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Wealth Health Checklist

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Wealth-CheckAre you keeping your finances healthy by doing the right thing at the right time? Taking the best action at the optimum time can be crucial to your financial future.

 

 

Accumulators (aged 25–45)

Start a monthly investment plan

  • ‘Pay yourself first’ rather than create unrealistic budgets.
  • Salary sacrifice into super while other financial obligations are low and stop when current needs are more important.
  • Use any pay rises to fund your regular savings.
  • Be clear about what you’re saving for and the best structure and investment options for that.

Control debt

  • Reduce unnecessary spending.
  • Pay off the credit card, it’s probably costing you more than 15% pa interest.
  • Consider consolidating credit card debt into a personal loan and potentially paying less interest. If you do this, resist the temptation to accumulate more debt into your credit card.

Check out the government co-contribution

  • If eligible you could get up to $500 added to your super for free every year.

Consider using a mortgage offset account

  • This could reduce your loan interest while giving you access to the cash if you need it.
  • Make sure you have sufficient death, disability and income protection insurance.

 Builders/Pre-retirees (aged 45–65)

Stay cash flow positive

  • Live within your means.
  • Reduce the mortgage and other non-deductible debt such as credit cards and personal loans. This may free up cash flow for other investment opportunities.
  • Consider part-time work for a non-working spouse.

Increase contributions to super

  • At age 50, the concessional (pre-tax) contribution cap is $25,000.
  • Consider transferring non-super assets to super. You’ll need to take into account any capital gains tax on the transfer and the super rules covering what assets you can transfer.

Split income where possible to save tax

  • Consider investing money in the name of the spouse who pays the lowest tax.
  • Consider splitting super contributions between spouses. Up to 85% of concessional contributions within the contribution cap, including Super Guarantee and salary sacrifice contributions, can be split.

Look into a pre-retirement pension if you’re aged 55 or more

  • Consider salary sacrificing, and drawing down regular income from your super to replace the lost income – this saves tax and builds your super without affecting your cash flow.
  • Make sure you have sufficient death, disability and income protection insurance. Also consider taking out trauma insurance.

Retirees (aged 65+)

Ensure you don’t run out of money

  • Understand your plan for spending in retirement – set a budget for essential expenses and additional lifestyle expenses and how you’ll fund each.
  • Ask yourself if you’ve invested your assets too conservatively – maintaining and growing your capital today can help you provide the income you’ll need in the future.
  • Consider whether you need to downsize your home.
  • Investigate how your income and assets affect your Centrelink benefits. Simple changes can help ensure that you maximise your total income.
  • Consider setting up investments to help grandchildren with education costs, a deposit on their first home or an investment nest egg. You’ll need to include this in your retirement spending or estate plan.
  • Think about aged care now. When the time comes, decisions often have to be made very quickly, so plan ahead for which care options you’d like to use and how they’ll be paid for.

Review your estate plan

  • Consider a Non-Lapsing Death Benefit Nomination for your super or a reversionary beneficiary for your pension.

Ensure your Wills and enduring power are in order.

Insurance inside your Super?

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Is insurance inside super a good strategy?

insurance-in-or-out-of-super

While we all know that structuring your insurance inside a superannuation fund can be tax effective as well as cost effective; not everyone is convinced that the benefits can outweigh the restrictions.
The common concern is the perception that the benefits will get “stuck” in the super fund and not paid to the clients directly or that when the benefits finally do get paid, the client will be liable for a massive tax bill.
While there may be some truth to the above perception, there are ways to manage these to ensure that you get the benefit of a cost and tax effective insurance premium without sacrificing the benefits at claim time.

1. Meeting a condition of release

When an insurance policy is held inside super, the owner of the policy is the trustee of the super fund. Any proceeds paid in the event of a claim are paid to the super fund and then a superannuation condition of release needs to be met in order for your clients to get their money out of super.

Most products allowable inside a super fund are designed to meet a condition of release to help facilitate a smooth transfer from super fund to the claimant. For example, with term life and income protection insurance, there is usually no issue with releasing proceeds from super as ‘death’ and ‘temporary incapacity’ are conditions of release.

TPD meets a condition of release if you also meet the definition of ‘permanent incapacity’ (or another condition of release) under superannuation legislation. Any occupation TPD generally will meet this condition however policies such as own occupation TPD or trauma may not meet this requirement. Generally, individuals will apply for release of their TPD or trauma insurance proceeds through the ‘permanent incapacity’ condition of release. If this is not met, then those funds stay in the super fund until the client can meet the ‘permanent incapacity’ condition or at preservation age.

Managing the risk

The best way to ensure a smooth transfer of the death benefit from the trustee is to ensure that there is a valid binding nomination of beneficiary. This should be constantly reviewed as your situation changes. In most instances, the delay happens when the trustee is required to determine beneficiaries.

As for own occupation TPD and Trauma; if these funds are required for immediate use then it may be best to have them outside superannuation unless you are close or already at your preservation age.

2. Taxation of benefits

The tax treatment of insurance proceeds has some variables but most importantly, not all proceeds are taxable.

  • Life cover – If the benefit is paid to a tax dependant, the proceeds are tax-free. So it’s only when the recipient is a tax non-dependant (e.g. an adult child) that benefits are taxable.
Component Tax rate (including Medicare levy)
Taxable (untaxed) 31.5%
Taxable (taxed) 16.5%
Tax-free 0%
  • TPD – The tax treatment is based on the claimant’s age. Generally, the older the individual, the less the applicable tax rate is. At age 60 and over, the benefits are tax free.
Age Tax rate (including Medicare levy)
Under preservation age 21.5%
Preservation age but < age 60 16.5% (The first $165,000 is tax free in 2011/12)
Age 60 + 0%

Note: If the individual qualifies for a disability super benefit, this will increase the tax-free component.

Managing the tax treatment

Grossing up the sum insured enables your client to pay the tax without depleting the required benefit amount. You can do this by first calculating the tax liability and then grossing up the sum insured to take into consideration the tax payable. In most instances, grossing up the sum insured and paying with pre-tax dollars is still more cost effective than paying the lower sum insured outside super with after tax dollars.

For example: If you are 40 years old with a marginal tax rate at 38.5% and claimed at age 54, below would be your tax liability:

  Outside Super Inside Super at age 54
TPD sum insured $1,000,000 $1,000,000
Tax payable $0 $137, 256
Gross sum insured $1,000,000 $1,140,000
Annual premium $1, 573 $1,668
Real cost $2,557 $1,668

This can also be done for life cover to be paid to non tax-dependents.

Remember, the older you get, the less tax will be required, so it helps to have a continued conversation between yourself and your financial adviser.

Is insurance in super a good strategy?

Holding your insurance inside super holds many benefits and the risks and restrictions can be managed with careful planning. The most important thing is to ensure you don’t dismiss this strategy based on misconceptions.

Like anything, your adviser will consider your individual circumstances and will help you determine whether your insurance should be held inside or outside super. In many cases, you may find the optimal outcome involves a combination of both.

Contact us to discuss insurance in super strategies in more detail.

lost my super

Lost super

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lost my super

lost my super

There is over $17 billion of lost superannuation and more than $677 million in old bank, credit union or building society accounts, shares and life insurance policies waiting to be found.

Lost shares, bank accounts and life insurance

Australian Securites & Investments Commission (ASIC) https://www.moneysmart.gov.au/tools-and-resources/find-unclaimed-money/unclaimed-money-search

has an Unclaimed Money Search tool.  If you have every moved address often, moved overseas, or simply forgotten, you could have unclaimed money.

There is unclaimed money in:

■  Bank accounts – $330 million

■  Shares – $295 million

■  Life insurance – $52 million

Superannuation

It has now been 20 years since compulsory Superannuation Guarantee superannuation contributions commenced on 1 July 2002. 

If you have ever changed your job, moved address often, moved overseas, and/or changed your surname then you could have lost superannuation.

Your superannuation could either be:

In a Superannuation Fund

 You may need to work out which superannuation fund each of your old employers paid into & then contact each of those superannuation funds.  If you cannot remember the names of your old employers, your group certificates are a good place to start.

 In an Eligible Rollover Fund (ERF)

If a superannuation fund is unable to contact you, as they do not have a current address (they have received returned mail) or a contribution has not been received after a certain period of time, a super fund may roll your super to an ERF. 

An ERF has no investment options (your money will be invested in a default option),  usually has no insurance and can only accept limited types of contributions (they cannot accept regular SG contributions from an employer). 

Transferred to the Australian Taxation Office – Unclaimed Monies

ATO-held super includes amounts paid to the ATO by employers, super funds (if they cannot contact you) or if the ATO have been unable to find an account to transfer the money to, the ATO will hold it for you.

Previously amounts less than $200 were sent to the ATO.  From January 2013 the threshold will be amounts less than $2,000.

Superseeker – This is the ATO’s database which holds information about lost and unclaimed super held by all super funds in Australia (updated 6 monthly) and by the ATO.

You can either do a quick search using your name, date of birth and tax file number or register for Superseeker https://onlineservices.ato.gov.au/Default.aspx?PageName=YourSuper to:

  • Check your current super accounts that money has been paid into in the last two financial years
  • Find lost super
  • Find ATO held super
  • Transfer your super to the super account you want

Once you have registered online for Superseeker, you can access your super information any time.

What should you consider before transferring super?

Putting your entire super into one account means you will only pay one set of account fees and charges. It also makes it easier to keep track of your super.

However, there are some important factors to consider before transferring your super:

  • Differences in the fees can make a big difference to what you will have to retire on – for example, a 1% increase in fees can significantly reduce your final benefit.
  • The fund you want to leave could add administrative fees, and exit or withdrawal fees.
  • The fund you want to transfer to may charge entry or deposit fees.
  • The fund you want to leave may insure you against death, illness or an accident which leaves you unable to return to work and if you leave this fund, you may lose these insurance entitlements – check if the other fund offers comparable cover.
  • The fund you want to transfer to may not accept transfers of ATO-held or super fund-held money – check before starting your transfer.

If you are unsure what to do, you should seek financial advice or contact your super fund.

 

There are no fees or charges for transferring ATO-held super money into a super fund account.

 

And lastly

 State & Territory bodies for unclaimed monies

  1. They may hold unclaimed super from private sector super funds where the super became ‘unclaimed’ before 1 July 2007.

For example, the SA Department of Treasury and Finance will receive unclaimed superannuation only when the member is at the eligibility age of 65 or deceased, the head office of the superannuation company is registered in South Australia and the Superannuation Company cannot locate the member.

If you are not at the eligibility age of 65 you will need to do a search on the ATO’s Superseeker  or telephone the ATO on 13 10 20 or alternatively contact the superannuation fund itself.

  1. Unclaimed monies from companies based on the State or Territory the company was located in. This may be different to the State or Territory you live in.   Companies must hold the money for six years then advertise in the SA Government Gazette for two prior to sending the money to DTF.  Therefore a company must hold unclaimed amounts for eight years and pay Treasury on the ninth year

Department of Treasury and Finance can hold unclaimed:

  • ·dividends (not company shares)
  • ·deceased estates
  • ·liquidation disbursements
  • ·interest
  • ·unpresented/void/stale cheques
  • ·wages/salaries
  • ·trust accounts
  • ·refunds
  • ·unclaimed money from other government departments/agencies prior to 1 February 1998 (after this date each department/agency administers its own unclaimed money register)
  • ·bank account money prior to 1989
  • ·insurance policies prior to 1992

You will need to contact each of the state and territory bodies.  If you search on the Victorian State Revenue Office, you are able to search all states.

 

Contact details for state and territory bodies

State

Office

Website
NSW Office of State Revenue -Unclaimed Money www.osr.nsw.gov.au
VIC State Revenue Office www.sro.vic.gov.au
QLD Public Trustee of Queensland www.pt.qld.gov.au
SA Unclaimed Monies – Department of Treasury and Finance www.treasury.sa.gov.au
ACT The Public Trustee for the ACT www.publictrustee.act.gov.au
TAS Department of Treasury and Finance www.treasury.tas.gov.au
NT Territory Revenue Office www.revenue.nt.gov.au
WA Unclaimed Monies – Department of Treasury and Finance www.money.dtf.wa.gov.au

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Adelaide Financial Advice - Seven Deadly Sins

Seven Deadly Financial Sins for Women (and some men!)

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Seven Deadly SinsSeven Deadly Financial Sins for Women (and some men!)

Unless we’re rubbing shoulders with A-listers or running a multi-million dollar fashion business, we need to invest time and effort if we want a successful financial future.

It seems that today’s woman can be easily distracted by the comforts that short term material wealth can provide and these ineffective money management habits are best described as Seven Deadly Financial Sins.

 

Sin: Sloth

People who stick their head in the sand and are happy to take the lazy approach when it comes to their financial situation may suffer from the financial deadly sin – Sloth.

Rescue yourself by…
Taking charge of your financial affairs, starting with your superannuation and find lost super by logging onto the ATO’s Super Seeker website at http://www.ato.gov.au/super.

Sin: Anger

Finding excuses or others to blame for your financial situation doesn’t make it go away.

Rescue yourself by …
Take a reality check by doing a budget based on your income and expenses. You may be surprised. Visit the budget planner tool on the ATO website. If it helps curb your needless spending ways, then you shouldn’t be angry any longer.

Sin: Greed

People of today live in a ‘now’ society and the risk of this behaviour is that it may trap you into spending more than you earn.

Rescue yourself by…
Building your wealth through sound financial strategies that suit your financial and lifestyle needs. This can give you peace of mind to have all that you want – with a little discipline.

 

Sin: Damsel in distress

Ladies (or fellas) in-waiting on the lookout for a knight in shining armour to rescue them from the burdens of their financial situation is otherwise known as Cinderella syndrome.

Rescue yourself by…
Saving regularly – just $20 per week can add up to over $7000 in five years in an online high interest bearing account.

Sin: Gluttony

Ladies with an appetite for debt and credit cards to feed their addiction may suffer from the financial deadly sin of Gluttony. Online shopping and VIP nights at your favourite department stores feed on gluttonous appetites and before you know it, you’re in way over your head.

Rescue yourself by …
Spring cleaning your debt – start with cutting up store cards and start to seriously consider protecting your wealth.
Income protection insurance will provide you an income when you’re sick or injured and unable to return to work.

Sin: Lust

It can be hard to resist a good deal and retailers enhance their businesses to appear irresistible with ambient music and designer scents – all to put shoppers in the mood for spending money.

Rescue yourself by…
Take control of your financial future and put a portion of your regular income into savings and investments so it’s not all lost through the temptation of impulse shopping.

Sin: Envy

Don’t hold a vendetta, do something about your financial situation if you’re not happy with it.

Rescue yourself by …
Consider an investment plan that works for your short, medium and long term goals.

Be your own fairy Godmother

It’s never too late to rescue yourself and take control of your financial destiny. Your financial planner (hint! hint! ) can provide straightforward and transparent financial advice by helping you with your current situation and implementing a plan to meet your needs in every stage of your life. 

Source | MLC