenges will crop up from time to time and require money.
We don’t even know what return our investments will provide.
Sugar high: Federal Budget snapshot
Sugar high: Federal Budget snapshot
This year the federal budget was delivered six weeks early in what was clearly the start of a campaign for re-election. In the face of global uncertainty, the Australian economy has performed exceptionally well. And that’s what’s funding an almighty sugar hit for retirees, small businesses and certain parts of regional Australia.
War in Ukraine: Implications for your retirement
War in Ukraine: Implications for your retirement
Russia’s invasion of Ukraine is first and foremost a human tragedy. The images we’re seeing on the news are just terrible. But if we turn our minds to the economic impact, we can see that there have been immediate consequences. Sure, they’ve been felt most acutely on the other side of the world, particularly in Europe. But there are economic consequences of the war in Ukraine being felt right here in Australia as well.
So, what does it mean for Australian retirees in the short-term and should we be doing anything now to protect ourselves?
Independence: The key to trustworthy advice
Last month Dixon Advisory, a once respected retirement specialist firm, collapsed into voluntary administration. In the end, it was overwhelmed by compensation claims and legal actions from 5,000 former clients who had sustained heavy losses from Dixon’s in-house products.
So, what went so wrong for Dixons? And what can we learn from their business model and the experience of their clients?
The importance of strong returns for retirees
When it comes to money, what’s most important to us changes over time. When we’re younger, and starting a family, perhaps taking out a mortgage, life insurance is the most important thing. When we get to midlife, super contributions become more important, loading money into super and taking advantage of the mathematics of compound interest.
But when we come to retirement, investment returns become most important. That’s because the period around retirement is when our super balances are at their highest. It’s what finance nerds call the ‘portfolio size effect’.
Economic update: Market ups and downs
The share market has started 2022 with a fizzle, falling more than 8%. It’s on the back of some concerning economic data. Inflation is higher than expected, which means interest rate increases this year now seem likely, and it appears omicron has dented business confidence.
So, what does this mean for retirees?