Tag Archives: Financial Planning

Celebrate your family’s financial security

Towards the end of each year we always focus a lot on celebrating Christmas and New Years, however there’s something else we could also celebrate post-Christmas. We’re talking about celebrating your family’s financial security by having personal insurance in place. Having personal insurance cover in place means you and your family won’t have to deal with financial stress in the event of you being unable to earn an income or even passing away. Ideally all your personal insurance covers should be in place prior to the “Silly Season”, however if you haven’t done so already the new year is a perfect time to review your insurance needs.


With all the festivities and celebrations over and done with, for most of us it’s now time to pick up the pieces and start the New Year a fresh, which is a perfect time to review your personal insurance needs. Research from one of Australia’s largest personal insurance companies have found that only 37% of Aussies aged between 18-69 actually have life insurance and even more disturbingly only 18% have disability cover and income protection insurance. Further findings include how Australians are grossly underinsured. It’s estimated that the underinsurance gap in Australia is approximately $1.8 Billion, meaning there are a lot of Aussies out there who believe they have sufficient insurance cover, but in fact don’t. For most of us, we don’t like to think about insurance and when asked about how much we have, the first response is usually “I don’t know”.


So we come to a point where you should ask yourself, do you need personal insurance? The main reason you would put in place insurance cover, is to secure your family’s financial wellbeing. So if you have a mortgage, loans, kids etc… chances are you will need personal insurance. The question you have to ask yourself is, “if I’m unable to earn an income tomorrow, what would happen”? Then for those of you that already have some form of insurance cover in place, the question you should ask is “how do I know the level of insurance I already have in place now is adequate?” The short answer is to seek professional advice.


Whether you don’t have any insurance at all or looking to review your insurance needs, the best thing to do is see someone who is a professional in the area. Financial Planning firms such as JBS Financial Strategists will be able to determine what your insurance needs are and then formulate a strategy to ensure you have the correct and adequate cover in place. So as a new year’s resolution, do yourself a favour by ensuring you have adequate cover in place so you’ve got something else to celebrate about (your family’s financial security).


– Andy Lay –

Ins & Outs of Aged Care

It’s hard to be passionate about Aged Care and in fact a lot of the time it’s very overwhelming and daunting, and can be a very emotional time for the family when they have to move a loved one into care.


Often one of the biggest questions is how do we fund it!? Especially when it comes to paying the Refundable Accommodation Deposit (RAD), with most people then stressing over what to do with the family home? Add onto that the fact it can be something that could be time critical, and selling a home isn’t something that can be done overnight.


The good thing is that this isn’t the only option you have. Although most Aged Care providers will probably try to make you pay a RAD, you actually don’t have to straight away. In actual fact you have 28 days from the date you enter Aged Care to make a decision on whether or not you have to pay a full or partial RAD, or if you want, you could even pay a Daily Accommodation Payment (DAP) or a combination of both.


If you elect to pay a DAP at a later time you can then decide to pay a RAD, but it doesn’t happen the other way around, so if you select RAD as your payment, unfortunately you’re stuck on this option. If selling the family home is the only viable financial option, by selecting a DAP you have the flexibility to not rush to sell the home and can instead pay the DAP up until the home is sold and when you can afford to pay the RAD.


However, the DAP isn’t necessarily cheap either, it’s normally worked out based on what RAD you are required to pay to secure a room. For instance, if the RAD is $450,000 and the current Maximum Permissible Interest Rate (MPIR) is 5.73%, then your DAP is $70.64 per day ($450,000 x 5.73%) / 365. If you pay a part RAD then you’re also required to pay a part DAP, and an option you have is to have the DAP deducted from the RAD to help ease cash flow.


Now you can see why it’s hard to be passionate about Aged Care, you have RAD’s, DAP’s, MPIR’s, and a whole lot of other acronyms that are hard to get excited about, and we haven’t even gone into all the fees yet, yikes!


Here at JBS we are passionate about helping our clients through every stage of their life including assisting their loved ones make decisions around Aged Care. When the time comes, rather than stressing about what to do, pick up the phone and talk to JBS. We can help assess what the best option is for you or your loved one and help you put in place a strategy to help fund Aged Care, and where possible help to reduce the impact of the fees.


– Peter Folk –

Pension Changes Means Reduced Tax Savings

Rule changes occur regularly with the Government in power tweaking legislation to make it fairer for all and ensure that the Government isn’t relied upon to fund everyone’s retirement through the Age Pension. This balancing act means that the strategy you implemented last year may no longer be beneficial for you or worse, not allowed. One change that is due to take effect from 1 July 2017 is the change of the tax treatment for Transition to Retirement pensions.


Transition to Retirement (TTR) pensions were introduced back in 2005 to allow those people that were easing into retirement by dropping their working hours to supplement their wages with an income from their super balance. However, while this was very useful for those in retirement transition, it also proved to be a powerful financial planning strategy, recycling funds through the super system to achieve the same take home pay however a reduced tax liability, meaning more funds are held in your superannuation account building for your eventual retirement. The Government and ATO knew of this strategy however as it was within the bounds of the laws in place, it has been accepted for use.


It does seem, however, that the Government now understands the additional tax that could be found and has implemented changes to take effect 1 July 2017 to make a TTR pension lose its tax-free status. This means that a TTR pension will have the same tax treatment as if it was in a superannuation account (15% tax rate). For those in the retirement transition space, it probably won’t change much as they need to subsidise their income and if the money wasn’t held in pension, it would be subject to the 15% super tax rate anyway. For those who have employed a TTR strategy to reduce tax, the tax savings will be reduced.


The strategy may still be beneficial, especially if you are able to achieve a significant salary sacrifice contribution from a higher income, however the tax savings will drop as the pension fund will now be subject to the 15% tax rate also.





* For the purposes of this simplistic calculation, ‘Tax on Pension Investment’ is the 15% tax on investment income earned (4%) while money is held in a TTR pension. If assets were sold during the year, CGT would also be payable, making it again less tax effective. As this individual is under age 60, pension income is taxable.


Some clients situations allow them to maintain a tax-free pension or become eligible to establish one in the future. For this reason it is critical that all TTR strategies are reviewed prior to 30th of June 2017 as the new rules may not be applicable to you.


While you need to be making an appointment with your Financial Adviser to discuss the changes and determine if there’s still a benefit for you to continue with your TTR, more than anything this should highlight the need to have an ongoing relationship with a financial planner. Make sure you take up every opportunity to have a regular review of your financial plan, your objectives, determine if you are on track to reaching your goals and determine if the strategies in place are still appropriate. Your situation may not have changed but legislation may have.

Worst Time To Invest

What if you only invested at market peaks?


Have you ever noticed that as soon as you buy an investment it tends to drop in value? Whilst this doesn’t really always happen, it just tends to be the investments we remember, what if it did happen? Even worse, what if it dropped by epic proportions?



Meet Tim who is the worst market timer that has ever existed. What follows is Tim’s tale of terrible timing of his stock purchases.


Tim, fresh out of school, begins his career in 1970 at age 18. He understands the importance of investing and saving for the future and therefore decides to start allocating $2,000 per year into a savings account. It’s now the end of 1972 and he has saved up $6,000. Into the stock market it goes. Unfortunately for Tim, after watching the stock market go up and up over the last two years, over the next two years it drops 48%. Tim loses a bit of confidence in the market and while he doesn’t sell, he continues to save up his money in a bank account waiting for things to improve.


15 years later and Tim decides that now is the right time to put more money into the market. It has been going up for years and he sees no reason why it won’t continue. He invests his entire $46,000 into the market. After a small decrease the market then drops suddenly on the 19th of October dropping a whopping 27% in one day. Tim’s had enough, no more putting money into the market. He leaves what is already in there as what’s the point in selling now and goes back to saving in his bank account.


After ignoring the market for 12 more years Tim can’t avoid people talking about the internet. Everyone is making money from the internet. Unfortunately Tim knows very little about the internet but the media informs him that there are plenty of companies on the stock market that do. He takes his $68,000 that he has in the bank and jumps in but this time decides to not even look at the market for the next two years. 2 years later he checks his investment and it have once again decreased by 50%.


It’s 2007 and Tim is now 55. He’s looking to retire in 2013 and decides he’s going to have one last dig at this share market thing. He’s managed to save up $64,000 and into the market it goes. Little does Tim know that once again he’s picked a terrible time to invest, the GFC is about to commence with losses of over 50%.


That’s it, no more investing for Tim…..ever! Once again he leaves the funds in the market but saves up another $40,000 in cash before he retires. So what did he end up with at retirement?


Over his working life Tim has managed to invest $184,000 saving an additional $40,000 over the last few years in cash giving a total investment amount of $224,000. Sure he picked the absolute worst times to invest including the bear market in the early 70’s, the infamous one day crash in 87, the technology bust in 2000 and the GFC in 2007. But he never went back on his investment decisions; he never sold any investments.




Tim ended up with a total retirement balance of $1.1 million. While Tim was a terrible market timer, he was a good investor. He saved a regular amount on a regular basis no matter what. He didn’t panic when the market went down and sold his investment. Instead he maintained his investments until he needed the money. Finally, he invested for the long term and even though he pretty much picked the top of the market each time to put the money in, over time the market continued to go up in value, even if he had to wait a little while after the big falls for it to recover, it always did recover and then go on to meet a new high.


We are not recommending anyone follow Tim’s strategy. He didn’t include diversification in his investment product options and if he would have implemented a dollar cost averaging strategy where he contributed his savings amount each year no matter what, he would have ended up with over twice as much.


This is based on a study in the US, given US market investments however Australian markets felt the same crashes and still illustrates the importance of standing strong with your investment decisions. Time in the market is more important than timing the market.


So what can we take out of Tim’s fictional experience?

1.    Losses happen and are part of the deal when investing in the share market. It’s how you react to those losses that will determine your investment performance over time.
2.    Invest for the long term and let compound interest work for you.
3.    The biggest factors when determining growing your wealth are time, and savings amount. The effect of the actual returns the investments generate on your portfolio pale in comparison to how much money you contribute and how long you invest. Get these two things right, and the rest will follow.


If you are thinking about investing or want to learn more about how you can start your investment portfolio, contact one of the advisers at JBS.

Non-Concessional Contribution Changes

In our last CPE article we talked about the recent changes the government has made to the previously proposed non-concessional contribution life-time cap of $500,000.  To re-cap, the Government has back tracked on this proposal and has instead changed it to an annual cap of $100,000, with the ability to bring-forward 3 years’ worth of contributions from 1 July 2017. Your super balance must also be below $1.6 million to be able to make the contributions.


Since then the government has provided further direction on how the proposed bring forward rule and the $1.6 million cap will work.


Under current rules you can make a total of $180,000 in one year or $540,000 if you bring-forward 3 years’ worth of contributions. If you as an individual have triggered the bring-forward rule in FY16 and FY17, but you have not used it fully by 30 June 2017, transitional rules will apply.


If you trigger the bring-forward provisions in FY17, the transitional cap will be $380,000 (which is the current $180,000 cap plus the new $100,000 annual cap for FY18 and FY19). If you triggered the bring-forward rule in FY16, the transitional cap is $460,000 (current annual cap of $180,000 for FY16 and FY17, plus the $100,000 for FY18).


The below table provides an example of how this may work in specific situations, with example one and two outlining how the $380,000 bring-forward cap may work, and example three highlighting how the $460,000 cap works with the example contributions:


In relation to the $1.6 million eligibility threshold, you are unable to make further non-concessional contributions if your super account is above $1.6 million.  Your balance will be determined as at the 30th of June in the previous financial year.  If your balance is close to $1.6 million, you can only make a contribution or use the bring-forward rule to bring your balance up to $1.6 million without going over, this is summarised below.


As always these measures are not yet legislated and therefore could change yet again.  The draft legislation is expected in the next few weeks.


If you have made any non-concessional contributions in the previous three financial years and are concerned how this may affect you and your future contributions, feel free to contact any of the team here at JBS.

And Yet More Change

Last week, the Government made further announcements in relation to proposed changes to the superannuation system. From Budget night, we had a list of changes that they sort to bring in, however, after industry and community consultation, the Government have made changes to these proposed changes….confused yet?



Ok, well some of the main changes include:

–  The $500,000 lifetime cap on Non-Concessional (NCC) (after tax) Contributions has effectively been scrapped.

–  The $100,000 annual cap replaces the existing $180,000 annual cap for Non-Concessional (after tax) Contributions from 1 July 2017

–  The bring forward rules still apply, so an individual under age 65 can contribute up to $300,000 over a 3-year period

–  The current work test rules still apply for those over 65. This means they cannot contribute, unless working at least 40 hours in a 30 consecutive day period. The removal of the work test proposal has been scrapped until future notice

–  It is expected that the current $180,000 NCC cap still applies until 30 June 2017, meaning that you can trigger a bring forward provision in the current financial year and be able to contribute a maximum of $540,000 over the three (3) financial year period

–  From 1 July 2017, those with a superannuation balance of more than $1.6 million will not be able to make non-concessional (after tax) contributions to their super

–  The 5 year catch-up concessional contribution proposal, that would see those with a balance less than $500,000 able to access their unused concessional contribution cap to make additional before tax contributions to super, has been delayed until 1 July 2018.


The ultimate aim of the Government’s changes are two fold; (1) to avoid superannuation being used as an estate planning vehicle where people are saving their wealth in a tax free environment to pass to children rather than for retirement funding, and (2) to strengthen the idea of superannuation being a mechanism to provide an income in retirement, which includes supplementing the Age Pension.


We must note again, however, these proposals are not legislation and therefore could again change before they are enshrined into our super system, however it can assist us to forward plan your contributions and superannuation options better by providing a strong indication of what the Government is wanting to achieve.


If you are considering any large contributions to super or would like to discuss your personal situation and what these changes could mean for you, please contact us here at JBS.

Costs of Living in Retirement

Are you coming up to retirement? During the December 2015 quarter, the Association of Superannuation Funds of Australia (ASFA) issued new figures, which showed an increase in the costs of retirement. The average cost of retirement for people retiring at age 65 is approximately $59,236 per annum for couples and $43,184 for singles for a ‘comfortable standard of living’, both up 0.5% from the previous quarter.


Senior Couple Calculating CoinsSo then the question is raised, how much money do you need when you retire? It seems to be the age old question. Based on the figures released by ASFA, an average single retiree would require approximately $545,000 in super benefits in order to fund their retirement and couples would require around $645,000. But what do all these numbers mean to you and your retirement? Well, really all these numbers are just that, ‘numbers’. It’s important to understand that a comfortable lifestyle for one person may not be the same for the next.  Some retirees may require $100,000 per annum to live comfortably and others may only require $30,000.  One thing that is certain however is thecost of living will go up in the future and more importantly you will have to prepare for it.


Instead of worrying about the large sums of money required to retire on, it’s more important to have an understanding of the level of income you require once you’ve retired and work out from there how much you require in order to retire comfortably, taking into account your assets and other entitlements such as the Age Pension. A good starting point to determining how much you’ll need is to take into account your current living expenses. A common mistake here is most people will use the “off the top of my head” figures to determine expected living expenses. The issue with that is, often we under and over estimate expenses, which leads to very misleading results.


At JBS, we use technology to assist us to determine the exact expenses of our clients. This results in both efficiency as clients’ spend less time having to deal with their budgets and at the same time we attain very accurate information on our client’s actual living expenses. Once you’ve determined your living expenses, the next step is to review whether certain expenditures you’re paying today will still be payable once you’ve retired. Often these expenditures include your mortgage repayments, which we all want repaid as soon as possible, and work related expenses, such as commuting costs. Once retired, there’ll be of course no need to pay the tax man for income generated from employment and savings you’ve been putting away each month for retirement will also cease. It’s important that we capture all these points in order to get an accurate figure of your expected retirement expenses.


Take this example for instance.  Say you’re a 45 year old male, you’ve done your sums and calculated you’ll require $40,000 per annum in retirement. How do you then determine the following?

–   How much do you require to put into super each year to meet your retirement goals?
–   Will your super benefits be enough to fund your retirement expenses until your life expectancy?

–   When is your life expectancy?

–   How often should you review your retirement benefits to ensure you’re on track to meeting your goals?


From what you’ve read so far, we’d imagine you’re beginning to understand the complexity in determining how much you require to retire on.  The main point we wish to highlight is that you need to take time and be realistic with your budgeted retirement expenses. Know what your money goes on now (before your retire) so you can determine if you will spend the same in retirement. Doing all this yourself can become very complex and seeking professional advice is the best way to get an accurate estimate.  Having a professional on your side means there’s someone there to assist you in achieving your retirement goals by implementing different strategies to suit your needs. And more than anything, you don’t have to worry about your retirement as you’ve outsourced that!

To Record or Not to Record

The retention of key documents is an important requirement for the trustees of self-managed super funds. In this day and age, technological advances have seen the ATO update their record-keeping requirements to allow for electronic storage.


What do trustees need to know about record-keeping?
The ATO, on its website, emphasises that it is the responsibility of the trustees to maintain records of documents in such a way that they are accurate and easy to access. This includes all tax documents and records of the super fund, especially minutes of all investment decisions ensuring that all trustees have acknowledged the decision and the reasons of the choice of investment are noted. This specifically ensures that any disputes between trustees over failed investments within the fund, should not occur since trustees cannot claim they were not involved.


What are the benefits of storing SMSF records electronically?
The ATO’s decision to allow the electronic storage of documents was primarily as a way to minimise the cost of running an SMSF, since it can potentially reduce the costs of maintaining the collection of records. Additionally, a well organised collection may help reduce the cost of any audits required.


Data storage. Laptop and file cabinet with ring binders. 3d

What are the negatives of storing SMSF records electronically?
There is a need to ensure that all documents stored electronically can be easily verified for authenticity and are easily accessible. In particular, unknown authenticity of documents held digitally may result in issues when lodging documents with the ATO. Keeping a copy of key documents without the originals may result in difficult questions regarding whether the original was destroyed for the reason other than to simply reduce paperwork. For this reason trustees should strongly consider whether to keep original copies of important documents. The loss of a trust deed, or the existence of one with questionable accuracy, for example, has potentially major implications in case of disputes between trustees, often requiring court decisions for solutions to be achieved.


For how long do documents need to be kept by trustees?
The ATO specifies the need to maintain various documents for various lengths of time.  Should any of these documents not be available within the time period then a penalty must be paid based on penalty points.


Records required to be held for at least five years:

–  Accounting records with the transactions and financial position of the SMSF (If not held, 10 penalty units must be paid)
–  Annual operating statement and an annual statement of the SMSF’s financial position (10 penalty units)
–  Copies of all SMSF annual returns
–  Copies of other statements required to be lodged with the ATO or provided to other super funds


Records required to be held for at least ten years:

–  Minutes of trustee meetings and decisions (10 penalty units)
–  Changes of trustees (10 penalty units)
–  Trustee declarations acknowledging the obligations and responsibilities for any trustee, or director of a corporate trustee, appointed after 30 June 2007 (10 penalty units)
–  Members’ written consent to be appointed as trustees
–  Copies of all reports given to members (10 penalty units)
–  Documented decisions about storage of collectables and personal-use assets


Ultimately the responsibility of retaining key SMSF records falls onto the trustees.  Should any doubts be predicted to exist over the authenticity of a document then care must be taken if making the decision to store SMSF records electronically.


If you’re receiving full service SMSF administration from JBS, you’ll be happy to note that we do all the recording of documents for you electronically, however we still keep a copy of the original documentation of key documents such as trust deeds, pension documentation and binding death benefit nominations. This allows easy access to documents for members, trustees, auditors, and the ATO. If you are running your own SMSF, make sure you adhere to all document storage requirements or alternatively, contact JBS to discuss how we can help.

Financial Agreements

Family law disputes are usually complex, often difficult to manage and generally a costly process. These days families come in all shapes and sizes and at some stage in your life you may require advice from a family law specialist. Financial agreements are a way of avoiding costly (and often stressful) family disputes.


“Pre-Nuptials” and Financial Agreements

Family Law

Financial Agreements, also colloquially known as “pre-nups”, can be useful as a risk management tool for couples seeking to document how they will divide their property if they separate at a later time. It allows a private agreement to be formalised and precludes the later involvement of the Family Court. Having such an Agreement can therefore save a significant sum of money, including the costs associated with property settlement negotiations or litigation if the couple separate. It can be compared to income protection insurance or life insurance.


Financial Agreements can be particularly useful for:


1.    Mature couples with significant assets who have been previously married or been in a previous relationship and who are now entering into a new relationship. These couples may have children from previous relationships for whom they wish to protect their future inheritances;

2.    Young couples who are likely to be gifted or inherit significant wealth from their parents;

3.    Relationships where there are significant differences between what each party is bringing into the relationship.


There must be strict compliance with the legislation and there cannot be any form of duress applied towards a party to the Agreement. The parties must have provided each other with full disclosure of their financial circumstances. Each party to the Agreement must have obtained independent legal advice before signing the Agreement. People with complex business structures need to take particular care that they consider problems under any commercial contract with third parties. They also need to seek taxation advice as to any taxation implications. It is advisable for parties to review their overall financial planning or succession planning strategy when considering entering into a Financial Agreement.”


If you require family law advice or would like to set up a financial agreement contact JBS or feel free to contact Annmarie or Emily from Farrell Family Lawyers.