When we see a Retire Right client for the first time, often the most important question on their mind is “Have I got enough money to Retire?” Clearly becoming “Financially Free” is a critical component to a successful retirement but in our view it is only half the challenge.

Although the amount of money you have in retirement can determine the lifestyle you enjoy, an equally as important question is “What are you retiring to?”

We all understand what we’re retiring from, the 5 day 9 – 5 working work week (or maybe more), the early wake-ups and binge coffee drinking to get us through the day, the stress of work deadlines and the continual pile of work that magically appears on our desk day to day. When thinking of that, retirement seems like a dream come true, who wouldn’t want to retire?

But often a common occurrence is for people to struggle after the initial elation associated with having what seems to be a long holiday subsides. After longing for retirement for potentially up to 40 years there’s suddenly no routine, you’re now free 7 days a weeks, and there’s only so much Golf you can play, Netflix you can watch and you can’t mow the lawns or trims the hedges every day.

To quote a client, “my family knew I was battling when I stained the deck for a second time in 12 months”.

For many there is not only the battle of filling in your time, there is also the challenges associated with a sense of purpose and value. Once again for over 30 years peoples work has given them a sense of purpose in life and they have been valued, but in an instance this stop. The challenge is to replace work with activities that you enjoy and give you the same purpose.

Another often overlooked component of Retirement which we wrote about in our CPE article was the “Retired Husband Syndrome” and this is another challenge for many couples, particularly when one partner has developed their own social network and weekly routine while the other has been at work for the past 30 odd years.

Jenny is often heard telling clients that her mother told her father early on in his retirement “that she married him for better or for worse, but not for lunch”. Being around your partner 24/7 can often be a challenge for a couple until they form their own individual routine and activities.

These “non-financial” challenges often rear their heads 3, 6, 12 or 24 months down the track so in our view it is as critical to put strategies in place to overcome these challenges early to ensure that you are prepared, just like the strategies you put in place to overcome the financial challenges of Retirement.

Retirement can be the most exciting period of your life, for some they take it as an opportunity to take-up hobbies that they’ve put aside during their working life, learn something new like a second language, or even take a chance to try something they thought they never would or didn’t think they’d have the time too. You now have 7 days a week to do with what you will, and from our experiences, we find clients transition the best into retirement when they have a pre-determined view of what their retirement will look like. Clients who decide to “wing it” once work stops, generally find the transition much harder. In many instances those who have successfully transitioned into retirement are busier in retirement than they have ever been.

Thinking about retirement can be very daunting, and for most it all revolves around that question “Have I go enough money to Retire?” Our experience as a Retirement Coach for our clients highlights that this question isn’t what is most important, but instead mapping out your ideal retirement looks like, is the most critical, the rest just tends to follow.

So the challenge we throw out is to ask if you were to look back at yourself 20 years after retiring, what would have had to have happened for you to sit back and say that the last 20 years of my retirement has been fantastic!

– Warren Hanna –

Most of us can only dream about leaving our work forever to do as we please. For those who are close to retirement however, this can be a time of excitement and relaxation. Spending countless days at the golf course or with our community groups, families and friends sounds like heaven on earth. The transition from full time work to full time play however may have some unforeseen pitfalls. Here are 5 facts about retirement that you should consider before retiring.

Time
One of the first things retirees quickly discover is that they have too much time on their hands with nothing to do. Playing a round of golf with mates or enjoying a drink at the bar will only fill up a certain amount of time in the day and you can’t go doing the same thing every day. Retired couples and singles alike will quickly become very unhappy once they run out of things to do.

Having ideas in your head about what to do in retirement is one thing; however actually doing them is another. Some experts are suggesting retirees have a day to day plan on what they want to do and even seek an adviser leading up to retirement. You will never be as busy as you were pre-retirement so it’s important to map out ongoing hobbies, part time work and social events before embarking on retirement.

Retired husband syndrome
Many couples get very excited about retiring together, travelling the world together and spending a lot of time together. If this is you then consider the fact that you and your other half may have been together for the past 30 years working full time. Aside from weekends and holidays, you never have to see each other for more than a couple of hours in the morning and night. Now all of a sudden you see each other 24 / 7 and may even start to discover that you can’t stand being together for a prolonged period of time. Determining your own hobbies, goals and friends will assist to avoid “retired husband syndrome’. Again, seeking help from an adviser may also assist in preparing you and your loving partner for retirement.

Not having enough money to fund retirement
Once retired you might have the goal to travel, see the world and complete your bucket list, unfortunately you might not have the funds to do so. Travelling can become very costly. A single international trip can set you back several thousand dollars if not more. By the time your second trip comes around you may find that your retirement funds are not adequate and you’ll need to start tightening the belt. Having a good financial planner early on can prepare you and set realistic goals for your retirement. This way you will have a clear expectation of what you can afford in retirement and prevent any nasty surprises once you’ve retired.

Entitlement to social security
At the moment the Australian pension age is age 65.5 and increasing with each year. During retirement some retirees aren’t aware of what social security benefits they’re entitled to. Even if you are receiving funds from your Superannuation benefits, you may still be entitled to a government age pension (subject to the income and asset tests). Having a good financial adviser by your side will ensure you’re kept up to date regarding any social security payments you’re entitled to.

Losing your identity from not being at work
For those of us who are passionate about our profession, this becomes our identity. Anytime your friends or family think of Engineer, Accountant or Doctor, they think of you. So it’s no surprise that once you retire you may feel like you’ve lost your identity, which may lead to discontent and even depression. Without the daily interaction of your work colleagues your mental and even physical health may start to deteriorate. Retirees who are not very active tend to decline rather quickly mentally and physically. Joining up to the local gym, taking up classes and just continuing to meet new people will have a longer lasting effect for you.

Financial independence gives you the freedom to make your own choices, speak to the team at JBS to start your retirement journey today.

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Over the next few years the age at which you can begin to start receiving the Age Pension will gradually increase from age 65 to age 67 (depending on your birthdate), with most people now having to be 65 and a half before they can access the Age Pension. Every time the Age Pension age increases or there’s talk of it increasing, you’ll hear all over the media people who now can’t retire because they have to wait a few more years before they can access the Age Pension.

Unfortunately for some, the Age Pension will be critical to fund their retirement, but the Age Pension age doesn’t need to be your Retirement Age. There’s a few things you can do to help reduce your reliance on the Age Pension and retire when you want to retire, our motto is that we’d rather you be working because you want to, not because you have to.

Super Contributions – Your employer pays 9.50% of your wage into Super as a Super Guarantee Contribution (SGC), but if your cash flow allows for it, you can top that up through a Salary Sacrifice arrangement or making Personal Concessional Contributions, up to an annual cap of $25,000 (which includes your SGC). This allows you to boost your Super Savings while at the same time helping you save tax personally.

You also have the opportunity to put up to $100,000 in as a Non-Concessional (After-Tax) Contribution and even up to $300,000 utilising the bring-forward rule in one year (if you haven’t made large contributions previously). Depending on your Super Fund, this can be a transfer of any cash you may have or even other assets such as shares. Remember that the new $1.6mil balance rules need to be taken into consideration.

Depending on your income, if you make a Non-Concessional Contribution the government may give you a Government Co-Contribution up to $500 on a $1,000 contribution (you can contribute more, but the co-contribution is based on a maximum $1,000). If your income is below $36,813 for FY18 you will receive the full $500 Co-Contribution, and you will receive a pro-rata amount if your income is above $36,813 but below $51,813.

Consolidate your Super – For some you may have multiple Super accounts, each time you start a new job your employer may start a new Super Fund for you if you haven’t given them the details of your existing Super Fund. If you’ve got multiple Super accounts it may be worth consolidating them into the one account which may help to reduce the total fees you’re paying on your Super accounts. However, you need to be careful that when you rollover any Super into another account you will lose any insurance you may hold.

Review your Insurance – Most Super accounts come with default insurance cover, and insurance is a very powerful tool to protect you and your family in case something happens to you. For those later in life, who are empty nesters, paid off the mortgage and are close to retirement, your need for cover may not be as important as someone who’s just starting a family and recently taken on a mortgage. Although insurance may be needed, it is always worth reviewing it on a regular basis to ensure your level of cover is appropriate and you’re paying for what you need, as the premiums come out of your Super balance. In some circumstances it may also be worthwhile holding some of your insurance cover outside Super.

JBS can help provide a full review of your Superannuation and Insurance and help you put strategies in place to ensure that you’re working because you want to, not because you have to. We’d rather you work towards your Retirement Age.

– Peter Folk –

As 30 June is only a week away, please ensure that you have addressed all of your end of year tax planning including making any super contributions and pension payments. Below are ten strategies to help make the most of your FY18 tax planning.

If you need some advice, please call one of the friendly at JBS team, we’re only too happy to help.

1. Claim up to $20,000 per asset as a tax deduction

If you are self-employed or have a small business with an aggregate annual turnover of less than $10 million, you may be able to immediately deduct the cost of a depreciating asset that you purchase for less than $20,000. In order to access the deduction, the asset must be income producing for your business, purchased between 7:30PM on 12 May 2015 and 30 June 2018, and installed and ready for use before the end of the financial year. There is no limit to the number of eligible purchases that can be claimed.

2. Review your portfolio for tax efficiency

Investors should review their portfolios and clean up those loose ends. If you have carried forward losses, these can be offset against capital gains to minimise tax payable. Be aware that the Australian Tax Office (ATO) has issued warnings against wash sales, which is where an asset is sold and repurchased with the intention of minimising tax payable. Ensure transactions are investment driven, not tax driven.

3. Claim a deduction of up to $25,000 for personal contributions to super

Before 1 July 2017, you could only claim a tax deduction for making a before-tax contribution to your super if you earned less than 10% of your income from salary and wages. Now, employees can enjoy a potential tax deduction too.

By making a before-tax contribution into your super, you could boost your retirement nest-egg, and by claiming a tax deduction, you could reduce your taxable income.

The super contribution is generally taxed at 15%, not your marginal tax rate, which could be up to 47% (including the Medicare levy). Note that higher income earners (with income from certain sources above $250,000 in FY18) may have to pay an additional 15% tax on concessional contributions.

This strategy could suit you if your employer doesn’t allow you to salary sacrifice or if you’d rather not salary sacrifice because it reduces other employee entitlements, such as Super Guarantee Contributions. Even if you are salary sacrificing, you might use this strategy to contribute the full amount of concessional contributions, if your current salary sacrifice agreement, together with any additional employer contributions before 30 June won’t quite get you there. The cap for FY18 is $25,000.

Finally, you’ll need to meet the work test if you’re 65 and over, and you wish to use this strategy, and everyone will need to ensure they submit the correct paperwork in order to claim the deduction. As this is the first year this strategy is available, regardless of your employment arrangements, it is advisable you speak to your super fund and your accountant or financial planner to ensure you optimise your contribution and follow the correct process.

4. Make a spouse contribution – new higher income limits for receiving spouses

If your spouse earns under $40,000 each year, their super could probably benefit from a top up. If you contribute to their super, you may receive an offset of up to $540 in your tax return.

Before 1 July 2017, this tax offset was only available to couples where the spouse earned less than $13,800 per annum. With the threshold increased to $40,000, more people will be able to help increase their spouse’s retirement savings while potentially improving their own tax position.

5. Non-Concessional (After-Tax) Contributions

You have the option of making after-tax (non-concessional) contributions into Super up to an amount of $100,000. If you’re eligible you can utilise the “bring-forward” rule and effectively contribute up to $300,000 in the one financial year as long as you haven’t triggered this rule in the prior two financial years. If you do trigger the “bring-forward” rule you won’t be able to make further non-concessional contributions for the next two financial years.

You also need to be careful of your total Super Balance, if you’re nearing $1.6 million or over, you may be restricted to the amount you can contribute. If you’re unsure it is best to speak to your Super Fund or Financial Planner to determine the level you can contribute. If you’re over 65 years’ of age you will need to meet the work-test to be able to make the contributions, and you can’t utilise the “bring-forward” rule.

6. Receive a co-contribution by making a personal super contribution

If you earn less than $51,813 in FY18 (before tax), of which at least 10% is from eligible employment or self-employment, you could receive a super top up from the Government when you make a personal after-tax contribution to your fund.

If you earn less than or equal to $36,813, you could contribute $1,000 to super and receive the maximum co-contribution of $500 (based on 50c from the government for every $1 you contribute). The amount of the co-contribution reduces as your earnings increase and cuts out entirely at $51,813. To receive the co-contribution, you will need to meet certain conditions, including a requirement to lodge a tax return for the year and be under 71 years of age at the end of the financial year.

If you are thinking of helping your child or grandchild build wealth for their future, you could assist them by giving them funds that they can contribute to super in order to receive the co-contribution. This will be preserved until they retire after their preservation age or meet another condition of release, but can have a powerful compounding effect over their lifetime.

7. Prepay interest on your investment loans

When you borrow money to make an investment that will generate assessable income, you are generally entitled to a tax deduction for the interest on the money borrowed.

Towards the end of the financial year, many investors who gear into property or shares will prepay their interest for up to 12 months (with the 12-month period ending before 30 June next year). Doing so will allow you to lock in the interest rate you pay for next financial year and will bring forward your tax deduction to this financial year if you are a small business entity or an individual incurring non-business expenditure.

8. Prepay your income protection insurance premium

If you have, or are considering, income protection insurance, you could claim your premium as a tax deduction. If you choose to pre-pay your premiums for the next 12 months and that 12-month period ends before 30 June next year, you can bring forward a tax deduction from next year to the current year. As many Australians are under-insured, this can be a great way to protect yourself, your family and your business, while managing your tax.

9. Ensure you take your minimum pension payment for FY18

For those whose superannuation benefits are in pension phase, it is essential that you take your minimum pension amount for FY18 to ensure your earnings remain tax-free. If you have a SMSF, consider contacting your accountant or administrator to ensure you have taken the minimum amount before 30 June.

10. Make a tax-deductible donation to charity

Finally, tax time can be a great time to think about helping others. If you donate to an eligible charity, keep your receipt and claim a deduction in your annual tax return.

Source: Cuffelinks by Gemma Dale

The Global Financial Crisis (GFC) was for the majority of us, the worst financial crisis of our lifetime. What started in 2007 with a US Subprime Mortgage collapse, developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on 15th September 2008.

These 2 years between 1 January 2007 and 31 December 2008 resulted in the following returns:

The figures show that what started as a mortgage and property crisis, quickly spread and impacted all growth assets (shares) across the globe with double digit negative yearly returns across the 2 years. Only the high returns from the defensive fixed interest assets could have possibly saved you from disastrous returns across your entire portfolio. Diversification across all asset classes, and having a portion of your funds in defensive assets was crucial during this time period.

It’s important to remember however that just before the GFC, growth markets had been booming for years and by having a lot of funds in defensive assets during this time would have resulted in lower returns. If you were to base your investments on the recent past performance, when the GFC hit you would have been overweight in growth assets and suffered the full effect of the GFC.

In the ten years since the GFC it’s been quite a different story

The figures show that no matter the asset class, by staying invested throughout the GFC, you would have not only recovered your losses, you would have a positive return on all asset classes.

If we look at the returns based from the end of December 2008, growth assets have grown substantially once again showing that relying on the recent short term past performance would have resulted in poor returns as you would have allocated less money towards the growth assets due to their disastrous GFC performance and more towards the defensive assets.

The GFC was not the first big market downturn that we’ve had and it won’t be the last. It’s often hard during these times to ignore emotions and stay the course with your investments. When things are going well we tend to become overconfident and take on more risk (increased growth assets) than what we should. In contrast, when things are going badly, we tend to become pessimistic and be too cautious (not investing enough in growth assets).

Having a financial adviser by your side during these times can help guide you through the tough times. They can help you keep your emotions out of investing, have you stick to the plan, and ensure that you reach your financial goals. Remaining disciplined is the key.

To speak to a financial adviser to help you avoid making wrong decisions during emotional times, call JBS Financial Strategists on 03 8677 0688.

– Liam Rutty –

In a previous article we briefly touched on funding Aged Care through entering an Aged Care Home. One of the potential lesser known options when it comes to Aged Care is Home Care Packages. The Australian Government’s Home Care Package is aimed at helping you live in your own home for as long as you can, and in the recent 2018 Federal Budget the Government has announced further funding to help increase the availability of the Home Care packages.

In relation to Home Care packages, there are four levels that provide a range of different needs, and ranges from Basic to High-Level care needs. Some of the services provided are:

– Personal services such as bathing, dressing and communication

– Nutrition, hydration, meal preparation and diet, effectively helping with the preparation of meals and special diets where needed

– Transport and personal assistance such as with shopping, visiting health practitioners and attending social activities

– And a whole range more of different services

The five steps to accessing a home care package are:

1.  Confirming your eligibility to receive a home care package

2.  Researching home care providers and work out the costs

3.   Assignment of a home care package

4.  Entering into a home care package with your preferred provider

5.  Start receiving home care services and manage your services as your needs change

Aside from being able to remain in your own home, the other main benefit of a Home Care Package is the relatively low cost of the service when compared to going into an Aged Care Home. In relation to a Home Care Package, you may be asked to pay two types of fees for these services:

– A Basic Daily Fee, and

– An Income-Test Care Fee

The level of care you need and the amount you’re asked to pay is determined by the Department of Human Services (DHS).

The Basic Daily Fee is worked out as 17.50% of the single person rate of the Age Pension ($10.32 per day or $144.48 per fortnight). Depending on your income, you may then be asked to pay an income-tested care fee, which is in addition to the basic daily fee. The maximum you will be asked to pay for an income-tested fee is:

– $14.81 per day or $5,392.91 per year if your income is below $51,563.20 (as at 20th March 2018), or

– $29.63 per day or $10,785.85 per year for people with income above $51,563.20 (as at 20th of March 2018

Both the basic daily fee and income-tested fee index on the 20th of March and September each year.

Another thing to consider is that each provider of home care packages may charge different administration fees and may even charge exit fees if you change providers (such as due to moving home). These costs are in addition to the costs above, and are something that needs to be considered when selecting a provider.

Here at JBS we can help you estimate your costs in relation to taking on a Home Care Package and can help you compare the costs of different Home Care providers.

– Peter Folk –

On Tuesday 8th May 2018 the Treasurer, Scott Morrison, released the Government’s 2018 Budget.

This newsletter outlines the proposals contained in last night’s budget. We ask that you read through the proposed changes as they may directly impact your situation.

The key take outs of the 2018 Budget were as follows:

– The maximum number of members allowable in a Self Managed Superannuation Fund (SMSF) will be increased from 4 to 6

– Those running a SMSF with good record keeping and compliance history may move to a three-yearly audit cycle

– The ability to contribute to superannuation after age 65 without meeting the work test

– Income tax cuts will be delivered over a 7 year period through a combination of tax rate threshold changes and tax offsets

– For working age pensioners, the Pension Work Bonus will be increased

These changes may be significant to your situation and may warrant further discussion. Feel free to contact our office to discuss any of the proposals in further detail.

JBS Views & Planning Opportunities

The one guarantee in our profession is change and once again this reiterates the importance of obtaining ongoing advice and continuing to review your situation to ensure that you are structured appropriately and are positioned well for the future. Here are some things to consider:

– It may be advantageous for those with a SMSF to increase their members up to 6 for intergenerational wealth transfer purposes

– Income tax cuts may increase your surplus income and therefore an opportune time to decide how to best allocate these expected additional funds

– If you are over 65 and not working, you could consider boosting your superannuation assets upon meeting certain requirements

As always prior to making any significant financial changes, please give Jenny, Warren or Glenn a call, or even if you just like to discuss how the budget might affect you personally.

Please click here for a full detailed report on the above and other changes as announced.

Please Note: The measures outlined in the Federal Budget are proposals only and may or may not be made law and will depend on the outcome of the upcoming election.

An article on moneymag.com.au cited that “retirees with modest savings can be better off than those with more than twice as much”. The argument was that due to the new age pension rules introduced in January 2017, there was a ‘sweet spot’ where the income from the age pension and the return from your pension savings would be equal to the income received by someone with more savings who would not qualify for the age pension.

The below table sets out the results.

The assumption was that you would take the minimum amount from your pension account and combine it with your age pension entitlement. As you can see a couple with $1,050,000 will have the same amount of income as a couple with $400,000. What the analysis conveniently doesn’t include however is the capital value. It also only looked at 1 year and did not take into account what would happen in future years.

From a very simplistic view, lets assume that no capital is being drawn in either scenario and hence the capital values remain the same. This means that when the retirees die, they will have $605,000 more money available to pass onto their beneficiaries than in the scenario where the couple only has $400,000. Yes, the income is the same but the actual wealth is way different.

A second and more complicated scenario outlining how the person with more money is in fact way better off is if the capital is drawn down. Let’s assume an extra $10,000 per year, with an earnings rate within the pension account of a modest 5%.

The below table sets out the results.

In the above example, the person with $1,050,000 has a significantly higher regular income over time due to the higher amount of capital available to them and the requirement to draw down an increased minimum amount from their pension accounts as they get older.

The above graph also shows that even with the increased withdrawals, in this particular scenario you will still have considerably more assets throughout your life that you can also draw down on if you need to. Not only that but you need to remember that even if you do not qualify for any age pension at the start of your retirement, as your assets decrease over time you may end up qualifying for the age pension later on in retirement.

In fairness to the author of the original article, it was probably designed to indicate that in order to have a ‘comfortable’ retirement, due to the age pension, you can get by on a smaller pension savings balance. To suggest however that “retirees with modest savings can be better off than those with more than twice as much” is just plain wrong and doesn’t take into account all the pieces of the puzzle.

To speak to someone about growing your retirement wealth so you can have a better lifestyle in retirement speak to one of our advisers at JBS Financial Strategists.

– Liam Rutty –

As the baby boomers of Australia are now entering retirement, the topic of longevity risk within superannuation has become increasingly important. The longevity risk of superannuation refers to the risk of retirees running out of money in their super account before they die.

Contrary to the common thought of Aussies using up their entire super benefits earlier on, close to 50% of retirees draw down the minimum amounts from their super accounts, in an attempt to protect themselves against longevity risk. Whilst there are still a portion of retirees drawing down unsustainable amounts from their retirement benefits each year, it’s crucial to get the right balance in order to have a comfortable retirement. Furthermore understanding and managing the longevity risks in super can be the difference between having enough in retirement and running short.

There are 3 components of longevity risk which are;

Mortality Risk – This risk is associated with the chance of death along a certain time frame. With medical and technological advancements, the average life span of Aussies continue to increase each year, which means our super benefits need to also last that extra distance.

Volatility and Sequencing Risks – Volatility risk relates to the chance of suffering losses in our super funds due to volatility in the financial markets. Whilst sequencing risk is associated with the order of returns, which results in the retiree with less money due to losses suffered in the initial stages of retirement. Take for example the following table, which shows Tony and Mark, both starting off their retirement with $500,000 in super and drawing an annual income for $43,695 per annum (Association of Superannuaton Funds of Australia’s standard for comfortable retirement), from their retirement benefits.

As shown in the above table, over a 9 year period with an average return of 8%, we can see Tony is in a better position as his super fund performed really well early on in his retirement. Whereas Mark suffered poor performance early on in his retirement, which affects the balance of his retirements benefits in future years.

Expenses Risk – This risk is associated with the expenses depleting retirees super benefits early on in their retirement. Aside from the travelling and discretionary spending one type of expense that is commonly missed is medical and personal care expenses. Tied to morality risk, being able to live longer with the help of modern medicine and technology often doesn’t come cheap or free. As such taking into account medical and carer expenses, is crucial.

Ensuring sufficient super benefits in retirement can be very daunting, especially considering all the risks associated with longevity. There are however professionals such as financial advisers, who can assist in making the journey much smoother. Aside from being able to assist clients in reaching their retirement goals, an adviser can also help in determining an optimal amount to withdraw from super each year so their clients get a well-balanced retirement life.

– Andy Lay –

It’s all the same but it’s different!

As we plan strategy for our clients each day to ensure they achieve the financial freedom they hope for, we also plan for making JBS Financial Strategists a stronger, better business ready to embrace the future.

To ensure that we can continue to provide that same support but also to allow us to evolve; we are thrilled to announce that Warren Hanna, Senior Financial Adviser, has now joined the partnership team with Jenny Brown. This is not only in recognition of the time and energy that Warren has committed to JBS over the years but it is also his vision and support for the future of JBS Financial that is important as well.

Congratulations Jenny and Warren on the next step in JBS Financial and we look forward to seeing what the next stage of the business will be.

Here’s a special message from Jenny and Warren to share with you!