WESTBUSINESS

SECURING YOUR FUTURE

A YOUR MONEY SPECIAL

August 25, 2014

• How to get the right advice

• Unravelling the jargon

• How much super is enough

• Maximising Centrelink payments

• Self-managed super explained

• What insurance you need

• Making your will

• Determining your risk profi le

The essential guide for your retirement

August 25, 20142 SECURING YOUR FUTURE

‘I really should get myfinances in order.”

How often have youthought that to yourself, only tobe distracted by more pressingmatters, like making breakfast

for the kids or working outthe cause of that odd

noise the car hasbeen making.

Many of

us are happy to be distractedbecause superannuationco-contributions, incomeprotection insurance andaccount-based pensions are justtoo much to think about.

Sure, you know there’s somebenefit to salary sacrificing intoyour super fund but whathappens if that noise in the caris terminal? Where will you getthe money for that?

Besides, is fretting aboutbreaching the contributions capa good use of your time whenyou are currently having to usethe Visa to pay off theMastercard?

And what the hell arecontributions caps anyway?

The good news is you are notalone in your confusion. The

bad news is delaying decisionsabout your retirement,regardless of how far off itmight be, makes things moredifficult when you do finallydecide to tell the boss to sod offand take that caravan triparound Australia.

In the following pages TheWest Australian has explained,with the help of the FinancialPlanning Association, a few ofthe basics of personal finance.

Do your future self a favourand take a few moments to havea read. You might stumbleacross some information thatwill allow you to go on thecaravan trip sooner rather thanlater.

If only the car was workingproperly . . .

All too hard? Youare not alone

Secure your future now, saysThe West Australian’s groupbusiness editor Ben Harvey

Any advice contained in this publication is of a general nature only and does not take into account the objectives, fi nancial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters.

CBD

VINCENT

WESTERNSUBURBS

MELVILLE

STIRLING

JOONDALUP

FREMANTLE

MIDLAND

VICTORIA PARK

BASSENDEAN

CANNINGTON

Count is Australia’s largest network of accountant-based professional advisers, with around 300 fi rms nationwide. For over 30 years, we have supported our partners in providing quality fi nancial advice to Australians.

WHAT WE OFFERThe right adviser for you depends on your personal requirements. At Count we believe it’s essential you fi nd someone you are comfortable with and who you can trust. And someone who will provide you with professional advice that is based on your best interests.

Why choose a Count adviser?

• A Count adviser can help you protect and generate wealth• The peace of mind that comes from dealing with a professional• We’re working for you

Count advisers recommend investments and strategies based on their suitability to your specifi c needs. Each investment we recommend has been through our rigorous and independent research process.

A Count fi nancial adviser can help you afford your dreams

These Count advisers are also Certifi ed Financial Planners.

29-33 Queen Victoria Street

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9301 2200

MAP OUT YOUR FINANCIAL FUTURE

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Find the right adviser for you on www.count.com.au/investor/fi nd-an-adviser.html

ContentsWho’s best?Making sure you getthe right adviser 4Jargon bustingWords and fi gures you need to know 6Needs and wantsHow much super is really enough? 10Working longerA little more pain for a lot more gain 12Insurance What you need and when 18Going to God A to Z of estate planning 20Self-managed super What’s all the hype about? 22

August 25, 2014 SECURING YOUR FUTURE 3

that when these major eventshappen, you are financiallyprepared.

If you’ve ever wondered howfinancial advice can help you, orwant to see a planner but don’tknow where to start, weencourage you to visit the Askan Expert forum.

Another tool you may findvaluable is the Find a Plannerdirectory, which helps you find afinancial planner in your area.

You will find this directory atwww.fpa.com.au

educate Australians on howfinancial planning can helpmanage financial affairs andmeet life goals.

The first step in this process isensuring access to the rightadvice.

Traditionally, people go to see afinancial planner when they havea major life event, such asinheriting money, starting afamily, buying a home, orapproaching retirement.

We hope FP Week willencourage you to seek advice so

As chief executive of theFinancial PlanningAssociation of Australia

(FPA), I welcome you to join usand participate in the 14thannual Financial PlanningWeek.

This national initiative aims toeducate and empower you todiscover the positive differencethat professional advice canmake to your financial future.

This year’s FinancialPlanning Week will answeryour questions aboutimportant financial topicssuch as superannuation,insurance, debt andretirement.

We encourage you to visitthe Ask an Expert forumduring the week.

Check in with aqualified, professionalfinancial planner and askany burning questionsabout your financialposition.

The FPA works to

Get good advice nowfor a life less stressful

A message from FinancialPlanning Association ofAustralia chief Mark Rantall

FP Week runs from August 25 to August 31. You can access the Ask an Expert forum at fpa.com.au

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Call (08) 9421 8500 or visit

4 GETTING THE RIGHT ADVICE August 25, 2014

The team at The WestAustralian’s Your Moneypersonal finance section is

regularly asked one question.It’s not about asset allocation,

or how much super you cansalary sacrifice, or the cut-offpoint for receiving the agepension.

It’s this: Where can I find agood financial adviser?

What’s worrying is that manyof the people asking us fordirection on this point have anadviser or planner but they

either don’t trust them or don’tfeel they are getting value formoney. Unfortunately, finding agood financial adviser is harderthan finding a good doctor.

At least when you go lookingfor a new GP you know that alldoctors in WA need to beregistered to a board that hasrigorous standards. Not so forthe financial advice industry.

Michael Gething, WA regionalcommissioner with theAustralian Securities andInvestments Commission, hastold investors looking for a newadviser to remember that as the

client, they are in charge.“Remember, you’re effectively

interviewing planners for thejob of assisting you with yourfinances — it’s your money andyou have the power to select orreject a planner,” Mr Gethingsaid.

“Doing some homework firstis vital and you’ll find that bytaking that approach, many willbe weeded out even before thefirst interview.”

The good news is there are afew basic things you can do tominimise your chance of gettinglumped with a ratbag.

The eight steps tofinding a planner

If you need a painter or amechanic, there’s a goodchance you will ask friends andfamily for a recommendation.Don’t be shy in asking themwhether they have a financialadviser they are happy with.Just make sure the person theyrecommend has been providingadvice for more than a coupleof years — you don’t want afly-by-nighter. Ask youraccountant as well.

Don’t reinvent the wheel

1

Make sure a prospectiveplanner has clients similar toyou. Planners specialise, so ifyou are a public servant in your40s with kids at home and ahuge mortgage, don’t sign upwith someone who billsthemselves as an expert inself-funded retirees or smallbusiness people.

Determine who the planner really works for. Allroads tend to lead to Rome in the financial planning

industry — Rome being the Big Four banks. Don’t besurprised if the seemingly independent suburban planning outfityou walk into is actually a subsidiary of ANZ or NAB. There’snothing wrong with this — there are many planners who have linksto the big banks and deliver great service to their clients. But beaware there may be a bias to push you into a suite of productswhich are delivered by the parent company. Again, this is notnecessarily a bad thing, because these products are often the beston the market. But go in with your eyes open.

Transparency3

It wasn’t that long ago that you could jump on theinternet, fill out a questionnaire and walk away beingable to tell the world, without lying, that you were a qualifiedfinancial adviser. Things have tightened up a bit but ideally youradviser should have a commerce or business degree in addition toan industry qualification. A B.Com, B.Bus or B.Econ means theyshould know the law, accounting, economics and financialmathematics. Industry qualifications such as Dip FP, ASIA and DipFS indicate that the adviser has been taught and passed subjectsuniquely associated with financial planning. Full membership ofprofessional associations indicated by letters such as CPA, CFP,ASIA or ICA indicate that in addition to complying with the legalrequirements, they are bound by professional rules of conductwith serious penalties for breaches.

Qualifications 42Find common ground

■ Ben Harvey and Nick Bruining

GETTING THE RIGHT ADVICE 5August 25, 2014

The expression “trailing fees” has been draggedthrough the mud of late but don’t be paranoid ifyour adviser receives them. These are thefees that a planner receives from thebusiness offering the financialproducts (such as managed funds orinsurance) that you are signing upfor. It’s exactly how a mortgagebroker works. They go out and findthe best deal for you and you don’tpay for their services because theyget a clip from the bank they aretaking the mortgage with. It is acompletely acceptable way of doingbusiness, as long as the advice you are getting isnot influenced by the possibility of or size of thecommission. And make sure the clip isn’t too big.Anything more than 2 per cent should ring alarmbells. Depending on the complexity, a full financial

plan can cost between $3000 and $5000, andpossibly much more. If you don’t want to pay

upfront, then the trailing fee structure is aviable option. However, in some cases

the best financial advice won’t involveinvestment products. For example,

for many young families, the bestadvice might be to pay off debts,prepare a will and take out lifeinsurance. Usually the cheapest

option is through the employersuperannuation fund. In this instance,

a planner who only collectscommissions may provide biased advice. If

you don’t like the trailing fee method then find aplanner that is happy to charge either a flat fee orby the hour. Be aware that on top of these feesthey may still get the clip from the companiesbehind the products you are signing up for.

Show me the money

5Ask to see a sample plan prepared by the planner. Acomprehensive financial plan will run to many pages andshould contain discussion about areas such as yourobjectives, cash-flow, investments, insurances, estateplanning and taxation. Rather than simply genericinformation, it should analyse your specific situation inthese areas and, where deficient, providestrategies which set out the pros andcons in an objective way. Needless tosay, the plan must include detailedinformation about the costs ofimplementing and maintaining thestrategies and if applicable, the costsof changing investments.

Proof in black and white

7

Ask them how many clients they have, do they themselvesprepare the plans and will they be your ongoing adviser. Properfinancial planning requires continuing reviews. A review involvesmeetings to report on performance, re-examination of objectives,consideration of any legislative changes and to ascertain theappropriateness of the original strategies.

This takes time and if the adviser has thousands of clients, he orshe is unlikely to be able to provide such a service. Some advisers

will contract out planning work to third parties whoprepare plans based on the data collection

prepared by the adviser. Users of this approachargue that this ensures the plan is legallycompliant and is “up to date”, but opponentsmaintain that such plans tend to be “generic”

and usually don’t fully deal with the client’sneeds in all areas.

Is there someone else?

6

This is always overlooked. You will always look at the fees a GPcharges you but will likely be willing to pay a premium over thebulk-bill rate if you have a connection with the person across thedesk. If you feel comfortable with a potential adviser, if they comeacross as genuine, answer your questions in a straightforwardmanner and are upfront about how they get paid, then trust yourgut. If you are at an age where you feel you need a planner thenchances are you won’t be in your teens or early 20s. You haveprobably been around and can sense when something is off. If theplanner provides a good service he or she will be with you,offering advice, at critical parts of your life. They will see the good,bad and ugly sides of your life as birth, death, marriage anddivorce change the financial needs of your family.

Feel the love

8

August 25, 20146 MAKING SENSE OF THE JARGON

Account-based pension / 'kaunt be sd 'p n n/ n.,Also known as allocated pensions. When an eligible member commences a regular withdrawal from their superannuation, typically paid on a monthly basis.

Choice of fund /t o s v fvnd/ n.,Many employees are able to choose to which complying super fund their SG contributions must be directed by their employer. Choice of fund legislation requires a new eligible employee to be off ered choice of fund (by the employer providing them with a standard choice form).

Commonwealth Seniors Health Card /’kom nw l 'sinj rz h l kad/ n., The Commonwealth Seniors Health Card is available for people who have reached age pension age (ie, 65) but do not qualify for a part age pension. It entitles you to reduced cost medicines as well as some State-based concessions. It is not asset-tested, however you must have earned less than $80,000 as a couple or $50,000 as a single person as adjusted taxable income.

Concessional contributions /k n's n l kontr 'bju n/ n.,These are contributions made into superannuation by a member or on their behalf, such as through salary sacrifi ce,for which a tax deduction can be claimed. There is a limit of how much a member can contribute each year, such as $30,000 for under 49 year olds. The limits include SG, salary sacrifi ce and other mandate employer contributions.

Enduring power of attorney / n'djur 'pa v 't ni/ n.,An enduring power of attorney (EPoA) is a legal document which gives a person (the principal) the right to choose someone (the attorney) to have the power to manage their assets and fi nancial aff airs while they are alive. This power continues when the principal becomes of unsound mind. The document must be signed by the principal whilst they have the required legal capacity to give their attorney clear and concise instructions. A EPoA ceases when the principal dies at which point the executor named in the will then takes over the responsibilities of the estate.

Gifting provisions /ig ft pr 'v nz/ n.,For Centrelink purposes, gifting occurs when you give away assets or cash to another person and do not receive anything in return, or adequate consideration in the form of money, goods or services, and in particular to gain a social security advantage. For that reason, although you have given away your asset, Centrelink will still consider it yours and include the value in their calculations for any social security entitlements.

Health Care Card /h l k kad/ n., The Health Care Card entitles you to reduced cost medicines as well as a number of State-based concessions, such as reductions in property and water rates, reductions in energy bills, reduced fares on public transport and reduced motor vehicle registration. To be eligible, you must be receiving assistance from Centrelink in the form of social security benefi ts such as the age pension, Newstart or carer’s allowance.

Intestate / n't ste t/ n.,When a person dies without leaving a will, they are said to have died ‘intestate’. If you do not leave a will, your property will be distributed in a way laid down by the law. Each State’s law around intestate diff ers and all are complex.

Managed funds /'mæn d d fvndz/ n.,In a managed fund, your money is pooled with that of other investors. An investment manager then buys and sells investments in the form of shares, property trusts, term deposits or fi xed interest on your behalf. You are usually paid income or ’distributions’ periodically. The value of your investment will rise or fall with the value of the underlying assets. The investment manager may be called a ’fund manager’ or ’responsible entity’.

Preservation age /pr z 've n e d / n.,To gain access to your superannuation, you must meet a ‘condition of release’ (which is retire from full-time work) and reach preservation age. If you are turning 55 this year or next, you’ve reached the preservation age. From 2015 onwards, that age increases over time to 60.

Superannuation guarantee /sup rænju’e n gær n’ti/ n.,Superannuation Guarantee (SG) came into force on July 1, 1992, and requires employers to provide a minimum level of superannuation support for their employees, and commonly known as compulsory superannuation by employers. It is paid every quarter of the fi nancial year, an amount equal to 9.5 per cent of each employee’s ordinary time earnings (OTE) and paid to a complying super fund of your choice. This rate of 9.5 per cent is proposed to increase to 12 per cent by 2022.

Total and permanent disablement insurance /to tl ænd p m n nt n' ur ns/ n.,TPD is cover that may pay a lump sum if you are totally and permanently disabled. The textbook defi nition says that to qualify for this benefi t you have to have been unable to work for at least six months and deemed to be unable to ever continue in your pre-disability occupation or one for which you are reasonably suited by education, training or experience. Most superannuation funds have some level of cover included automatically. Look at your latest statement to fi nd out if you have TPD cover.

Transition to retirement /træn'z n tu r 'ta m nt/ n.,(TTR) On July 1, 2007, a new condition of release was introduced: ‘reaching preservation age’ without having retired from full-time work. This condition of release is also known as the ‘transition to retirement’ condition of release. There are no work or retirement tests related to this condition of release. A person may or may not be working and still access super under this condition of release. There are important cashing restrictions for this condition of release with the amount limited to a maximum of 10% of the account balance at the start of each fi nancial year.

$58,128  The average annual Australian budget required for a comfortable

lifestyle in retirement ($33,664 per year for a single)

$33,035  The maximum annual age pension for couples ($21,912 for singles)

$0 The amount of income tax payable on money from a private account-based pension

3 The number of years’ income you should hold in cash after retirement, to protect against market volatility

61.5 The average age at retirement for recent retirees

15 Retiring at age 60? A good rule of thumb is to have saved 15 times your annual required income. The

numbers for 55 and 65 are 17 and 13, respectively

$250 per fortnight The amount of employment income that would be

excluded from Centrelink’s income test (up to $6500 per year) under the work bonus

01/01/2015  The date retirees need to have started an account

based pension and applied for the age pension to qualify for the current more favourable income test assessment of their account-based pension

67 The age at which people born after January 1, 1957 can access the pension

$540 The amount the government will put into your super if your spouse earns less than

$10,400 and you put in $3000

$80,000  The upper combined annual taxable income threshold for a

couple to qualify for a Commonwealth Seniors Health Card ($50,000 per year for a single)

0% The percentage value of the family home included in the assets test for two years after

moving into aged care

100% The percentage value of the family home included in the assets test if sold after

moving into aged care

$35,000  Maximum amount that you can contribute to super on a tax-

concession basis if you are age 49 or more on June 30, 2014

75 Age to which you can contribute to superannuation, subject to work test being met after age 65

4% Minimum annual amount that must be withdrawn from a private allocated pension

under age 65

7% Minimum amount that must be drawn from a private allocated pension between ages 80 and 84

By the numbers

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Defi nitions Don’t know your deeming rate from your allocated pension? Insight Financial Partners director and authorised representative of Count Financial, Fran Hughes, explains the basic terms of personal fi nance

Thresholds and cutoff s: retirement planning is all about the numbers. ipac WA chief executive Patrick Canion explains a few important ones

What does it all mean?

August 25, 2014 BUDGETING BASICS 7

2014 WA WINNER

Managing the familybudget only has twocomponents.

What you earn and what youspend. It sounds simple, butthink about your own position.

If you were asked what youearn, most people in the space oftwo minutes could give a fairlyaccurate answer.

The subsequent question getsmany more unsure looks. Whatdo you spend?

My experience is that veryfew families actually know theanswer.

So when considering the basicfundamental of wealth creation,spending less than you earn, itmakes it quite difficult whenyou don’t know half theequation.Step 1: Know your fixed costsBefore we even get out of bedeach morning we have a fixeddaily cost. Rates, mortgage orrent, insurances, utilities. You

need to know what these are.Invest the time to work out whatyour fixed bills come to eachyear. Step 2: Stop using only one bankaccountOften people might have asavings account for their nextholiday that they put an amountof money into each pay. They doso because they don’t want tospend the holiday moneybuilding up in their mainaccount.

Why not expand that, havemultiple accounts that might befor groceries, for entertainment,holidays and importantly anaccount for bills or fixedexpenses that you put moneyinto regularly. In this age ofonline banking all of this can beset up relatively easily,potentially fee free andautomatically. Often you caneven customise and name youraccounts, further simplifying it. Step 3: Prioritise what is mostimportantIf you have just set up yourallocation and worked out whatyou earn doesn’t add up to whatyou spend (or want to spend),

then the bad news is there is nomagic pill. You have to work outwhat is a priority and what isnot. Is it the morning coffee, thepay-TV subscription or theFriday night takeaway? Workout what is most important toyour family and prioritise. Step 4: Don’t use credit cardsThe importance of spendingyour own money is paramountin running the budget. If theaccount hits zero then you knowyou are spending more thanbudgeted. You don’t get the samereminder with a credit card, thebank just lets you spend up tothe credit card limit, not yourcash flow limit. Step 5: Don’t waste the lump sumIf you follow the strategy ofmultiple accounts and a fixedallocation of expenses thenwhen a lump sum is received,such as a tax return, it isn’t“free spending money” it issimply additional cash flowwhich can now be directedtowards debt reduction orwealth creation. Step 6: Don’t give upIt takes a long time to change alifetime of expenditure habits.

Don’t give up after one or twomonths if it isn’t working. Onceyou are into a habit of amanaged cash flow plan, thestress of the daily budget doesalleviate and this enables you to

focus your energy on things farmore enjoyable.

David Sharpe is a certifiedfinancial planner and director ofGlobe Financial Planning

Before we go further . . . some basics■ David Sharpe

Types of entities MySuper or Retail or Wrap or Self-managed Defi ned-benefi t simple super industry super wholesale super super fund fund

Public sector or Legal structure All super funds are trusts with corporate or individual trustees large corporation funds.

Regulator APRA APRA APRA ATO

Investment options Lifecycle or single Limited Limited Unlimited diversifi ed (a few to a (a few few hundred) hundred)

Fees & costs Low Medium to high Medium High (e.g. admin/ (e.g. admin/member, (e.g. platform fee) (e.g. admin, audit, member fees) trustee or accounting, accounting, asset protections etc.) actuary etc.)

Fund managers’ Low – blended premix or multimanager fundsfee (MER) High – single manager funds The fees are generally taken out of the total pooled fund, may not appear on regular statements

Comments These are Government prescribed new, simple & cost eff ective super solutions for disengaged members

Generally less engaged less sophisticated members may fall into this category with or without fi nancial advice

These are generally suitable for sophisticated members with or without fi nancial advice

Generally suitable for investment savvy members or those who have specifi c estate planning needs

Benefi ts are payable on retirement or death based on an actuarial advice. Therefore, these are not investment linked member accounts

THE SUPERANNUATION INDUSTRY: A SNAPSHOT

Australian Super ‘stable’

option

Colonial SF Super

‘conservative’ option

Australian shares

World shares

Property

Bonds

Other

Cash

11% 17%

4%31%

13%

11%

28%

11%

5%

43%26%

August 25, 20148 BALANCED PORTFOLIO

Superannuation is meantto replace our workincome at retirement

and should last more than 40years.

So how much time do wespend understanding oursuper savings compared withthe time and effort we give tomaintaining our jobs?

For disengaged super fundmembers, the investmentportfolio generally becomes atrustee-selected defaultbalanced option.

A balanced option is adiversified, blended pre-mixportfolio.

Unfortunately, this optiontakes a one size fits all typeapproach which may not bein the best interests ofindividual retirement needs.

A balanced portfoliogenerally consists of five toeight different asset classesthat can be grouped intodefensive (cash/bond) andgrowth (shares/property)assets.

Different super funds(platforms) generally havedifferent combinations ofasset allocation in theirbalanced portfolio rangingfrom 25 per cent to 50 per centin defensive and 75 per centto 50 per cent in growth.

Therefore, a balancedportfolio with higherallocation in growth assetstends to perform better whenfinancial markets are in abull run and other way around in a bear market.

So, what could go wrongwith a “set and forget”default balanced portfolio?

Let’s assume a balancedportfolio with 30 per centdefensive and 70 per centgrowth assets invested inmanaged funds.

Currently the ReserveBank of Australia’s cash rateis 2.5 per cent.

Therefore, in the currentmarket conditions the 30 percent defensive part of theportfolio is likely to produceless or equal to inflation (2.5to 3 per cent) taking tax and

fees into account. The same portfolio with 70 per

cent growth assets, depending onthe market conditions, might losehalf of the portfolio value, as wasthe case during the globalfinancial crisis.

The pre-mix balanced portfoliosin a super fund generally are notdesigned to absorb shocks inmarket conditions. Super fundtrustees give the fund managersthe job to invest members’ pooledfunds in their blended portfolios,leaving members exposed tobumpy market conditions.

Therefore, the onus goes to theindividuals to take some control togrow and protect their retirementnest eggs.

Hasan Hazra is a financial plannerwith Next G Wealth

C

■ Hasan Hazra

When is a balancedoption really the rightone for you?

d

August 25, 2014 BALANCED PORTFOLIO 9

Determining their tolerance for risk was animportant first step in Paul and Sharon Shelton’sretirement plan.

The couple, in their mid-50s, had a typicallybroad range of concerns about their retirementyears when they approached Next G Wealthcertified financial planner Hasan Hazra in August2012.

Mr Shelton is a fly-in, fly-out miner earning agood salary and his wife is busy looking after theirthree children.

Their concern came down to the commonproblems of too many personal debts, tight cashflow and no investments outside superannuation.

They want to retire at 65 on the equivalent of$50,000 a year so over the past two years theyenacted the plan devised by Mr Hazra.

“A realistic cash flow budget was established anda cash surplus recognised and used prudently,” MrHazra said.

“The mortgage and other personal loans are nowconsolidated, with this non-deductible debtscheduled to be paid off within five to seven years.”

To protect the family, Mr Shelton took out lifeinsurance and the couple have drawn up wills.

His superannuation was rolled into a wholesalefund and a personalised investment strategy wasestablished.

The investment portfolio has returned 16 percent since its inception and it is projected the PortKennedy couple will be able to retire on $1.14 million in 10 years.

Case study: Paul and Sharon Shelton

Cash-flow positive: Paul and Sharon Shelton

■ Ben Harvey

SINGLE PERSON INCOME TESTMaximum rate $842.80Min pension paid $47.60Income threshold $160.00Income taper $0.50Income Pensionper fortnight rate pf160.00 842.80200.00 822.80250.00 797.80300.00 772.80350.00 747.80400.00 722.80450.00 697.80500.00 672.80550.00 647.80600.00 622.80650.00 597.80700.00 572.80750.00 547.80800.00 522.80850.00 497.80900.00 472.80950.00 447.801000.00 422.801050.00 397.801100.00 372.801150.00 347.801200.00 322.801250.00 297.801300.00 272.801350.00 247.801400.00 222.801450.00 197.801500.00 172.801550.00 147.801600.00 122.801650.00 97.801700.00 72.801750.00 47.601800.00 47.601846.00 0.00

SINGLE PERSON (HOMEOWNER)ASSETS TESTMaximum rate $842.80Min pension paid $47.60Asset threshold $202,000.00Asset taper/$1000 $1.50Assets Pension rate pf$202,000 $842.80$220,000 $815.80$240,000 $785.80$260,000 $755.80$280,000 $725.80$300,000 $695.80$320,000 $665.80$340,000 $635.80$360,000 $605.80$380,000 $575.80$400,000 $545.80$420,000 $515.80$440,000 $485.80$460,000 $455.80$480,000 $425.80$500,000 $395.80$520,000 $365.80$540,000 $335.80$560,000 $305.80$580,000 $275.80$600,000 $245.80$620,000 $215.80$640,000 $185.80$660,000 $155.80$680,000 $125.80$700,000 $95.80$720,000 $65.80$740,000 $47.60$760,000 $47.60$764,000 $0.00

YOUR FORTNIGHTLY CENTRELINK E

PROTECTING AND GROWING WEALTH FROM GENERATION TO...

August 25, 201410 HOW MUCH SUPER IS ENOUGH?

There has been a great dealof debate recently over theGovernment’s intention to

increase the age pensionthreshold from 65 to 70.

And speculation is rife that theage you can access your superwill also increase.

How much superannuationwill you need?

Well, if you die before you needmedical or aged care, are happyto work until you reach the agepension eligibility age and arehappy to live below the povertyline in retirement, then theanswer is none.

Now, before you rush to socialmedia to announce that I thinksuper is a waste of time, considerthe conditions I mentioned andask yourself: Am I prepared tolive on the $842.80 a fortnight asingle age pensioner receives?

So, having established that youreally do want superannuationsavings, how much is enough?

It is estimated that for a singleperson to enjoy a comfortableretirement, you will need about$42,000 per year duringretirement ($58,000 for couples).

This amount is the total sumrequired and does not includepensions or other benefits.

Here’s the good news: If yourassessable assets, investmentsand superannuation are going toprovide an income well belowthose amounts, chances are thatyou will be eligible for assistance.

Here’s more good news: Theage pension assets test has anumber of exempt and excludeditems, including your house.

And here’s some great news:You can also invest in anaccount-based pension, whichcurrently (it’s going to change onJanuary 1) allows you to earn aregular income after retirement

that is exempt from pensioneligibility assessment if undercertain Centrelink thresholds.

As a result, you will likelyreceive more governmentassistance in the form of the agepension.

This means to get that $42,000income you won’t necessarilyneed to come up with all of ityourself.

Here’s the bad news: Thatscenario means you will berelying on the

Government’s frequentlychanging timeframe for yourretirement, not your own.

The Government is changingthe rules because the countrycan’t afford to supplementunder-funded retirees for thelength of time they are living.And there is no guarantee that iflife expectancy continues toincrease a future governmentwon’t change the rules again.

If you plan to retire early, thesuperannuation preservation age(when you can access your super)is roughly 10 years below the agepension age.

So when the age pensionincreases to 70, so, too, will theeligibility age increase to 60 foryour superannuation.

Currently it sits at 55 for manypeople, but phases to 60 for thoseborn after June 30, 1964.

So you can (probably) retire at60 and you’ll need around $42,000a year to enjoy yourself. But howmany years should you plan for?

In 2011, the Australian Bureauof Statistics reported the residuallife expectancy (how many moreyears you can expect to live) for 65year olds was 19.1 years for menand 22 years for women.

That figure had increased forboth sexes by approximately twoyears over the previous decade.So if you are 55 years old now, in10 years time you can expect toneed savings for around 21 yearsif you are a man and 24 years ifyou are a woman.

To enjoy a comfortableretirement from age 65, men willneed at least $882,000 and womenwill need even more —$1,008,000.

Taking the average residualage of men and women, a couplewould need $1,305,000 for 22.5years of comfortable retirement.

How can you change yourfortunes?

By starting early. By adding a little extra to your

super each year, you can benefitfrom the lower tax rate(currently 15 per cent), as well asincrease the principal amountfaster, thereby increasing theamount of interest you will earnover the life of your fund.

If you have left things late andare in position to makeadditional payments, you cannow contribute up to $30,000pre-tax (concessional) a year(including your employer’scontributions) if you are under50 and $35,000 per annum if youare 50 or over.

You can also contribute up to$180,000 in after-tax(non-concessional) contributionsa year. Under-65s can combinethree years to make a $540,000lump sum payment (you willhave used up your contributionsfor the following two years inthat case).

Remember the key toretiring on your terms isthat your superannuation

is yours (even though you can’taccess it unless under extremehardship) and your otherinvestments are yours.

By taking an active interest inhelping your investments grow,you will be a lot less likely to beat the whim of whatevergovernment is in power andwhatever superannuationpolicies are in place by the timeyou retire.

Troy Macmillan is managing directorof The Wealth Designers

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COUPLE (HOMEOWNER) ASSETS TESTMaximum rate (ea) $635.30Min pension paid $35.90Asset threshold $286,500Asset taper/$ (ea) $0.75Assets Pension rate pf$286,500 $1,270.60$300,000 $1,250.35$325,000 $1,212.85$350,000 $1,175.35$375,000 $1,137.85$400,000 $1,100.35$425,000 $1,062.85$450,000 $1,025.35$475,000 $987.85$500,000 $950.35$525,000 $912.85$550,000 $875.35$575,000 $837.85$600,000 $800.35$625,000 $762.85$650,000 $725.35$675,000 $687.85$700,000 $650.35$725,000 $612.85$750,000 $575.35$775,000 $537.85$800,000 $500.35$825,000 $462.85$850,000 $425.35$875,000 $387.85$900,000 $350.35$950,000 $275.35$975,000 $237.85$1,000,000 $200.35$1,025,000 $162.85$1,050,000 $125.35$1,075,000 $87.85$1,100,000 $71.80$1,134,000 $0.00

COUPLE INCOME TESTMaximum rate (ea) $635.30Min pension paid $35.90Income threshold $284.00Income taper/$ $0.25Income Pensionper fortnight rate pf$284.00 $1,270.60$300.00 $1,262.60$350.00 $1,237.60$400.00 $1,212.60$450.00 $1,187.60$500.00 $1,162.60$550.00 $1,137.60$600.00 $1,112.60$650.00 $1,087.60$700.00 $1,062.60$750.00 $1,037.60$800.00 $1,012.60$850.00 $987.60$900.00 $962.60$950.00 $937.60$1,000.00 $912.60$1,100.00 $862.60$1,200.00 $812.60$1,300.00 $762.60$1,400.00 $712.60$1,500.00 $662.60$1,600.00 $612.60$1,700.00 $562.60$1,800.00 $512.60$1,900.00 $462.60$2,000.00 $412.60$2,100.00 $362.60$2,200.00 $312.60$2,300.00 $262.60$2,400.00 $212.60$2,500.00 $162.60$2,600.00 $112.60$2,650.00 $87.60$2,700.00 $71.80$2,750.00 $71.80$2,800.00 $71.80$2,825.00 $0.00

ENTITLEMENTS EFFECTIVE FROM MARCH 20, 2014

HOW MUCH SUPER IS ENOUGH? 11August 25, 2014

It’s the question most oftenasked of financial advisersand is often used as a

precursor to entice people toinvest in dodgy and outrightfraudulent investment schemes.

“How much money will I needto retire on?”

It’s fuelled by an industry thatwould have you think that anyless than a million dollars willhave you spending yourretirement picking through thediscards bin at your localsupermarket and lining upoutside the local op-shop forclothing.

What online retirementcalculators and some adviserschoose to ignore is that formany Australians retiring inthe next few years, the agepension will provide asignificant part of theirretirement income.Understanding how thisintegrates with our savings isthe key to a stress-free andlow-risk retirement.

Let’s assume we have a65-year-old home-owning couplewith $250,000 in super, $7000 inthe bank and a five-year-old carand contents which would cost$150,000 to replace.

We’ll also assume that thesuperannuation is convertedinto an account-based pensionwhich at 65, will require ourcouple to draw down 5 per cent,or $12,500 per year.

In Australia, the age pensionis a means-tested benefit. Inessence, the philosophy is that ifyou have the means to eitherfully or partly fund your ownretirement, you are compelled todo so. If you chose to hang on toyour inherited Eagle Bay beach

house then no problem, justdon’t expect society to pay youan age pension as well.

Under the rules, two meanstests are applied based on assetsand income and whichever testproduces the lowest age pensionis the one used.

Returning to our couple.Under a rule to be closed downto new retirees from January 1,the draw-down at a rate of 5 percent will produce no assessableincome for Centrelink’s incometest purposes. Under the incometest, they will be entitled to afull age pension. Were theincome to exceed the allowed$284 per fortnight (combinedand indexed), our couple wouldlose 50¢ for each dollar over.

To access the more generousrules you must be on an agedpension and have commencedan ABP before January 1. Notethat both boxes must be ticked.If you turn 65 after December 312014, you will miss out.

The asset test allows ahome-owning couple to hold$286,500 in assets before thepension starts to reduce at arate of $1.50 per $1000. In ourexample, the couple’s assets willinclude the $250,000 in the ABP,the $7000 in savings but thevalue of contents and car is notthe replacement value but thescrap value.

In fact, Centrelink are likelyto accept a value of $20,000 intotal. So, our total assets of$277,000 are well under thethreshold. Our couple istherefore entitled to a fullpension of $33,035 plus the ABPincome of $12,500 or a combined$45,535 per year. Add to that themoney saved on medicine, rates,power and water and you havean income that roughly equatesto $1.2 million in a bank earninga whisker under 4 per cent.

Nick Bruining is a WA financial adviser

. . . and why youshouldn’t panic

cash flow to secure a comfortable andpossibly early retirement.

His super funds were consolidated and anoutside-super investment strategy devisedwhich saw Mr Clifton’s non-deductiblemortgage debt paid off in four years.

Mr Clifton’s home equity is used for atax-effective investment portfolio. The homeequity loan is to be paid off in four years —ensuring he can retire debt free.

He has built 40 per cent equity in aninvestment portfolio of shares and managedfunds worth several hundred thousanddollars. The deductability means he also getsa healthy tax return each year.

It is projected that at 65 Mr Clifton willhave a retirement asset base of $2.06 million,putting him in a comfortable position.

With people changing jobs more often thanthey used to, many workers have multiplesuperannuation accounts.

Consolidating them into one account toavoid unnecessary fees is an importantchange and one which Terry Clifton realisedhe needed to do.

Many workers in the mining sector changejobs regularly and if they do not nominate aspecific superannuation fund for an employerto pay into, their compulsory contribution canbe spread across several funds.

Mr Clifton, a fly-in, fly-out mining worker inhis 40s from Huntingdale, approached toNext G Wealth certified financial plannerHasan Hazra to make the most of his good

The benefits of consolidation■ Ben Harvey

really enough? There’s no doubt that the Australianretirement income system is a confusingmish mash of rules and regulations.

The sad reality is that unless you knowyour way around the system, you willalmost always unwittingly, mess somethingup. In many cases, this results in gettingless than you are entitled to.

Probably the greatest area of confusion isCentrelink’s income test and how income iscalculated for Centrelink benefit puposes.

It bears almost no similarity to taxableincome.

Centrelink will include gross earningsfrom employment. If you are over AgePension age and working for an employer,the first $250 per fortnight of this income isdisregarded.

Net rental receipts from property areincluded, which means gross rent, lessexpenses like interest, rates and fees.

All bank accounts, shares, managedfunds, unrestricted accumulationsuperannuation benefits (if over pensionage), cash and bullion are pooled togetherand are deemed to be earning a notionalrate of interest.

For singles, the first $48,000 is deemedto be earning 2 per cent per annum. Forcouples, this limit is $79,600 and in bothcases, financial assets above the thresholdsare deemed to be earning 3.5 per cent.

This amount is divided by 26 and appliedagainst the income test of $160 perfortnight for singles and $284 for couples.Income over these limits reduces the totalpension by 50¢ per dollar.

Actual income like interest or dividends iscompletely disregarded.

ABPs have a unique method ofcalculating income.

The initial investment value is divided bythe Australian Bureau of Statistics lifeexpectancy at the time the pension iscommenced and this figure is deductedfrom the actual payment received.

In many cases, income from the ABP isignored. From January 1, new ABPs orpeople reaching pension age after that datewill simply have the ABP value included indeeming.

■ Nick Bruining

s ■ Nick Bruining

Like many West Australians, former policeofficer Clive Walker wondered how muchbetter off he would be working longercompared with retiring right now.

Mr Walker, 64, has a GESB Gold Statesuperannuation account and he and retiredwife Janet have a mortgage.

HPH Solutions financial planner RandallStout and Chris Speijers, from InfocusSecurities, looked at the Leeming pair’sfinances and devised a range a strategies.

They found that under currentarrangements their savings would last only 19years if they lived on $55,000 a year.

With a few other changes, delayingretirement by one year would see theirsavings last 23 years and working two yearsextra stretched their nest egg to 25 years.

The tweaks to their strategy included: � Using an offset account linked to hiscurrent mortgage debt to save $1600 ayear in interest rather than earn a lowrate on his savings that is taxable� Mapping retirement cash flow and taxposition to determine that retiring nowwould see their savings only last 19 years� Starting a tax-free pension from superas Mr Walker was over 60� Salary sacrificing heavily to Mr Walker’sWest State super fund

� Using a transition-to-retirement modelto save $16,000 in tax� Utilising the West State super fund’sdifferent concession limits only availableto WA Government public servants� Ensuring the couple qualified for theCommonwealth Seniors Health Care card

“Clive is taking on a higher degree ofrisk with his default investment mix,” MrStout said. “We had an honestconversation about how much volatilityhe can truly handle with his savings.”

Case study: Clive and Janet Walker

Janet and Clive Walker

GENERATION...

August 25, 201412 KEEP WORKING

Working longer thaninitially planned canprovide more certainty,

security and flexibility inretirement.

Take our hypothetical coupleJohn and Jenny, for example,who plan to retire at age 60.

They hope to generate anincome of around $53,500 a yearafter tax in retirement.

If John and Jenny reach theirrespective life expectancy, 83 forJohn and 86 for Jenny, they

would more than likely outlivetheir retirement nest egg. Thisassumes their super fundgenerates an after-fee return of 6per cent a year and an inflationrate of 3 per cent a year.

Centrelink age pensionentitlements have not beenincluded for this analysis.

The life expectancy figuresare based on averages and Johnand Jenny would be wise to planfor life beyond Jenny’s 86thbirthday. To provide a greaterprobability of reaching theirretirement goals, John decidesto work part-time from 60 to 65.

He works three days a weekand earns $31,200 a year. Byworking part-time for an

additional five years, John andJenny increase the likelihood ofmeeting their retirementincome objectives.

Their super balance isestimated to be around $184,000more at age 65. Bysupplementing their superpension (from age 60) withpart-time work, John and Jennyretire with a greater balance.

The bigger balance generatesmore income and allows them tobetter cope with the volatility ofinvestment markets and dealwith an economic environmentin which cash rates remain low.

Matt McCarney is executive directorat Vantage Wealth Management

■ Matt McCarney

Benefits of a bit more graft

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Superannuation balance over time if a couple stops working at 60 and lives on $53,500 a year

Superannuation balance over time if one partner works part-time until 65

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Super balance (LHS) Living costs adjusted for infl ation (RHS)■ Ben Harvey

Age shall not weary him: Working isn’t harming Rupert Murdoch.

You should know Blueprint Planning Pty Ltd ABN 78 097 264 554 trading as Blueprint Wealth is a Corporate

Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208

327 Australian Financial Services Licence 232706 Australian Credit Licence 232706. This advertisement contains

general information only. It does not take into account your objectives, fi nancial situation or needs. Please

consider the appropriateness of the information in light of your personal circumstances.

Your retirement may last longer than your savings.

Do you have aplan?

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Blueprint Wealth is committed to helping you build

your plan to fi nancial freedom.

Contact us today to book a free initial consultation with a Blueprint Wealth Financial Advisor.

1/23 Richardson Street, South Perth, WA 6151

P: (08) 9423 0300

E: help@bpwealth.com.au

www.bpwealth.com.au

ACCOUNT-BASED PENSIONS 13August 25, 2014

With flexible investmentchoice and tax-effectivepayments,

account–based pensions canplay an important role inaccessing your super nest egg tofund your retirement.

Today’s ABPs typically allowaccounts to be monitored onlineand allow you to see when thenext payment is due, how yourassets are performing and howoften your superannuationprovider credits investmentreturns to your account.

To counter the impact ofturbulent markets, you can evenpurchase insurance to mitigatesome of the dips in asset valuesand therefore provide a morecertain future. This may beimportant when investing inmarkets during the initial years,to prevent a poor sequencing ofreturns. These insurance-basedoptions come at an extra cost,but can guard against losses.

You can invest in familiaroptions such as cash or fixed

interest (bonds), Australian orinternational shares andproperty and alternative assets.

Once established, the ABPwill pay you a regular income,based on government-mandatedaged based minimum limits.

One advantage in keepingyour retirement wealth in anABP is that any income andcapital gains derived by theassets used to generate yourpension income will becompletely tax free. And, afterthe age of 60, the income youreceive from the ABP is freefrom any personal income tax.

What happens if I die with moneyin my ABP? Couples in retirement cangenerally nominate each otherto continue receiving theincome from the deceasedspouses’ ABP. Alternatively, youcan nominate anotherdependant to receive anyremaining balance of your ABP.

You can also have the fundsdirected to your estateaccording to your will.

Change is coming The government has recentlymade some reforms to the

effectiveness of ABPs over othertypes of retirement incomewhen it comes to claimingbenefits such as the Agepension. From January 1, theaccount balance of your ABPwill generally be deemed underthe Centrelink income test.

However, certain establishedABPs can be grandfathered if agovernment benefit is beingreceived before January 1.

How will the reform affect agedpensioners?People with a grandfatheredABP will continue to have a“return of capital” portion oftheir income paymentsexempted under Centrelink’sincome test (called the“non-assessable portion” orNAP).

For ABPs established afterJanuary 1, or new applicationsfor the age pension (from thisdate ) by people with an existingABP, the deeming rules willapply. Currently, the deemingthresholds are $48,000 forsingles, $79,600 for pensionercouples and $39,800 for membersof “allowee” couples. Thedeeming rate is 2 per cent a yearfor amounts below the

thresholds and 3.5 per centabove the thresholds.

Income costs of reformWhile deeming rates arerelatively low, a non-homeowning couple with an ABP of$300,000 (ignoring other assets)will see an annual reduction ofup to $961 in age pensionpayments.

Should the lower deeming raterise to levels such as 5 per cent,the annual reduction in agepension payments to thenon-home owning couple couldbe as high as $5,461 annually.

By having the account balanceof your ABP deemed, these“losses” in age pension incomesare compounded significantlyconsidering the average lifeexpectancy at 65 is 18 years for amale and 22 years for a female.

A sting for couplesMembers of a couple aregenerally able to nominate eachother as their reversionarybeneficiary.

So, upon the death of apartner of a couple,grandfathering of an ABP canbe extended to ensure that anexisting ABP can be received by

the remaining partner underthe same Centrelink rules –provided they are in receipt ofan income support paymentfrom Centrelink.

However, there is a potentialsting because, if the reversion isnot set up correctly in thebeginning, the ABPgrandfathering will not beextended.

There’s complexity, and cost ifyou don’t consider theimportance of advice. The costof not being eligible for theCentrelink age pension is muchhigher than the cost of advice.

Damien Quirk is an authorisedrepresentative of AMP FinancialPlanning Pty Ltd and a financialadviser with Blueprint Wealth

The tax magic of account-based pensions

■ Damien QuirkUnder 65 4%65-74 5%75-79 6%80-84 7%85-89 9%90-94 11%95 or over 14%

Minimum drawdown of your account-based pension by age

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...TO GENERATION.

Like many West Australians in their late 50s,Bayswater couple Michael and Wendy Deaneare thinking about their retirement.

And like many West Australians, their nestegg is a little shy of where it should be forthem to stop work sometime in the next fewyears.

Mr Deane, 59, is an architecturaldraughtsman who runs his own company. Heexpects to semi-retire in about six years.

His 53-year-old wife works full-time as ateacher and wants to start teaching parttime when she is 65.

With their home owned outright and aninvestment property, the Deanes had

options when Vantage Wealth Managementreviewed their plans.

Vantage executive director MatthewMcCarney recommended they both stretchout their working days as long as they couldto bolster their nest egg.

And he tweaked their strategy to ensurethey got maximum bang for theirsuperannuation buck.

By bumping up her annual salarysacrificing to superannuation to $35,000, amove which saves $5752 a year in tax, MrsDeane will be able to grow her super fund.

Implementing a transition-to-retirementincome stream, commonly known as aworking pension, Mr Deane will save $17,973in tax over the next six years.

August 25, 201414 FIXED INCOME

Investors in retirementneed to be moreprotective of their

capital. They simplycannot afford the sameamount of risk in theirportfolios as youngerinvestors who are stillemployed.

Unfortunately, manyretirees continue to “runwith the bulls” and investhigh percentages of theirportfolio in growth assetswhere income and pricescan fluctuate.

Investors in retirementneed to be able to plantheir lives and to do thatthey need certainty ofincome. They needlow-risk investments withsalary-like cash flows sothey can pay bills and livethe way they’ve beenaccustomed to prior toretirement.

Bonds provide thecertainty that retireesneed.

There are three differenttypes of bonds that can be

used in portfolios to suitdifferent economicconditions but I wouldsuggest having anallocation to all three toprotect your portfolio nomatter what happens tointerest rates.

Investors in fixed ratebonds know upfront thereturns they can expectover the life of the bond.These bonds pay halfyearly interest paymentsand are very protective ina declining interest rateenvironment.

Income for floating rateand inflation linked bondsvaries as the bonds arelinked to the bank billswap rate and inflation,respectively. So if investorsthink either interest ratesor inflation will rise, thenthese bonds would suittheir portfolios. Bothbonds pay interestquarterly.

Investors who need acertain minimumquarterly or monthlyincome can devise aportfolio to suit theirneeds.

To demonstrate, if weassume an investor invests$251,030 in a bond portfolio

with five bonds, they canmanipulate the choicesthey make so that thebonds provide a steady,consistent cash flow.

The table on this pageshows a sample portfolioand the projected cash flowit will produce for the nextyear.

I’ve purposely investedin bonds to provide asmooth income of around$3,500 per quarter todemonstrate how thechoices of direct investingcan benefit investors.

The first bond to mature

in the portfolio is theNational WealthManagement subordinateddebt, which matures in2016 when your cash flowis boosted by $50,000, atwhich time you maychoose to reinvest inanother bond.

Bank of Queenslandthen matures in 2017, G8Education in 2019 andStockland and SydneyAirport in 2020. Totalprojected cash flow foryour $251,030 investmentover the next seven yearswould be $337,912.

These bonds are notlisted on the AustralianSecurities Exchange. Theyare only available throughthe over-the-counter bondmarket.

The bond market inAustralia is valued at $1trillion and is part of ahuge global market.

To be able to buy thesebonds you need to have arelationship with a bondbroker or dealer such asFIIG Securities. At FIIG weenable access to the bondmarket for a minimumupfront investment of

$50,000 (bonds can bepurchased from $10,000 perbond).

Opening an account iseasy and can even be doneonline, but we have adedicated team here inPerth to assist you alongthe way.

Investing in growthassets has its rewards buta fixed-income portfoliothat provides knownreturns provides a lot ofcertainty for your future.

Simon Lyons is a directorFIIG Securities

■ Simon Lyons

Issuer Bond type Projected cash fl ows Total 4Q14 1Q15 2Q15 3Q15 *Bank of Queensland Floating $876 $876 $876 $876 $3,504G8 Education Fixed $1,913 $1,913 $3,826National Wealth Management Floating $408 $408 $408 $408 $1,632Stockland Fixed $2,079 $2,079 $4,158Sydney Airport Infl ation linked $291 $293 $294 $296 $1,174Total $3,654 $3,490 $3,657 $3,493 $14,294 Source: FIIG Securities Note: The Sydney Airport infl ation linked bond assumes infl ation is constant at the RBA target mid-point of 2.5% *Wholesale investors only Cashfl ows for fl oating rate and infl ation linked bonds accurate as at August 14, 2014 but subject to change

STABLE RETURNS

Bonds: a licence for stability

Case study: Michael and Wendy Deane

Sacrifice: Wendy Deane would benefit from salary sacrificing.

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August 25, 2014 ANNUITIES 15

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If you think the age pensionwill be enough to live on formost of your retirement, stop

reading now. If you have some super or

investments and want morethan just the pension, take fiveminutes to think about howyou’re going to achieve that.

It’s not easy.After years of forced saving

into your super fund, when youretire you’re left with not only abig sum of money.

You’re also left with a bigproblem.

How do I make my money last

as long as me? How do Iguarantee my lifestyle for thenext 20 or 30 years?

A good starting point is youreligibility for at least somegovernment age pension.

About 80 per cent of peopleaged 65 or older receive at leasta part payment.

In terms of your investments,shares can be great butdividends and capital gainsaren’t certain and losses are areal possibility.

Term deposits are safe, buttheir interest rates can be low soexpose you to inflation.

Safe-sounding investmentssuch as higher-yielding bondslook good but are more complex,and aren’t guaranteed.

If you think this isn’t a verysatisfactory situation, you’re

not alone. A recent governmentinquiry found that the mostpopular retirement product, theaccount-based pension, fails tosolve retirees’ main problem ofsecuring reliable income for therest of their lives.

It was also interested inannuities, which act like a paycheque in retirement over eitherfixed terms (up to 50 years) orfor your entire life.

They pay interest and theregular payments can be madeto rise with inflation, if youchoose.

Annuities are much saferthan shares and high-yieldingbonds because they can only beissued by government-regulatedlife insurance companies, whoseshareholders have invested theirmoney to protect yours.

With some annuities, you oryour estate can access yourcapital for the first 15 years andthe life company will pay 100 percent of it back at year 15, if youdecide to cancel.

Annuities can also helpsecure higher age pensionpayments and when the timeeventually comes, lower agedcare costs.

Annuities are often used withaccount-based pensions, asshown in the following examplecase study of David and Susan.

They are both 65, own theirhome, have $400,000 in super andwant $50,000 a year to live on.While they don’t know how longthey’ll live, they’ve done someresearch and discovered thatthey should plan for at least 25years in retirement, although

there’s a good chance either orboth of them will live longerthan that. They split their super50/50 into growth assets (sharesin an account-based pension)and secure assets (a term and alifetime annuity). They’reentitled to 87 per cent of the agepension, or $28,609 a year.

All income is tax-free.This plan should deliver

$52,809 of income in their firstyear of retirement, growing tomore than $87,000 when aged 90.

Importantly, the guaranteedlifetime part of their income isnearly $31,000, climbing to$55,000 when they’re 90.

That’s what I call a securefuture.

Brendan Candy is WA State manager,Challenger Limited

Locking inreturns withannuities

Strategy Investment Amount Infl ation Amount invested Income in Infl ation-adjusted type invested indexed as a % of strategy fi rst year (2014) income in 2035Growth Account- $200,000 No 50% $13115 $22,028 based pensionDefensive Term annuity - $120,000 Yes 30% $6328 $10,628 indexedDefensive Lifetime annuity $80,000 Partial 20% $4037 $6780 – part indexed N/A Age Pension - N/A Yes 0 $28,609 $48,051 indexedTOTAL $52,089 $87,488

HUNTING CERTAINTY

■ Brendan Candy

Next G Wealth Pty LtdAFSL & ACL 376420 ABN 39 145 313 935 8/3 Lawrence Ave WEST PERTH WA 6005 | P: 08 9226 3639 | E: admin@nextgwealth.com.au

5. Progressive wealth & tax planning

6. Pre-retirement strategy

7. Retirement income strategy

Choices

4. Periodic reviews to keep finances on track

3. Wealth creation & tax strategy

2. Plan to pay-off all debts prior to retirement

1. Manage mortgage/banking in a planned way

Budget &Cashflow Analysis

Superannuation Will & Estate

Home mortgage& debt analyses

Personal & Family Lifestyle Protection

Emergency Fund

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© Copyright Next G Wealth Pty Ltd.

ALL WORKING ADULTS

MUST HAVEA WEALTH STRATEGY.IF NOT, LIKELYCONSEQUENCE IS ‘RETIRE POORER’.

ACHIEVE FINANCIAL FREEDOM with careful professional planning

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It’s never too early.., it’s never too late

When you retireand start livingoff your

investments, thingschange.

A good long-termaverage return is notgood enough. When youreceive these returns ismore important than howbig they are.

For example, if youhave very bad returns inthe early years andconsequently run downyour capital, your endresult will be much worsethan if you have somevery good returns in theearly years, followed by arun of negatives. Theearly good returns havebuilt up a buffer to absorbthe later bad returns,unlike in the case ofhaving the poor resultsearly on. This applieseven though the averagereturn throughout theperiod may be the same inboth instances.

This has been labelledsequencing risk.

To look into this, wecommissioned DeltaResearch and Advisory tobuild a model thatenables us to comparedifferent portfolios withdifferent start dates, since1969.

What we found was thataccount balance variedgreatly, depending on theperiod in question andthe make-up of theportfolio. The maincontributor was thedifferent financialconditions that existed inthe different periods,particularly the differentlevels of inflation andinterest rates, anddifferent stock marketperformances (includingdividends).

The bar chart aboveshows the amount ofcapital left at the end ofthe period, expressed as amultiple of the original,after drawing income of 5per cent.

The results:Portfolios starting in thelate 1960s or early 1970sexperienced the worstkind of sequencing risk —terrible returns in theearly years. Anybody whoinvested totally in sharessaw their money gone by1984 (if they started in

1969) or 1985 (if theystarted in 1970).

People who started inthe mid-1970s onwardhave seen their realincome maintained andthe real value of theircapital rise substantially.In some cases theircapital has risen tobetween eight and 10times its original value.

People who invested inthe mid-80s have seentheir account valuesimpacted by the globalfinancial crisis but theystill show a healthy rise.This is an example of theother side of sequencingrisk — big falls after a

series of good returnsthat have built up a bufferto absorb the impact ofthe falls, compared withserious falls at the startcausing massive erosionof initial capital.

Somebody who retiredin 1969 would have donebest by having all theirfunds in cash, whileshares were the bestperformer for somebodyretiring in 1988. Forsomebody retiring in2007, it didn’t matter.

Why the big difference?The period from 1969 wasnotable for high inflation,volatile interest rates and

Timing key 1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

HOW

Cash Shares % of original left 1/1/2014

0% 100% 75%

20% 80% 76%

40% 60% 78%

60% 40% 79%

80% 20% 80%

100% 0% 81%

End valueAt start % of original remaining at endCash Shares 1969 start 1988 start

0% 100% Nil 380%

20% 80% Nil 320%

40% 60% 40% 270%

60% 40% 60% 210%

80% 20% 72% 150%

100% 0% 84% 100%Source : Delta Research & Advisory Pty Ltd

ACCOUNT BALANCE AT 1/1/2014 FOR INVESTMENTS BEGINNING 1/1/2007

ACCOUNT VALUES FOR INVESTMENTS STARTING IN 1969 AND 1988

EFFECT OF FINANCIAL CRASHES

ASSMont• Aust• AustAustra• Cash• Franfranki• Divid• No t

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16 TIMING YOUR INVESTING

■ John Cameron

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1969-1994

1970-1995

1971-1996

1972-1997

1973-1998

1974-1999

1975-2000

1976-2001

1977-2002

1978-2003

1979-2004

1980-2005

1981-2006

1982-2007

1983-2008

1984-2009

1985-2010

1986-2011

1987-2012

1988-2013

1989-2014

End value multiple of original

100% cash 50/50 100% equities

HOW MUCH YOU WOULD HAVE AFTER 25 YEARS DRAWING 5 PER CENT

0 2 4 6 8 10

ASSUMPTIONSMonthly Returns (31/12/1969 to 28/2/2014). • Australian Shares Growth = MSCI Australian Shares Index PR• Australian Shares Income = MSCI Australian GR – MSCI Australian PR• Cash Returns = 90 day Bank Bill rate• Franking Credits – user input (assume 30% tax + 70% franking every year including before 1987)• Dividends, Franking Credits, Interest paid to cash account• No transaction costs. All income is tax free and franking

credits received• Drawdown taken from cash until cash balance is zero, then from sale of shares• Minimum draw is adjusted for infl ation• The required income is $50,000 pa (or 5% pa) adjusted for infl ation• No rebalancing• Tables and charts that are in “real” dollars (i.e. after infl ation), are adjusted for infl ation from the start year.

regulatory change. Bycontrast, the period from1988 was characterised byimproving conditions. Itwas after the 1987 crashand inflation began tofall. Interest rates stayedhigh until 1992 but therewas much greater overallstability than in theprevious period.

The result is for thefirst period (starting in1969), cash has been byfar the better strategy,whereas it is shares forthe second period(starting in 1988).

The GFCNow let’s look at the

situation of somebodywho started theirretirement investment inJanuary 2007. The tablebelow shows very littledifference between cashand shares.

This was because of thevery low interest ratesthat applied for much ofthat time. And inflationwas low. For most of 2009bank bill rates were about3 per cent, compared with6 per cent to 7 per cent in2007. In an environmentof 3 per cent interestrates, if all your money isin cash there will not beenough interest to coveryour drawings and most

of the drawings will comefrom capital. You will rundown your cash balancevery quickly.

By contrast, sharescontinued to pay gooddividends, especially aftertaking tax credits intoaccount. Althoughdividends fell, they didnot fall by anywhere nearas much as interest rates.Although shares fell invalue, the higherdividends (compared withinterest rates) helpedoffset some of this fall.

John Cameron is the principalof Black Swan Event FinancialPlanning

Geraldton Greenough Financial Services provide high-quality professional advice to ensure your savings last a lifetime.

Specialising in Superannuation & Retirement Planning Strategies.

We are based in the Mid-West and have state-wide knowledge of fi nancial issues aff ecting people living in regional areas.

130 Augustus Street, Geraldton WA 6530P: 08 9964 2522 E: enquiries@ggfs.com.au

need help with yourfi nancial future?

Beachcroft Holdings Pty Ltd t/a Geraldton Greenough Financial Services is a Corporate Representative of

Wealthsure Pty Ltd ABN: 93 097 405 108 AFSL:238030

Got all the facts?The world of financial markets, institutions and legislation is constantly changing and this makes it hard to know whether you’re still well placed to meet your financial and lifestyle goals.

We empower you.

Our Second Opinion Service offers you an objective, unbiased review in the following areas:

Call or email us today to schedule a meeting9381 4091 | Paul.black@westernpacifi c.com.au

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Professional Financial & Credit — Advice, Service & ValueScheos Investments Pty Ltd

Paul J. PeosB.Ec FFIN AFPA Managing Director

Established 1982 — ABN: 23 009 037 84358 Colin Street, West PerthOffi ce: (08) 9481 0011 — Mob: 0412613804 paul@justfi nancial.com.auAustralian Credit Lic No. 318681 — Authorised Representative No. 417715 of Just Financial Pty Ltd ABN 97 154 597 681 Australian Financial Services License No. 414823

2441624πRCTT250814

. PeosFFIN AFPAing Director

4

Phone: (08) 9322 7818 Email: perth@blackswanevent.com.au

Web: www.blackswanevent.com.au

11th Floor, BGC Building, 28 The Esplanade, PERTH WA

Black Swan Event Financial Planning is a Corporate Authorised Representative of Paragem Pty. Ltd. (AFSL 297276)

Principal John Cameron

is one of the industry’s

most respected,

thoughtful and

experienced advisers.

How to invest a lump sum If you receive a lump sum, whether it is superannuation, a redundancy

payment, an inheritance, or accumulated funds, how you invest it can have a big

impact on your future. This is especially true in the case of retirement.

That is why Black Swan Event Financial Planning has researched how well a range

of investment strategies has performed since 1969, while drawing an income.

The results are revealing. Depending on when you retired, you would have got the

best results by putting everything into shares, or everything into cash, or some

mixture of cash and shares.

Economic conditions and fl exibility are important.

For a copy of the research study, phone

Black Swan Event Financial Planning on

9322 7818 and we’ll post you a copy of

the research for free (limited numbers).

You can also email or write.

to results August 25, 2014

STEPPED PREMIUM LEVEL PREMIUM Life: $250,000 Trauma: $150,000 Income Protection Life: $250,000 Trauma: $150,000 Income Protection TPD: $250,000 $5,000 p/mth TPD: $250,000 $5,000 p/mthMale, 25 $13 p/mth $25 p/mth $29 p/mth $30 p/mth $35 p/mth $34 p/mthFemale, 25 $8 p/mth $29 p/mth $32 p/mth $26 p/mth $39 p/mth $42 p/mth

Life: $1,000,000 Trauma: $250,000 Income Protection Life: $1,000,000 Trauma: $250,000 Income Protection TPD: $1,000,000 $5,000 p/mth TPD: $1,000,000 $5,000 p/mthMale, 35 $65 p/mth $45 p/mth $32 p/mth $130 p/mth $95 p/mth $48 p/mthFemale, 35 $62 p/mth $54 p/mth $41 p/mth $110 p/mth $92 p/mth $68 p/mth

1. YOUNG AND FREE

2. STARTING A FAMILY

“I don’t know how I would have copedhaving to worry about money on top ofeverything else. It would have beenunthinkable.”

HPH Solutions financial planner RandallStout, who was Asha’s daughter’s adviser,was charged with looking after Asha’s affairs.

Mr Stout’s job was made easier thanks toPravin’s insurance payout.

Asha is debt-free and financially secure. Mr Stout has ensured Asha’s self-managed

super fund has insurance.And she has a new will with provision for

an enduring power of attorney and enduringpower of guardianship.

A valuable legacy to a life’s work

n

With life claims paid toAustralians last yearexceeding $5 billion for

the first time, equivalent tomore than $13.6 million paidevery day, life insurance isrightly becoming a commontopic for more Australians.However, many families do nothave adequate levels ofinsurance. Before we getstarted, let’s look at the differenttypes of personal insurancecover available.Life insurance is fairly black andwhite; if your heart stopsbeating, it generally pays out.Many policies also now have aterminal illness clause allowingfor the insurance to be paid outearly when you are diagnosedwith less than 12 months to live. TPD insurance provides coverwhere you, because of illness orinjury, are reasonably unlikelyto work again. A claim here isoccupationally assessed (ie, it isnot based on the illness orcondition you have, but based onyour ability to work). There aredifferent types of TPD cover soseeking advice is crucial here. Trauma insurance (sometimesreferred to as critical illness orliving insurance) pays out if theinsured is diagnosed with alisted medical condition. Quiteoften it is a requirement that theinsured survives for a minimumperiod (eg, 14 days)post-diagnosis. This insurancehas evolved over time, withsome policies now covering 40plus different medicalconditions, and providingpartial claims for less severeevents. Unlike TPD, a claim isassessed based on the medicaldiagnosis, not your ability towork. Income protection, as the namesuggests, is designed to pay youa replacement income while youare unable to work because ofillness or injury. Generally,

insurers will allow you to coverup to 75 per cent of your currentincome. You select a waitingperiod (time off work before aclaim commences) and amaximum benefit period(maximum length of time aclaim would be paid).

So, how do we make sure wehave adequate levels ofinsurance cover and fit

these into the family budget?There is no “one size fits all”model for personal insurance.Everyone is different. However,we set out below four stages inthe insurance “life cycle”: Youngand Free, Starting a Family,Children Getting Older, and I’mGetting Older. Young and Free. Best categorisedas someone without financialdependants, often having littleor no debt and trying to build acareer. A good starting point isprotecting your income. Yourfinancial future rests on youbeing able to get out of bed andearn an income.

Life insurance may not beoverly important just yet if youhave no debt or financialdependants, but often a baselevel of “lump sum” insurancesuch as Life, TPD and Traumainsurance is appropriate.

A “level” premium (paying alittle more in the early years ofcover, for the premium toremain relatively level overtime) can make sense, as it willoften be an insurance need rightthrough to retirement (whenpremiums can start to becomeexpensive).

Let’s consider Joe and Sarahwho are “young and free” (25years old), both earning $80,000and their paths haven’t crossedyet. They want to put in place abase level of Life, TPD andTrauma cover as well as someIncome Protection. Table 1 is anexample of the sort of premiumsthat may be available.Starting a Family

Often meeting the rightperson, settling down andbuying the first home. This canincrease debt levelsdramatically while having afamily that is financially (andotherwise) dependent on you.Reviewing income protectioncover regularly is a good idea, asyou progress in your career andyour income changes.

You may also find that withincreased debt and newresponsibilities, your lump suminsurance needs have increasedabove the previous level of cover.

A “stepped” premium

(cheaper initially, but increasingeach year with factors such asage) may be appropriate for thisadditional cover, as hopefullythis top-up need will reduce overtime.

For example, life insuranceneeds to cover debt repaymentand replacement income needsfor those left behind, so thisinsurance need will fluctuateyear-to-year as debts are paiddown and children get older, etc.The top-up need will hopefullyreduce over time and cease to bea need when debts are repaidand children are adults.

Some people argue againstpaying an increased premium inthe early years of insurance tokeep a level premium over time,when this insurance need isgoing to (more than likely)reduce over time.

Superannuation may also bean appropriate vehicle forfunding life and TPD cover (toreduce the impact on your cashflow). Make sure you haveadequate insurance on the life ofyour partner as well, andconsider adding child coveroptions to your existing policies.

So, now let’s assume Joe andSarah have met, fallen in love,just turned 35 and started afamily (still both earning

$80,000). They want to cover a$500,000 mortgage and need$50,000 a year for 10 years in theevent of either of their deaths(so let’s assume $1 million) —and want the same level of TPDand a quarter of this insuredamount for trauma ($250,000).Table 2 is an example of the sortof premiums that may beavailable if implementing newcover now.Children Getting Older. Themortgage is (hopefully) startingto come down, but just as thishappens secondary school feesstart to roll in. The kids arestanding on their own two feet abit more, though their tastes arebecoming more expensive.

Again, review your incomeprotection insurance (every oneto two years, or as required).With debts hopefully reducing,the children getting older, andthe years to retirementdecreasing, hopefully your lumpsum insurance needs are alsoreducing. Consideration may begiven to reducing the steppedpremium component. You maybe feeling the “pinch” onpremium increases on thesepolicies. Running the ruler overdifferent insurers to make sureyou have the best cover can beuseful.

thKethexexavI’mis

August 25, 201418 INSURANCE

Pravin Maharaj knew the importance ofhaving appropriate levels of insurance.

The Doubleview GP had pressed his twodaughters to ensure they took out enoughcover to ensure they would be protectedfinancially if one of them died, became sickor was unable to work.

Pravin had been practising medicine at aGP clinic in Churchlands for four years whenhe died suddenly from a suspected brainaneurism late last year.

His death came as a shock to the55-year-old’s loyal patients at Churchlands

and his passing was mourned as far away asTasmania, where he spent almost 20 yearslooking after patients until moving to Perthin 2009 to be closer to his daughters.

The shock felt by his patients was nothingcompared with the despair endured by hisloving wife of 33 years, Asha.

Besides a legion of adoring patients, twodaughters and a granddaughter, Pravin leftanother legacy.

Asha was financially secure because heensured his life insurance cover wasadequate and his premiums always paid.

“He would have wanted to make sure wewere OK,” Asha said.

■ Ben Harvey

Pravin and Asha Maharaj

■ Matthew Robertson

Insurance: what cover is

n

n

STEPPED PREMIUM LEVEL PREMIUM Life: $1,000,000 Trauma: $250,000 Income Protection Life: $1,000,000 Trauma: $250,000 Income Protection TPD: $1,000,000 $5,000 p/mth TPD: $1,000,000 $5,000 p/mthMale, 45 $149 p/mth $115 p/mth $60 p/mth $350 p/mth $235 p/mth $100 p/mthFemale, 45 $130 p/mth $116 p/mth $90 p/mth $290 p/mth $190 p/mth $155 p/mth

Life: $250,000 Trauma: $150,000 Income Protection Life: $250,000 Trauma: $150,000 Income Protection TPD: $250,000 $5,000 p/mth TPD: $250,000 $5,000 p/mthMale, 55 $120 p/mth $240 p/mth $155 p/mth $310 p/mth $360 p/mth $180 p/mthFemale, 55 $100 p/mth $175 p/mth $240 p/mth $260 p/mth $230 p/mth $270 p/mth

3. CHILDREN GETTING OLDER

4. I’M GETTING OLDER

Quotes a guide only. If you are a smoker or blue collar worker you may pay more.

141 Cambridge Street West Leederville WA 6007

JVA is proud to be the trusted custodian of thousands of West Australian’s financial futures. Your JVA adviser is 100 percent committed to making sure your financial strategy is responsible, realistic and rewarding.

For 44 years our sole purpose has been to match each client’s specific circumstances with intelligent solutions.

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We do more than simply listen... we hear.

Many things need to be taken care of, like choosing the right aged care facility, financing the costs of aged care and deciding whether to sell the family home.

It can be a stressful time, particularly when there are other family members to think about. But with the help of an ipac financial adviser, you can make the whole process much simpler.

When you’re new to the aged care system, it helps to discuss your situation with someone who is familiar with the rules and pitfalls.

ipac WA are specialists in aged care. We can help guide you and your loved one through the process and ensure you avoid common mistakes, so you can be confident you’re making the right decisions.

Important information: Pajoda Investments Pty Ltd ABN 33 127 407 238 trading as ipac western australia is a corporate authorised representative (CAR number 328419) of Charter Financial Planning Limited (AFSL 234665). Both the written and graphic content of this document is copyright to ipac securities limited and AMP. Nothing in this document may be reproduced in whole or part without our prior written authorisation. The information in this document is of a general nature and does not take into account your individual needs and objectives. Please do not act on any information within this document before seeking advice from a licensed financial adviser. August 2014

www.ipac.com.au/wa

Contact ipac WA on 9380 9599

Aged CareThe decision to enter a loved one into aged care is a difficult one for any family to make, both emotionally and logistically.

24944 08/14

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Joe and Sarah just celebratedtheir joint 45th birthday party.Keeping the insured amountsthe same as the previousexample, table 3 shows anexample of the premiumsavailable.I’m Getting Older, The mortgageis under control and your

superannuation savings arebuilding. With steppedpremiums increasingdramatically because of age, youare really reaping the rewards ofa level premium on your incomeprotection and base level life,TPD and trauma cover.

Regular reviews and reducing

your stepped premium cover asappropriate will save you money.

With the children leaving thenest, you now discuss theimportance of personalinsurance with them, andpotentially converting their“child cover” into a personallyowned policy in their name (to

start their own personalprotection portfolio).

Now Joe and Sarah have hit 55and the children are starting toleave home.

Premiums are increasing(refer table 4) and the option of alevel premium for new policiesmay be unaffordable (and

locking in a base level of life,TPD, trauma and incomeprotection back at age 25 — referto table 1 — now looks veryattractive).

Matthew Robertson is a privateclient adviser with Vantage WealthManagement

INSURANCE 19August 25, 2014

t 08 9293 2922 f 08 9293 2933 e info@benchmarkconsultants.com.auSuite 2, Barber House, 16 Mead Street WA 6076 Po Box 944, KALAMUNDA WA 6926www.benchmarkconsultants.com.au

Achieve more with your Financial Planner

®

Benchmark Consultants is a Corporate Authorised Representative 289570 of RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429

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Focus on what really matters

goes to the people you careabout most.

Having a well-structuredestate plan can give you peace ofmind that your wealth istransferred in accordance withyour wishes, that your intendedbeneficiaries will ultimatelybenefit from the estate and thatit is done so tax-effectively.

It might be a sitcom ratherthan a reality TV show, but the‘Modern Family’ is changingestate planning.

We are living much longerand our family dynamics arecomplex. That’s why you need to

have your financial affairs inorder before it’s too late. Hereare some of the most importantissues Modern Families face.Blended family: where anindividual re-marries orotherwise forms a newrelationship, there may be a newspouse to take into account, plusquestions about how to providefor existing children and those

that arise from that relationshipMulti-national families: In ourmulticultural society anindividual’s wealth may also beheld in internationaljurisdictions Relationship breakdowns:Managing a divorce settlementcan be difficult. Spousal supportand the timing of any asset salescan be crucial plus there may be

tax, super and child supportissuesIllness or dementia: Anever-increasing portion of thepopulation is ageing and at riskof being unable to manage theirown financial and personalaffairs Intergenerational wealth transfer:This is becoming a big issue asbaby boomers (who hold the

bustaweSoIntaxsugrtharlik

Will: For there to be clarity aboutan individual’s testamentary wishes,an individual needs a will whichrevokes all other previous wills. Awill also appoints the executor of theestate and the trustee of any form oftestamentary trust that may becomeoperative on an individual’s death. Inaddition, a will serves to enable anindividual to specify their funeralwishes, to nominate the guardian/sof any minor children and to makespecific gifts.Memorandum of Wishes: Whilenot legally binding in any Australianjurisdiction, this document providessome useful guidance on anindividual’s specific wishes andpreferences with regard to theirestate and, more frequently, theownership and control of theirnon-estate assets and entities, suchas family trusts and companies. Power of Attorney: Thisdocument appoints individual/s to

Determine who getswhat, whileyou can

Estate planning toolbox for a Modern Familyact as attorney and deal with thedonor’s financial affairs while theyare alive. Where it is enduring, theattorney can continue to actnotwithstanding the donor’s lack ofmental capacity. It cannot be used tomake health and lifestyle decisionson behalf of the donor.Enduring Guardianship: Thisdocument concerns decisions madeduring an individual’s lifetime, inrelation to their medical treatmentand lifestyle decisions, such aswhere they live.AdvanceHealthCareDirective:In the eventof seriousillness orinjury, thisdocumentallows formedical

forshothebinfavAsvaltruis oinsnodissupto,theBinVaAgmaeffmavalacqrelfut

treatment decisions to betransferred to another person. AnAdvance Heath Care Directive canbe used to provide an indication ofan individual’s wishes, for example, ifthey do not want their life prolongedartificially, when there is noreasonable prospect of recoveryafter a serious illness or injury.Superannuation Death BenefitNominations: Assets held withinthe superannuation environment donot ordinarily form part of thedeceased member’s estate. In order

■ Catherine Chivers

Securing your future is notonly about accumulatingwealth, but about

protecting it, too. It’s aboutsecuring your own future as anindividual and securing yourfamily’s future as well. Afteryears of working hard to buildyour nest egg, you want to makesure it’s protected, and thatwhen you’re no longer around it

August 25, 201420 WILLS AND ESTATES PLANNING

The FPA Western Australian Chapterrecognize and thank the followingsponsors for their valuable support.

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Finding time to organise aprofessional will is something mostpeople put in the too-hard basket,but sticking your head in the sandis not the way to go, especially ifyou have particular wishes as tohow your estate will be distributedamong your loved ones when youare no longer around.

Estate planning can be anuncomfortable topic but we canhelp you to understand how tostructure your estate plan.

So what exactly is a will? A willis a written document whichspecifies who inherits your assetswhen you pass away. Within yourwill you have the option ofspecifying who receives what fromyour estate, such as special piecesof jewellery, heirlooms andproperty, as well as who will takecare of any children. You can evenspecify charities you would like tosee receive donations.

It is important that within yourwill, you nominate at least oneexecutor. The executor’s duty is toadminister your estate when youpass away as per your wishesoutlined in your will.

Having an executor can help toreduce any arguments betweenbeneficiaries you have outlined inyour will, so choosing an executoris an important part of theprocess. You can also nominatethe executor to be responsible formanaging trusts for minors.

So what happens if you diewithout leaving a will?

Without a legal will thebeneficiaries of your estate can bedetermined by the state governingbody as dictated by current law.

Now, I know what you arethinking. You are now soconvinced you need a will that youare already putting on your shoesand running out the door to pickup one of those DIY versions yousaw at the post office.

They cost about $35. Stop. Your will is an important

legal document. We have seentime and time again these DIYversions challenged in court onlyto be ruled as invalid.

We would encourage you toseek professional estate planningadvice from an accredited estateplanning strategist. They can helpyou design the framework of yourwill to meet your specific needs.

Peter Stewart is a certifiedfinancial planner with BenchmarkConsultants

bulk of wealth) get older andstart to pass accumulatedwealth to their familiesSophisticated tax structures:Increased awareness of thetaxation benefits of structuressuch as trusts, and the massivegrowth of superannuation overthe past 20 years, means estatesare more complex and morelikely than ever before to

contain a substantial proportionof non-estate assetsSocietal changes: Compared withtwo decades ago, manyjurisdictions now regardde-facto couples (including samesex couples) as havingsubstantially the same legalrights in terms of propertysettlement and superannuationsplitting, as married couples.

It’s a commonmisunderstanding that estateplanning advice merely relatesto executing a will and a powerof attorney. There are manyother elements of estateplanning which may need to beaddressed, including:� a sophisticated riskinsurance strategy� a will that incorporates atestamentary trust and superproceeds trust� powers of attorney � the appointment of anadvance healthdirective/enduring power ofguardianship � superannuation deathbenefit nominations� binding financialagreements� deeds of familyarrangement� the use of appropriateasset-holding vehicles, suchas a family trust orself-managed superannuationfund and setting up thesevehicles, to ensure there is amechanism for passing oncontrol after death orincapacity� the ability to provideclarity of testamentaryintentions by using amemorandum of wishes

Catherine Chivers is part ofPerpetual’s private strategic adviceteam

should their relationship breakdown. For example, any assets thateach party brought into a secondmarriage can be identified andexcluded from their marital propertypool. In addition, contemplation canalso be given upfront to issuesrelating to the spousal maintenanceof either party, in the event theirrelationship breaks down.Importantly, BFAs can be enteredinto before, during or aftermarriage, or even after separation.Deeds of Family Arrangement:Sometimes it is necessary for thebeneficiaries of a will to agree tochange their entitlements, followingthe death of the willmaker. This mayarise as the terms of the will are nolonger relevant or changes areneeded in order to satisfy a partywho would otherwise challenge theterms of the will. The documentused to implement these changes iscalled a deed of family arrangement.

for there to be certainty about whoshould receive those monies aftertheir death, a member can make abinding death benefit nomination infavour of their preferred beneficiary.Assuming this nomination remainsvalid at the time of death, thetrustee of the superannuation fundis obliged to pay those monies asinstructed. Where a non-bindingnomination is made, the trustee hasdiscretion about who thesuperannuation benefit may be paidto, which may not be in line withthe deceased member’s wishes.Binding Financial Agreements:Validly executed Binding FinancialAgreements may be used by eithermarried or de-facto spouses, toeffectively exclude assets from themarital property pool. The use of avalid BFA could mean that assetsacquired by a party before to arelationship are protected from afuture claim from an ex-partner,

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WILLS AND ESTATES PLANNING 21August 25, 2014

■ Peter Stewart

According to the AustralianTaxation Office’s March2014 report on

self-managed superannuationfunds, the number of SMSFmembers has now reached overone million.

So why do over one millionAustralians now choose to go italone?

SMSFs have the same role asany other super funds — theirtrustees must maintain the fundto provide benefits for theirmembers’ retirement and also toprovide benefits for themembers’ beneficiaries uponthe members’ death.

It is important to note that thedifference with SMSFs is thatthe members are also thetrustees. This places the controlof an individual’s futurefinancial circumstance (andtheir family’s) in their ownhands. It also means the trusteeof an SMSF is responsible formeeting a range of legal andadministrative obligations andmay incur penalties if they donot perform their duties.

An SMSF will typically suitindividuals who have areasonable nest egg insuperannuation and whounderstand the tax benefits ofinvesting in the superannuationenvironment.

Views on the costeffectiveness of an SMSF differfrom person to person,depending on their involvementin running their fund, thelikelihood of the assets in thefund growing and the reason forsetting up the SMSF initially.

Generally it is believed thatfor an SMSF to cover the typicalfixed costs, which includeaccounting and auditingservices, it needs at least$250,000 in the accumulationphase (generally up to

preservation age of 55 to 65) andat least double that in thedrawdown, or pension phase.

Unlike big superannuationproviders, SMSFs offer moreflexibility and can be used to putinto place solutions tospecifically meet theirmembers’ needs.

Those who want to ownparticular assets such as listedsecurities, unlisted assets,investment property andbusiness assets or businessproperty may benefit fromsetting up a SMSF. These assetscannot typically be owned viapublicly available funds (at theindividual level).

One of the commonmisconceptions of SMSFs is thatthe trustee needs to run allaspects of the fund. While thetrustee is ultimatelyresponsible, they can seek

Self-managed super a

way by an obliging accountantor adviser and perpetuated bysheer momentum, the pointlessSMSF is more common than youmight realise.

We often see an SMSF witheither no assets in it at all (themembers never got around torolling over their other fundsinto their newly minted SMSF),or have only a bank accountwith cash and no other form ofinvestment.

In the first instance, thetrustee has probably been leftstanding at the gate with the

While many people seemto be marching aheadto open a self-managed

super fund, we have been seeinga lot of people into our practicewith an SMSF already in placewho really had no idea why theyhad one.

Born out of a quest forindependence, nudged along the

freshly printed trust deed inhand but no further instructionon what to do next.Nevertheless, annualcompliance and costs wouldhave still been necessary. In thelatter case, cheaper options andless administrative options mayhave been available.

There was a time when if youwanted to invest in shares andbe self-directed, an SMSF was agood option for you. This iscertainly where many trusteesoriginally sought the flexibilityof an SMSF. In more recent

times though, it is possible toinvest in shares through manyretail offered superannuationschemes, meaning that an SMSFis not necessary if that is youronly “out of the ordinary”requirement.

It may still be cheaper forlarge balance funds, but in ourexperience, we still see manysmall balance funds that have anSMSF because they believe theyneed one to invest directly intoto shares.

Despite the variety ofinvestment characteristics that

we see and the arguments onemight pose about the pros andcons of an SMSF, it is stillamazing how many trusteescome to us with limitedknowledge about their SMSF,including who is the trustee orwhere the trust deed andinvestment strategy is.

This demonstrates that for alot of people an SMSF is anunnecessarily complexinstrument for thesuperannuation needs andretirement goals that they have,requiring ongoing compliance

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Know when to get out if the DIY retirement e

Too stressful: BruceQuartermaine and wife GlenysRoger closed their SMSF.Picture: Lincoln Baker

BALANCED FUND v SMSF Industry Self-managed ‘balanced’ super fund super fund* with corporate trusteeInitial Balance ($) $750,000 $750,000Entry Fee/Exit Fee (brokerage) $0 to $35 0.55% to 1.1% for ASX listed securities# $413 to $825Sell/Buy spread 0% 0%ONGOING FEES Investment manager fee pa 0.59% to 0.77% $0**Administration fee pa $78 $0Accounting fee pa $1,980 - $4400Auditing fee pa $440 - $880ASIC annual review fee $43^ATO Supervisory levy $259Trustee fees $750 0% Total (estimate ) $5253 to $6638 $3135 to $6407

* Based on an average of two balanced industry superannuation funds** Based on an SMSF with 50 per cent direct equities and 50 per cent term deposits and cash# Assumes $375,000 (50 per cent of SMSF assets) invested in direct equities (ASX listed) and 20 per cent portfolio turnover p.a. (does not include fi rst year)^ Corporate trustee of an SMSF

advice and tailor their fund tosuit their circumstances byengaging with an adviser.

There are, however, areas thatpose potential traps that need tobe thought about carefully toavoid costly mistakes.

One of the main tests a trusteemust meet is the “sole purposetest”. This test stipulates thatthe trustee’s sole purpose is toensure that the SMSF providesretirement benefits to membersor to their dependants if amember dies before retirement.It is imperative that memberskeep their personal assetsseparate from the fund assets.

SMSF are not for everyone,though they do provideflexibility and control overmembers superannuation andretirement benefits.Matt McCarney is executive directorof Vantage Wealth Management

August 25, 201422 DOING IT YOURSELF

J

Itit

Ji

■ Matt McCarney

■ Greg Major

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e,

and administration and in somecases, costs in excess of whatmight otherwise be achievable.

For as many SMSFs that weadvise clients to set up, we areprobably advising on aroundone third as many new clientsthat come to our door withSMSFs to shut those down andlook for a simpler solution, withless administration, lesscompliance risk and less cost.

Assuming your SMSFaccounts are up to date and youare not suffering any unresolvedaudit issues, shutting down your

SMSF need not be a complexexercise if that course of actionis right for you, but be sure toseek advice first.

Usually the most difficult partis transferring or liquidatingthe assets in the fund, afterwhich the Australian TaxationOffice should be notified, thefinal accounts can be done,invoices paid and remainingfunds rolled over to your newsuper fund.

After that, you can sleep easy— free of the obligations of anSMSF trustee.

SMSFs may be a suitableoption for some clients but notall. You should always seekadvice. Greg Major is an authorisedrepresentative of AMP FinancialPlanning Pty Limited and a director atBlueprint Wealth. Blueprint PlanningPty Ltd ABN 78 097 264 554 tradingas Blueprint Wealth is an AuthorisedRepresentative and CreditRepresentative of AMP FinancialPlanning Pty Limited ABN89 051 208327Australian Financial ServicesLicence 232706 and Australian CreditLicence 232706.

experiment is not for you

double-edged sword

Check with your financialadviser first to make sure it’s agood ideaCheck your trust deed on whatyou are required to do to shutdown the fund. Be compliantHold your trustee meeting andrecord the resolution to shutdown the fundNotify the ATO that youshutting down the fund. That’sthe law.Notify your administrator. Theycan help do the leg work

Decide on which fund to join.This is where your cash / assetswill go

Settle up all outstandinginvoices and tax payments

Either sell your assets for cashor roll them in-specie into thenew fund

Complete your final tax returnand submit to the ATO

Close down the fund’s bank andbrokerage accounts and you’redone

Steps to shutdown

the same cost as the SMSF� Add after-tax funds fromterm deposits to fund to cutthe tax paid on interestincome� Commence anaccount-based pension toensure the super earningsare tax free (saving anestimated $2500 per annum)� Invest the superannuationin a diversified portfolio

The new strategy meansMrs Roger can retire soonerthan planned.

Mr Quartermaine willcontinue working to keephimself busy but does soknowing the account-based

Duncraig couple BruceQuartermaine and GlenysRoger set up their own superfund 15 years ago because theywanted to have an active role intheir retirement plan.

After nine years they grewtired of the paperwork andrealised their investmentportfolio had become an ad hocmix of stock selections fromthemselves and their accountant— with a big slab remaining incash over the past two years.

Mr Quartermaine, a70-year-old contractor, and MrsRoger, a 66-year-old EducationDepartment employee,contacted Western Pacificcertified financial planner PaulBlack, who recommended thefollowing:� Increase Glenys’s salarysacrifice by $25,000 for a taxsaving of $4500 a year� Wind up the SMSF and rollthe funds into a retail fund for

pension and a slice of theage pension will ensure theycan retire comfortably.

“Initially we totallymanaged the SMSF totallyourselves, buying andselling shares, propertyportfolios and otherinvestments,” Mrs Rogersaid.

“About four years later werealised we were out of ourdepth and really didn’t havethe expertise to properlymanage the fund. We thenhanded it over to ouraccountancy firm, keeping itas an SMSF but paying fortheir advice. After about fiveyears we felt we were notgetting anywhere and,despite making regularpayments through salarysacrifice plus employerscontributions, the funddidn’t seem to be advancing.

“Since being with WesternPacific we feel confident ourmoney is working for us.”

DIY in the too-hard basket ’About four yearslater we realised wewere out of ourdepth.’

Glenys Roger on running aself-managed super fund

Disciplined, motivated andinformed people are the kind ofpeople I like to see in SMSFs. Italso helps if they have areasonable amount of savingsto make an SMSF worthwhile.

I see far too many people whothink SMSFs sound like a greatidea but when they go and startone up, they lack the disciplineand motivation to formulateand maintain their investmentstrategy and they fail toacquaint themselves with theirobligations as trustees of theirSMSF.

If you aren’t interested inhaving a basic knowledge of thesuperannuation law, you are

better off leaving yoursuperannuation in a retail orindustry fund.

These funds have trainedprofessionals with a wealth ofresources which can help togrow your retirement savings.Don’t get me wrong, SMSFs canbe highly rewarding for theright individual — but youmust take an active interest.

People set up SMSFs becausethey want flexibility andcontrol. An SMSF’s flexibilitygives them investment choice,while the direct control theyhave allows them to move inand out of investmentswhenever they wish. Butflexibility and control come at acost.

SMSFs need to have theiraccounts done every year andthese need to be audited by aqualified SMSF auditor. Peoplewho set up a company to act asa corporate trustee have ASICfees and reportingrequirements. This all costsmoney so people who arethinking about an SMSF needto make sure that they haveenough money in their fund tomeet these ongoing expenses.Potential SMSF members needto think about whether anSMSF is worth the expense iftheir investments are notgenerating enough income.Monica Rule is the author of The SelfManaged Super Handbookmonicarule.com.au

The view from the guru■ Monica Rule

■ Ben Harvey

DOING IT YOURSELF 23August 25, 2014

JILL STILES IDENTIFIES COMMON SMSF MISTAKES Not having suffi cient superannuation monies to justify the cost of running the SMSF

Not having the time to devote to running the fund Not having an investment strategy that is implemented and regularly reviewed Not considering whether insurance should be held for the members Not keeping the money and assets of the fund separate from personal assets Using the SMSFs assets to give the members a pre-retirement benefi t.

It is a big commitment commencing a SMSF, make sure you are prepared for it, the penalties are high if you are not.

Jill Stiles is a director of Eclipse Financial Solutions

3C_WA_FP093_2

No matter how complex your fi nancial situation may seem, it can be untangled.

That’s what the best fi nancial planners do – day in, day out. Visit FPA.com.au to

arrange an appointment with a fi nancial planner of your choice.

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